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“There’s a huge construction somewhere and that’s why I’m circling all the way around and then back up the street”, the Vegas cab driver told me as doubled back to the Marriott. He’d taken the highway all the way down to the other end of the strip, a couple of miles past the Marriot, and then driven back towards it! That seemed like a huge detour for some construction. The cost? $35. That didn’t seem to bother this particular cab driver even though my return fare was only $10!

My thoughts returned to some things that have come up quite a few times in the past: The cab compensation system just doesn’t seem quite right!

When you start any kind of business, it would make sense to set up the incentives for your employees so that they are congruent with the goals of the company and the customers. That way, the employees going after their best interest would also serve both the customer’s and the company’s best interest. However, this simply doesn’t seem to be the case with the cab compensation structure.

Assume you’re a cab driver and you just drove to the airport to wait in line for a pickup. 20 minutes later – finally, picked up a guy! Unfortunately, that guy only wants to go the next block down, yielding a measly $7. The cab behind you picked up a guy who wants to go all the way across town, at least $30-40! How would you feel if you were the cab driver? Isn’t there just a huge incentive to try to “make up the difference” a little by taking that slightly longer route?

As the customer, there is pretty much nothing you can do about it. Why go through a lot of hassle to complain about some cab driver you don’t know and would probably never see again? You simply watch him circle around a few times and then pay the fare.

And that’s kind of how things are today. Yellow cab drivers (since it’s a big company) would usually just take you the slightly longer route if they could. After all, why wouldn’t they try to get that few extra dollars? It doesn’t take that much effort and the customer probably wouldn’t notice anyway. If he did, they can just blame it on traffic delays or whatever!

This is completely opposite the needs of the consumer, who wants to get to their destination as quickly as possible for the lowest possible price! So how did things get to be like this? Why is the fare structure the way it is?

It does appear that the incentive system has been thought about somewhat though. We can see that from the initial drop charge, which is higher than the per mile charge. Maybe that’s an incentive for the driver to drop off the current passenger and pick up another asap? That way, he can make a few extra dollars of drop charge. However, it doesn’t seem like sufficient incentive most of the time. It’s generally easier to drive one customer a few miles further than to look for another one I’d think.

So… what can be done about it? What would be a better solution?

Maybe there can be a flat fee for up to 5 miles or something – like $8-10. Since consumers already pay about that much anyway, it doesn’t affect them. However, for cab drivers, there’s no reason for them to make big circles for smaller distances. Of course, it wouldn’t have helped me on my Vegas cab ride!

Well, as mentioned above, it doesn’t seem like something that’s really within a consumer’s control much of the time. There’s not much you can do in a strange town to ensure that the cab driver takes the shortest route!

Two interesting ideas come out of this.

One, it seems that the Yellow Cab brand name is worth a lot. Even though the service sucks sometimes, I do know that I won’t get murdered or robbed going into a Yellow Cab (well…). They also have more advanced equipment in general, so I know that I’ll get where I’m going. Therefore, between a Yellow Cab and a car that doesn’t look like a cab, it still seems more likely that I’ll use Yellow Cab. This is an interesting demonstration of how valuable brand name is – the other cab may even be offering a better service, but I’d still pick Yellow Cab!

On another note, America luckily has a great way to combat crappy service – competition! In San Jose alone, there are 5-6 different cab companies. Many of them such as Rainbow Cab are run by people with integrity – people who remember my name after months and months, people who take a few dollars off the fare because they took a longer route than they should have!

Who knows – if one of these smaller cab companies find a way to scale, they may very well replace the bigger ones like Yellow Cab!

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