"When it’s 20% cheaper and more reliable to use Uber X, why would you use a taxi?" Uber CEO Travis Kalanick asked from the stage of Business Insider's IGNITION 2013 conference.
Kalanick's on-demand car service company, which is currently valued at around $3.4 billion, is using a guess-and-check formula to try to conquer what he sees as the broken taxi supply chain industry.
"We’re lowering the price on Uber X everywhere. Massively. We just lowered prices in Boston by 30%," he said.
How?
Uber tests out price cuts that work for both riders and drivers. The company will announce a price drop to its customers and drivers that will last for two weeks. If, in that time, the trips per hour that drivers make outpaces the price drop, the price cut stays. If not, Uber will ditch it.
For example, Uber recently cut the cost of its cars by 28% in San Francisco, but drivers reported making 40% more trips per hour as people started using the service when they wouldn't ordinarily. Everyone is happy: Consumers pay less and drivers end up making more.
"It differs totally from city to city," Kalanick said. "You need to understand the pain points, the transportation culture and the transportation systems that exist in every city and start making some educated guesses."