Why Uber and Lyft are both rolling out loyalty programs

Say cheese.
Say cheese.
Image: Reuters/Stephen Lam
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A good thing to do ahead of an initial public offering is to gin up customer loyalty.

One way to accomplish this is with a subscription offering. Both Uber and Lyft are expected to go public in 2019, and both companies recently introduced subscription plans. Uber Ride Pass is a $14.99-a-month membership program that eliminates surge pricing (unless you live in Los Angeles, in which case it costs $24.99 a month). Lyft All Access costs $299 a month for 30 rides of up to $15 each.

Of course, another way to garner loyal consumers is with an actual loyalty program, which is what Lyft announced Nov. 12. Such a move seems like a no-brainer for any rides company that hopes users will frequent the service enough to give up their personal vehicle.

Lyft Rewards will begin rolling out next month to “select riders in various cities,” Lyft said in a release. The announcement was otherwise impressively short on details, though Lyft assures us that “getting rewarded will be easy.” Riders will earn points for every dollar spent, the company said, and “enough points” will be good for rewards like “an upgrade to Lyft Lux or savings on future rides.”

Lyft was poised to beat Uber to the punch on establishing a loyalty program, but then Uber announced one too. Uber Rewards—the names are very creative—started rolling out yesterday (Nov. 14) in nine US cities1 and is supposed to reach all US riders in the coming months.

Uber Rewards is a free opt-in program with four membership tiers—blue, gold, platinum, and diamond—that confer different benefits. The starter blue tier, for example, gives $5 back in Uber credit for every 500 points earned. The platinum tier lets riders eliminate surge pricing on a favorite route and gives priority at the airport.

Riders earn one point per dollar spent on UberPool and Eats, three points per dollar on UberBlack and UberBlack SUV, and two points per dollar on everything else (for example, UberX). Points accrue over a six-month period (e.g., January through June) and then translate to rewards starting when a points tier is reached, and continuing for the next six-month period (e.g., July through December).

Uber announced the program the same day it shared third-quarter results (paywall), which showed slowed revenue growth and a loss that widened to $1.07 billion, from $891 million in the previous quarter.

On-demand startups love dishing out promotions (“50% off weekday Lyft rides!” “$100 delivery credit on Postmates”), but they’ve done little to establish true loyalty programs, in which customers earn rewards for using the service. Uber and Lyft previously came close with rewards-generating partnerships—Uber with Visa and Lyft with JetBlue—and Uber experimented with something approximating a rewards program in 2016, but that’s about it.

The oversight is odd because rewards programs should be even more important in the rides space, which is largely commoditized. Riders tend to have little loyalty to one company or another, instead flipping between apps to see which is offering a better deal at the time of a trip. Dynamic pricing has encouraged such comparison shopping, since prices can fluctuate wildly from minute to minute, and from one service to the next.

A good loyalty program would give a rider reason to stick to a preferred service, even if another periodically offered a better deal. Ahead of an IPO, that’s just what both Uber and Lyft need.