Who's setting the prices on Gig-platforms?

The digital gig economy has revolutionized the way services are provided and consumed. Platforms like Uber, Fiverr, TaskRabbit, and many others have become integral to our daily lives. One critical question in this context is: Who should be able to set prices for these digital gigs?

Should platforms, service providers, or customers set the prices for digital platform gigs? Each approach has its advantages and drawbacks, and the decision can significantly impact the success and sustainability of the platform. In this article, we will delve into the complexities of this issue, exploring real-world examples and the associated trade-offs and challenges.

Platform-Set Prices

Many digital gig platforms, especially those in the ride-hailing and food delivery sectors like Uber and Bolt, opt for platform-set prices. This approach offers several advantages. Firstly, it allows platforms to optimize for efficiency, mainly when serving a large customer base with similar needs. For instance, platforms like DoorDash-owned Wolt use algorithmic pricing based on distance, food preparation time, and customer location to standardize the delivery process and prices.

Moreover, controlling prices enables platforms to respond swiftly to market conditions. When demand spikes, they can implement surge pricing in real-time. For example, ride-hailing platforms often increase fares during peak hours or bad weather to incentivize more drivers to get on the road. Additionally, platforms can experiment with various pricing strategies, such as personalized pricing based on customer behavior and preferences. Amazon, for instance, employs dynamic pricing algorithms that consider a customer's browsing history and location to maximize the likelihood of a purchase.

However, this approach has its challenges. When platforms dictate prices, it can create power imbalances. For instance, service providers may decline low-paying jobs or, as seen in the case of Uber drivers trying to manipulate the system to achieve higher earnings. Common tactics include 'surge chasing', where drivers head to areas with higher demand to benefit from surge pricing, and logging off simultaneously in a coordinated effort to create artificial shortages, triggering surge pricing. Some drivers also engage in 'longhauling', where they take longer routes to increase fare. While these methods can boost income, they may violate Uber's policies and can lead to penalties or account deactivation. These practices also raise ethical concerns, as they can impact customer trust and satisfaction with the Uber platform

Furthermore, a one-size-fits-all pricing model may only cater to some customers' needs. Dissatisfaction with platform-imposed rules and fees can lead to bypassing, where customers and providers take their transactions off the platform, resulting in platform leakage.

Provider-Set Prices

Platforms like Fiverr, Toptal, and Upwork are on the other end of the spectrum, where service providers can set prices. This approach is especially advantageous when customers seek specific capabilities for unique project needs. Service providers can consider their costs, the effort required, and the quality of service they can deliver when determining prices.

For instance, Malt, a European consulting and software development platform, empowers providers to set prices. This strategy allows for better monetization of skills and accommodates niche offerings, meeting the long-tail demand. This approach fosters a flexible and entrepreneurial environment on the Malt platform, where professionals can value their services based on experience, expertise, and market demand. Freelancers appreciate this autonomy as it enables them to tailor their pricing strategies to their individual circumstances and business goals. Clients also benefit from transparent pricing and a diverse range of options. However, this system demands a good understanding of market rates and personal value from providers. Overall, the feedback from Malt's community is largely positive, highlighting a sense of empowerment and control.

However, provider-set prices come with their own set of issues. Due to competition, providers may need more time to charge, resulting in decreased earnings and potentially driving away high-quality service providers. We also se that customers may need help comparing prices and finding the best value, which can lead to dissatisfaction and potential abandonment of the platform.

Customer-Set Prices

In specific scenarios, platforms like Temper, a Dutch shift-work platform, allow customers to decide the rates they are willing to pay. Temper is known for offering a platform that connects companies with a large pool of qualified workers, including in sectors like retail, logistics, construction, charity, and hospitality. The platform allows companies to quickly post vacancies and prices and choose from skilled or highly-rated applicants, while those looking for flexible jobs can find work that fits their schedule and set their rates​​. The general approach emphasizes flexibility and choice for both businesses and workers. This customer-set prices strategy is the best fit when companies have precise requirements, budgets for their needed services and a high quality rating culture that fosters service quality.

This alternative customers can set prices that align with their budget and service expectations, giving them greater control over the transaction. This flexibility can lead to higher customer satisfaction and engagement. However, allowing customers to set prices can also lead to underpricing, which may disincentivize service providers and reduce overall service quality.

Strike a Balance with Hybrid Approaches

Some platforms adopt hybrid approaches to navigate the complexities of gig platform pricing. TaskRabbit, for example, sets standard prices for different tasks but allows service providers to adjust costs based on their preferences and circumstances. This hybrid model strikes a balance between platform control and provider autonomy.

Additionally, platforms can mitigate power imbalances by being transparent about how prices are determined, providing mechanisms for providers to voice their concerns, and setting minimum price thresholds to ensure fair compensation for service providers.

Why Prices Should Be Pre-Set

In the context of gig platforms, pre-set pricing is a pivotal strategy element. It is a commitment mechanism, firmly anchoring service providers and/or customers in their transactions. Pre-set pricing streamlines the user experience by eliminating drawn-out price negotiations, fostering higher conversion rates as deals are closed swiftly while the initial enthusiasm is high.

On the contrary, uncertain prices and protracted decision-making often lead to a sharp drop-off in user engagement, risking the migration of transactions outside the platform through bypassing or disintermediation. It's important to emphasize that pre-setting prices are as significant as determining the price setter in the gig platform landscape. The focus should be on creating a pricing structure that enhances commitment, reduces friction, and retains transactions within the platform, aligning with the evolving needs of the digital gig economy.

Conclusion

The question of who should set prices on digital gig platforms is multifaceted and has no one-size-fits-all answer. Each approach—platform-set, provider-set, or customer-set—has its trade-offs and challenges. Striking the right balance is crucial for platform success and long-term sustainability.

As the gig economy evolves, platform operators must carefully consider the dynamics between themselves, service providers, and customers when making pricing decisions. By adopting hybrid approaches and ensuring transparency and fairness, platforms can create an ecosystem where all stakeholders find the pricing model sustainable and beneficial. Ultimately, the future of the gig economy will be shaped by the ability of platforms to adapt and address the ever-changing needs of their users while maintaining a delicate equilibrium in pricing control.

Another aspect on pricing strategy you can read futher about below is when your customers is multihoming: