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Why membership compounds
A new member rides more the next month, and the whole cohort of members acquired that month keeps riding more over time. Members consolidate more of their mobility onto Uber, and the Uber Eats benefits that come with membership pull them toward Uber Eats instead of DoorDash or Deliveroo. They also churn less and hold up better against competitors, so the value of that first dollar multiplies.
A discount works differently. A dollar given for a trip next week has some effect on the weeks after, but it dissipates faster.
How returns are measured
The yardstick is incremental gross bookings, meaning the extra revenue a dollar of incentive brings in. Even a dollar that returns two dollars of revenue is a negative return when only 7.5% of each dollar is profit. Companies make those investments anyway to grow engagement and lifetime value, and membership gets better the longer out it is measured.
Membership versus price
That is also why membership competes with price. Ridesharing comes down to price, reliability, and safety, so every dollar that goes into a bundle of benefits is a dollar that does not go into lower fares or more driver supply.
Why do memberships keep people coming back?
Paying up front makes each later use feel cheaper, and people tend to use what they have already paid for. Behavioral economists call this the sunk-cost effect. In a 1985 experiment by Hal Arkes and Catherine Blumer, buyers who paid full price for theater season tickets attended more plays early in the season than buyers who received discounts.
How do companies test whether an incentive pays off?
Companies split users at random into a group that receives the incentive and a control group that does not. The difference in behavior between the two groups is the incremental effect of the incentive. This design is the same randomized controlled experiment used in clinical trials. Online platforms commonly run many such experiments at once.
Where did paid delivery memberships come from?
Amazon launched Prime in the United States in February 2005 for $79 a year. The program paired a flat annual fee with free two-day shipping, so each extra order cost the member nothing at checkout. DoorDash introduced DashPass in 2018 with the same flat-fee structure applied to food delivery.
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