Dynamic PricingAn opportunity to improve parking management.

Conduent Public SectorPublic Mobility and Transportation Solutions

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Conduent Public SectorPublic Mobility and Transportation Solutions

Dynamic Pricing

The Problem Dynamic pricing has recently entered parking parlance as a component of a successful congestion mitigation strategy. Most parking meters offer a single “static” hourly rate regardless of traffic and parking utilization. Static rates generally promote cruising for “cheap” parking, increasing congestion and travel times. At its core, dynamic pricing recognizes that properly setting hourly meter rates will drive the duration a motorist parks—increasing turnover and availability of parking. That said, confusion exists concerning how dynamic pricing should be implemented. We have developed a strategy for implementing dynamic pricing to best accomplish the goals of parking management.

Background As Professor Donald Shoup notes in “The High Cost of Free Parking,” congestion is caused in part by drivers searching for a place to park. As parking demand outpaces supply, there are fewer cheap on-street parking spaces to be found. Motorists are more likely to cruise, circling continually for an available space and, in the process, exacerbating traffic and the resulting pollution.

On-street parking is generally set below market rates. In many cities, the average price of a curb parking space is just 20 percent of the price of garage parking. Unlike garage operators who offer pricing incentives, most parking meters offer only fixed parking rates.

To reduce congestion, Shoup has suggested varying metered parking rates by location and time of day to create availability. He suggests that an 85 percent occupancy rate for curb parking (or about 7 cars for every 8 spaces) is the optimum level for on-street parking for several reasons. Foremost is that it would result in a space always being vacant on a given block face. That will reduce the time and fuel consumption currently spent searching for on-street parking. Creating availability ensures that motorists are drawn to businesses served by parking meters.

Dynamic Pricing City policy-makers are eager to implement fluid, variable rate pricing to reduce congestion, promote commerce, and mitigate pollution. The marketplace now offers a host of products to meet municipal needs. Manufacturers of pay boxes, intelligent parking meters, integrated software solutions and vehicle sensors all promote the ability to provide variable rate pricing. Yet other than the “trial and error” approach to rate setting promoted by Shoup, these vendors offer little direction for integrating hardware and software into an overall parking solution.

There are largely two dynamic pricing models today:

• Model 1: Real-time adjustments to price based on present supply and demand. Hourly rates are adjusted every minute using purchase records and/or sensor technology to determine parking availability. Motorists are charged a premium as the number of available spaces decline.

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• Model 2: Predictive price adjustments based on historical data that are reevaluated periodically. Pre determined rates are established based on the time of day, day of the week or scheduled special events. The rates are determined from analysis of historic occupancy data rather than real-time data. Pricing adjustments are revised on a monthly, quarterly, semi-annual or annual basis so as to respond to changes in occupancy rates over time. The pricing adjustments are communicated to the public through press and other media, signage, text messages, websites, and way-finding tools.

Decision to Park Establishing the right price for a parking space is critical to properly manage parking. However, so is communicating that price to drivers. Unless hourly rates are properly communicated to drivers, there can be no correlating congestion reduction.

As economist Gary S. Becker and jurist Richard A. Posner state in their book “Uncommon Sense: Economic Insights, From Marriage to Terrorism,” pricing will not impact congestion unless motorists are afforded notice. They describe the congestion externality problem: drivers identify other motorists with congestion but rarely recognize the contributing impact of their own driving habits. Parking meters, when properly priced, internalize the congestion debate: do I want to drive and pay the applicable hourly rate, or do I want to take another form of transportation? Rates must be predictable and easy to understand for this internalization to occur. Consequently, motorists must be made aware of hourly rates before they ever leave their homes. Otherwise, the Shoup approach fails.

Therein lies a potential problem with Model 1. Pricing models that set forth real-time price adjustments based on present utilization do not provide adequate notice to motorists. As a result, motorists cannot internalize the economic impact of driving. They will drive, contributing to congestion, because they are unaware of any changes to the rates that are occurring in real time.

Even if phone and web-based tools are employed to provide notice of hourly rate changes under Model 1, they may not provide adequate notice. Such tools would require affirmative motorist participation. Although wireless and internet penetration in the U.S. stands at 82 and 76 percent respectively, many households still lack access. For example, only 44 percent of persons with disabilities and 35 percent of seniors have access to a computer. Wireless and computer access is even lower in economically disadvantaged households.

Considerations Best practices suggest that some standardization of hourly rates must occur across areas. Block by block variations in price may, in fact, increase congestion. Such variations could actually promote cruising and competition for cheaper parking.

Accusations of price gouging are possible under Model 1. Price gouging is simply selling at a much higher price than is considered reasonable or fair when demand is temporarily high, especially when there are no alternative retailers available.

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Conduent Public SectorPublic Mobility and Transportation Solutions

Although customers expect reasonable fluctuations in price, they are not generally accustomed to price changes on a minute-by-minute basis. For example, one generally expects to pay $3 for a gallon of milk. He or she does not expect to pay a lower price if the grocery is fully stocked or a higher price for the last remaining gallon. Although any accusation of gouging would likely be based on moral arguments, dissenters may make the case that Model 1 does not effectively manage demand and mitigate congestion.

Rate Considerations There are a number of other rate considerations. We can help cities recognize the impact of municipal decisions, including:

• Scheduling rate increases. Administrators must be aware of politically sensitive periods (e.g., elections) when scheduling rate increases.

• Turnover. Some areas are more sensitive to rate changes than others because turnover is not necessarily a goal (e.g., public parks or schools).

