The COVID-19 pandemic has been a massive opportunity for some firms, including DoorDash, which grew to take over fully half of the food delivery market over the course of 2020. By enabling consumers to get their favorite takeout while still sheltering at home, and simultaneously enabling restaurants to stay in business, the service provider gained such a powerful position that it seemingly could charge just about anything it wanted. But price preferences change with the times, and as pandemic-related challenges have started to resolve, DoorDash has come under increasing pressure, from both its business customers and regulators, to make changes.
In response, it announced a novel, three-tiered pricing structure for the commissions paid by restaurants to obtain its services. If DoorDash takes only a 15 percent commission on the order, it will provide relatively limited marketing support. If the restaurant agrees to give it a 30 percent commission, it will get prime placement on the DoorDash site and other forms of marketing support. A 20 percent commission option also is available.
Furthermore, if the business side of the platform reduces the amount it shares with the DoorDash platform, the platform will find the revenue elsewhere, namely, on the consumer side. Specifically, if a restaurant chooses the lower commission rate, DoorDash will charge customers $4.99 for their delivery. But customers only have to pay $1.99 to receive food from a restaurant at the higher end of the commission scale. In this way, DoorDash can drive more customers to its business clients that pay it more.
Industry associations praise the announcement for its transparency, noting that previously, it was difficult for restaurants to anticipate what commission they would need to pay to work with DoorDash. By giving the choice to these business clients, the service provider gives them more autonomy, such that they can analyze their own sales to determine if it is worth it to pay more to gain priority among visitors to the DoorDash site. The move also seeks to address regulatory efforts adopted by several municipalities, which imposed limits on how much the company was able to charge during the pandemic. Some of those legislatures have raised the possibility of making those commission caps permanent, so DoorDash’s effort to offer increased transparency likely represents an attempt to head off further regulations too.
- Which party in these three-sided exchanges (restaurants as sellers, DoorDash as the platform and service provider, consumers) has the most power? How might those power relations shift over time?
- Is this revised pricing strategy fair? Will it be strategically effective?
Source: Preetika Rana, “DoorDash Allows Restaurants to Choose Commissions in Post-Pandemic Future,” The Wall Street Journal, April 27, 2021