Why Companies Find Risk in Copying Uber’s Customer Ratings

Drivers for mobile sharing-economy taxi service Uber rate their passengers, just like those customers rate them: on a 1-to-5 scale. The objective is to identify the worst and best customers.

This has a solid business rationale, however, it’s doubtful that many other companies will create formal customer evaluation systems, at least not the kind which the public and media find out exist.

It has long been known that problematic customers and clients eat into the bottom line.

In their book, Angel Customers & Demon Customers, Larry Selden and Geoffrey Colvin explained that the bottom 20 percent of customers or clients significantly reduce the company’s profitability. The losses they directly and indirectly cause could equal more than 100 percent of what the profits could have been. More importantly, though, the best 20 percent of customers could create 150 percent of profits.

Usually businesses, large and small, find ways to discourage troublesome customers and clients from coming back, without any formal system. Typically, those undesirables will face higher prices or foot-dragging before the product of the service is provided. Because of fear of litigation, though, this is done with great care.

Not Uber. It seems proud that it has identified the kinds of behaviors which eat into profits, directly and indirectly. Those range from being late to being picked-up to… intoxication. Drivers are invested in the rating system because they know that particular types of passengers will give them a bad rating at the end of ride. Drivers’ jobs depend on those customer reviews.

If, in their experience, boozy customers tend to give low scores, they won’t pick them up. The risk is not worth that one fare. And during a busy period they will tend to choose to provide a ride to the passenger with the five-star rating than a lower one. That’s common sense.

Because Uber is considered smart and cool, one might assume other companies will follow its practice of evaluating customers. However, look at the example of Dimmi’s ResDiary, an online reservation system in Australia.

Bloomberg Business Week, had reported in early June 2014 that it had established a system which gives restaurant guests “performance reviews.” Those supposedly included what demanding requests they made and how much they tipped.

Promptly, Dimmi clarified that framing. It positioned its approach as much like that of OpenTable which profiles guest preferences: a Customer Relationship Management system which functions to improve customer service. However, the company did not retract that the system captures who was and was not a good tipper. That bit of data is especially significant in Australia where tipping isn’t as common as in the US.

However, for the majority of businesses, it would likely constitute too much of a risk to adopt as a best practice to assess customers and clients in a formal way. That mindset might prevail both at the high-end Tiffany& Co and at the low-end big boxes.

In addition, it could invite complaints to regulatory bodies and lawsuits. Customers can contend they received “bad grades” and consequently were subjected to mediocre service because of some form of discrimination. For example, guests at a restaurant tracked by ResDiary perceive they were escorted to a lousy table. In a report to the government or a legal complaint they contend that is because they were of a certain ethnic origin.

Uber, like traditional taxi companies, could find itself in a legal pickle. Potential customers who cannot get an Uber driver for a ride or have to wait a long time could subpoena their “records.” Their next steps, if any, could add to the cost of doing business for Uber.