• Rate increases may drive motorists to residential streets. Residents may complain about an influx of parkers.

• Businesses and residents rarely understand the value each brings to a neighborhood. Officials may want to adjust hours of operation or rates based on residential parking permit schedules.

• There is a psychology associated with too many open parking spaces, much like the concept of “broken windows.” Motorists are less likely to visit a business near a rash of empty spaces.

• Motorcycles and scooters, because of the reduced impact on congestion, emissions and their smaller carbon footprint, may require a different rate.

• Special employee rates may be called for in areas where utilization is low.

• Early bird parking meters can reduce congestion by allowing motorists arriving before a specific time to purchase parking for a reduced rate.

• While the market should drive the period of stay, the City risks negative headlines if rates are increased too much too quickly.

• Periods of stay, or durations, should be adjusted closely with rate changes. For example, there may be immediate employee occupancy declines, allowing customers of theaters, gyms, concert halls, etc., to park at meters that were once full. Motorists will complain about leaving movies, classes and concerts early to pay a meter.

Why Conduent? We have the expertise and know-how to properly implement new parking technology. That’s because we are more than just a parking integrator; we are a solutions provider. We offer a unique view of parking management as a lifecycle. Convenience and public acceptance lead to increased compliance, reducing the need to rely upon enforcement to deter illegal parking. We can help Cities manage this parking feedback loop, increasing parking meter revenues and reducing costs.

While revenues and savings are important considerations for dynamic pricing, there is another metric critical to ensuring the success of the metered parking project: customer satisfaction. A successful parking meter implementation aligns the City’s goals with the needs of its customers.

To that end, we have developed an additional measure to determine the effectiveness of metered parking. In addition to implementing cost-effective solutions that generate additional revenue, we can help ensure that customers receive the benefit most important to them: time.

Time is unlike any resource. Everyone has the same amount of time, regardless of individual burdens. Time cannot be stored or saved for a later date. It is a scarce and precious commodity, and when wasted, it is gone forever.

The main purpose of technology is to save time. As technology improves, the expectations of customers change. Customers are becoming more sophisticated. They make purchases online. They communicate via cell phone. They expect reliable, high-speed transaction processing. As technology continues to develop, time will become even more important.

Simply, motorists want to spend less time on parking. We can help implement dynamic pricing in a manner that ultimately saves motorists time.

Further, we realize that the municipal customer base is larger than just drivers. Pedestrians, bicyclists, businesses and other institutions are important stakeholders too. We can offer innovative strategies for assisting these distinctive customers with dynamic pricing.

Measuring and Analyzing We have developed protocols that will facilitate the successful implementation of a dynamic pricing program. To meet the goal of an 85 percent occupancy rate, we first measure the vehicle occupancy and turnover rates during peak demand periods, prior to any rate adjustments taking place. This gives us baseline data that can be used in analyzing the effectiveness of pricing and duration adjustments. Vehicle occupancy is a metric that is the number of available legal spaces that are occupied by a vehicle at any given point in time and is typically reported as a percentage of total legal parking spaces occupied by vehicle. Turnover rate is a measure of how many different vehicles parked in a given space within a set timeframe, such as 2, 4 or 6 hours. Turnover is reported as how many times a given space was occupied by a different vehicle.

Data should be collected in a sample area over a period of several days so as to determine if there are significant variations in occupancy and turnover based on day of week. If the spaces have existing parking regulations in affect, either metered or time limits, data on drivers’ compliance with regulations, along with the enforcement of them, will be gathered. Without affective enforcement of regulations, pricing has no impact because drivers simply will not comply.

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Once the baseline is established, it can be compared against data collected in the same area at the same times of day and days of the week after the new pricing has been instituted. Pricing changes will alter driver behavior in terms of where they park, the duration of their parking or whether they park in the affected area. The new rates will result in shifting some parkers to off-street facilities, some to carpooling, some to change their mode of travel to transit and some to parking in different zones/areas. The behavior shifts, on a macro level, will occur both immediately and long-term. After pricing adjustments are implemented, there will be a period where drivers will determine their long-term response to the new market conditions and make individually rational decisions on their future parking. For many drivers, their initial reactions to the pricing change will not be their long-term response. It is important that a long enough interval of time transpires between the implementation of rate changes and when the follow up data set is gathered, in order to give drivers enough time to let their emotions subside and allow their rational self-interests to prevail. This interval is between one to three months.

After the follow-up data gathering is completed, the data should be analyzed to see if the desired goals of occupancy have been achieved. If rates and/or durations need to be adjusted further, it is critically important that the communications process for the new rates is executed in a manner that the information on the next round of adjustments is disseminated to the greatest number of potential parkers possible. Having a robust multi-faceted communications plan helps ensure that drivers have the information they need and that the pricing changes have the desired impact on parking occupancy, making the dynamic pricing program a success.

Thoughts on Hardware If rate adjustments are going to occur frequently, cities must ensure the chosen hardware allows rates to be modified remotely. Further, hardware must allow for time incremental purchases (15 or 30 minute increments is preferred), as opposed to monetary increments. Otherwise, messaging dynamic pricing is difficult and can create confusion for motorists.

Conclusion We know the value of properly managing an asset as complex as parking. Like no other, we can apply parking theory to operations to optimize space use. We can dispel myth from fact regarding dynamic pricing, including variable and congestion pricing. Additionally, we can introduce municipalities to new pricing structures like incentive-based congestion pricing.

For more information, email us at: transportation@Conduent.com

Conduent Public SectorPublic Mobility and Transportation Solutions