Uber is cutting prices in January, but only if you live in a city where it's a win-win

Limo Company Suing Uber
Limo Company Suing Uber

Uber faces a slowdown every January, just like a retail store.

Riders have spent their money during the holidays. The social events of the season are over. It's cold in many parts of the country, so people are less likely to leave their house, explained Andrew MacDonald, Uber's regional general manager of the Midwest, South, Canada, and Latin America.

"It goes from being one of our busiest periods of the year to the slowest," MacDonald told Business Insider.

To combat the drop-off in demand, Uber plans to announce new price cuts for January to riders in more than 100 cities in the US and Canada. Of those, 80 will roll out this weekend.

"We've been at this for five years plus now," MacDonald said. "The best way to stimulate demand is through price cuts. And this works."

Uber riders in Wichita, Kansas, will see 35 percent off their UberX rides. Virginians living in Richmond will get 15 percent off. Travelers in New Jersey will see 50 percent off their UberX ride to an airport or 15 percent off for any other trip.

The lower prices boost demand and decreases the amount of downtime for Uber drivers. Riders will pay less, and drivers will earn more, MacDonald says.

Meanwhile, Uber will provide incentives and hourly guarantees in some cities to help drivers maintain or increase the amount they're making during the slower season. Since 2013, drivers' average net hourly earnings in Minneapolis have increased 90 percent. In a more-established market like Los Angeles, drivers' net hourly earnings still jumped six percent.

Not for everyone

But unlike a store that can make everything 40 percent off to juice its January sales, Uber can't give the same price cut to everyone everywhere. If you live in a market like Chicago, New York, or Boston, your prices won't drop at all.

"It could just be that you have access to really cheap Uber. Chicago is not a market in which we are cutting prices in, but it's already one of the most affordable," MacDonald says.

The other consideration: how much Uber driver partners earn. Since they're not paid an hourly wage and work on fares, a price reduction directly affects how much they take home.

Normally the increased demand would make up for it, but in the last few years, Uber has found that it doesn't work for every city.

MacDonald used the example of Charlotte, North Carolina. When Uber cut prices 40 percent last January, it didn't have a pop in demand high enough to cover the reduction in driver earnings. Instead of boosting it to 60 percent savings and trying to inflate demand at an even lower price, Uber rolled back the price cuts to 29 percent to find a balance to help both riders and drivers.

In Seattle, Uber rolled back the price cuts entirely since it had no effect on the demand for rides at all. The prices were already low enough for riders, the company judged.

"It's us trying to test the market to see how much it responds. While we're doing this, we're really cognizant of driver earnings," MacDonald says.

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