Grab to charge a SG$4 cancellation fee: A good business strategy to retain drivers?

Instead of charging SG$5 for the third cancellation onwards within a week, Grab will be charging SG$4 for every cancellation after five minutes from booking. The update, effective 11 March, was announced by the ride-hailing platform to make cancellations "fairer for everyone" - drivers and passengers. Grab said that the policy change is expected to affect less than 1% of its bookings in Singapore.In a statement to Marketing, a spokesperson from Grab said, "After looking at all our data and usage trends, we believe that five minutes (or three minutes for GrabShare) is a good length of time for users to decide whether to cancel a ride, without the driver-partner being too far committed into a journey. The improved cancellation policy will allow more flexibility for passengers, while ensuring that we stay fair to our driver-partners."According to the update, the cancellation fee will be fully credited to the affected driver. A Grab spokesperson said that this ensures the drivers are compensated to the time and fuel spent as they travelled towards the pick-up locations that were cancelled in the end. To minimise cancelled trips, drivers who maintain a cancellation rate of less than 10% are currently given incentives. A pick-up bonus, borne by Grab, is also given to drivers who are required to make the extra effort to go a longer distance to pick up a passenger. Meanwhile, users’ are given 100 GrabRewards points when a driver cancels.On the flip side, all cancellations made within five minutes of getting a driver are free. Cancellation fees will also be waived for the passenger if the driver does not arrive within five minutes after the first-shown estimated time of arrival. According to Grab's update on its website, there are "safeguards in place" to detect if the driver is not moving towards the passenger and the platform will not be charging any fees in such cases.Louken's group chief executive officer Luke Lim said the change is an effort by Grab to perfect its platform design and find a balance between its reward and punishment policies. "I believe the previous data demonstrate that cancelling fees caused many users to delete the app or reduce the usage. Grab is fine-tuning the cancellation policy to yield better customers service for the consumer without punishing their drivers," said Lim.More unhappiness from consumers?Analysing mentions of Grab on social media, Meltwater found that 84% of the online sentiment over the past week was negative. Mentions on Twitter, in particular, spiked when the news of the change in cancellation fees broke yesterday.Bonsey Design regional chief operations officer Graham Hitchmough said that the move is part of a "predictable regularisation" after the pricing free-for-all that followed GOJEK’s entry into the market last November. While the reduced pricing was to the customers advantage, Hitchmough said it also created a surge in demand which, coupled with tweaks to the booking system, led to "longer waiting times and a higher number of cancellations as customers were encouraged to play one service off against the other." Drivers were therefore, hit the hardest with a lenient cancellation penalty structure.The move by Grab, said Hitchmough, can be seen as a kind of reset, trying to reduce losses, placate the drivers and re-educate the customer. He added, "It is a good thing and will remove the frustration of having to pay a cancellation fee for a vehicle that is too far away or has taken the wrong route. Hopefully it will return some patience to the customer-side too after a period in which the providers themselves were responsible for encouraging a mentality of price-driven, guilt-free switching at the expense of brand loyalty."Nick Foley, Landor's president of Southeast Asia, Asia Pacific and Japan, told Marketing that in all frankness Grab is "just like any other business", and charging for cancellations is understandable as it moves into more of a mature phase of its brand cycle. However, he said that the company should also look to Comfort Cabs as an industry benchmark on how best to manage cancellations."Put simply, some of the practices that Grab deployed to attract attention and stimulate demand when the business launched simply are not feasible in the long term.  Grab will not survive if it doesn’t start making sound, commercial decisions grounded in financial logic," added Foley.Following Grab’s acquisition of Uber’s Southeast Asia operations in 2017, the ride hailing company has had a fair amount of backlash from consumers. A report by Forrester noted that good intentions the brand has are not enough for renowned digital businesses. To remain successful, companies such as Grab need a “comprehensive operational reboot and strong CX management”, the report said.It is important for companies to earn consumers’ trust in their core markets before venturing into adjacent markets, and this can be done with “consistently excellent” CX. Although Grab has made efforts to diversify its portfolio with services such as GrabPay and GrabFood, these can impact Grab’s success if it does not get its core CX service right, the report said.