The four principles of dynamic pricing in transportation How to adjust tolls and parking rates for faster, more efficient roadways The four Principles of Dynamic Pricing in Transportation 2

30% of cars in congested downtown traffic are Get a grip on your looking for parking traffic flows

Traffic planners and transport As the morning progresses, many of those cars Dynamic pricing can help. The idea is simple: decision-makers are stuck in a rut. will be clogging city roads looking for a place to by adjusting toll and parking rates to demand, park. An average across several studies suggests traffic planners gain a powerful tool for that 30% or more of drivers in congested managing traffic flows. Many cities have proven downtown traffic are looking for parking. it. Thinking about pricing in a new way can: The same situation repeats itself daily: at rush hour, an overwhelming number of cars will For transportation authorities in particular, • Increase car occupancy inevitably clog toll roads, free- and expressways. these realities translate into many challenges Every day, this stop-and-go causes frustration, – not enough space for additional infrastructure • Promote alternatives to driving congestion, stress, and pollution, as well as and limited funding among them. And even if • Maximize your existing infrastructure dangerous conditions for vulnerable road users funds are there, a growing consensus is that such as bicyclists and pedestrians. more – more roads, more lanes, more parking • Encourage drivers to travel outside peak times – doesn’t necessarily solve the problem. • Guide drivers to more available spaces

Yet, the truth is, planning organizations and • Make journeys more predictable elected officials have the ability to change • Reduce emissions people’s behavior.

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Get a grip on your traffic flows

Ultimately, done well, the result can be an Two important points upfront improved quality of life. Dynamic Pricing It’s a tool for At Xerox, we’ve implemented demand-based is about value maximizing efficiency tolling and parking systems all across the world. We’ve seen what works and what doesn’t. Through price, you can attach a value to Dynamic pricing helps municipalities a road or parking spot. A toll road is more orchestrate traffic flows and effect behavioral This eBook concerns the four basics you need to valuable at 5:30 p.m. than it would be at 3 a.m. change among anybody who drives in your understand to make dynamic pricing a success. Without demand-based prices, you imply that community. With less congestion comes more We’ll tell you straight away that it won’t make all the value does not vary with time or demand. throughput and real change. of your traffic problems magically disappear. As a result, you encourage consumption, as But do it right, and it will prove a powerful tool the service is underpriced. for managing congestion.

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Use smart data to balance supply and demand

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Use smart data to balance supply and demand

Dynamic pricing 101: what’s normal The idea behind dynamic pricing is to spread How to gauge the status quo occupancy and traffic flow? the load of peak driving and parking to change behaviors and promote: An accurate assessment of usage by block, highway segment, and time of day is • Increased occupancy-per-car crucial to getting dynamic pricing right. When on-street parking rates and highway tolls (e.g. car-sharing and ride-sharing) Here are some ways to collect that data: are static, people have little reason to consider price in their driving decisions – to travel at a • Less travel during busy times • Manual surveys different time, or park a little further away. And that inevitably leads to congestion. • Parking in underutilized spaces • Sensors (cheaper or free spaces further away) • Collecting spatial and temporal samples • Alternative modes of travel (public (a lean method that uses fewer sensors) transportation, cycling, walking) • Evaluating CCTV footage manually or using computer vision Setting up your “traffic thermostat” • Automatic License Plate Recognition The first thing you need to do to adjust rates (ALPR) according to demand – and manage congestion – is assess how and when drivers are using your • Cellular data and other nascent roads and parking spots right now. technologies

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Use smart data to balance supply and demand

Optimal usage Managed lanes: What’s what? For on-street parking, planners should drive for a 70% to 90% occupancy rate on a given block. Once you’ve collected the data, you should HOV (High Occupancy Vehicle) lanes: This rate allows drivers to find an empty spot determine what’s “normal” and when it’s time to As opposed to general purpose lanes, quickly, then park if they find the rate acceptable adjust. Here are the important benchmarks: only cars with a certain number of people – and if not, they can park further away. In any (usually two+) are allowed in HOV lanes. case, they’re not repeatedly circling the block, causing noise, pollution, and congestion. HOT (High Occupancy Toll) lanes: Further, they’re not distracted by the search for These are just like HOV lanes, but open to a space and pose less of a threat to pedestrians For highways it’s relatively easy: normal means single-occupancy vehicles for an extra toll. and bicyclists. free-flow traffic, i.e. all vehicles can drive at the maximum speed allowed. If that is the case, the Express lanes: toll rate on your HOT or Express lane should be Available to any vehicle for a toll. The toll set to the lowest rate. But as demand soars amount is determined by traffic flow on 70% – 90% during rush hours, your system needs to adjust the general purpose lane. Planners should prices upward. Drivers can then decide, based aim for 70%-90% on their own sensitivity to prices, whether to occupancy per block travel at a different time or pay for the toll lane. For a user who needs to get to their child’s soccer practice on Wednesdays, that may be the day that paying the toll makes sense. On other days, their time may be more flexible. But it all starts with a careful data analysis. xerox.com The four Principles of Dynamic Pricing in Transportation 7

Understand the rules for setting reasonable rates

REASONABLE TOLL RATES

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VIERCAL 1 The four Principles of Dynamic Pricing in Transportation 8

Understand the rules for setting reasonable rates

Traffic management works best One of the biggest challenges that come with For on-street parking, actual occupancy is when you get the price just right. dynamic rates is making sure the price actually your best indicator. Economists say that 15% reflects the value in the driver’s mind of the of the spaces on a block should always be It takes more than just a “finger parking space or toll road at a given time. available to ensure adequate turnover and in the air” estimate. It’s not rocket to encourage parkers. science, but getting it right does It all comes down to time savings and comfort: That goal (85% occupancy), however, does not involve some complexity as you’ll necessarily tell a complete story, as demand is see in this chapter. not likely to be evenly distributed across an hour or a day. Using average demand to guide pricing On a highway, there is no point in using an decisions fails to recognize nuanced yet critical 90% Express lane if traffic flows freely. But if it slows parking trends. When occupancy down significantly (say to half the maximum hits 90%, it’s time speed) on the general purpose lane, the toll rate A better methodology, like that undertaken by to raise rates needs to go up to reflect the convenience of not Los Angeles and Washington, DC, is to compare being stuck (e.g. getting to work on time, periods when use is too high (90% or more) to catching a flight, picking up the kids from periods when use is too low (less than 70%). daycare, etc.) The difference serves as a marker for when rates should be increased, relaxed, or left alone.

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Understand the rules for setting reasonable rates

How often should you change rates? Parking. To make pricing as transparent as Tolling. Unlike parking rates, tolls are set in near possible, there shouldn’t be more than three real-time (e.g. about every 15 minutes) to reflect The rules of thumb for frequency of change are parking rates on a block in a day. And don’t current traffic flow. If the change is too frequent, closely related to good communication (we’ll change the rates more often than monthly it’s likely to increase dissatisfaction among users. talk about this more in the next chapter): drivers (better: quarterly, and at the same time each Transparency works slightly differently here: need to be able to make an informed decision year), so as not to confuse regular users. variable message signs should clearly on where and when to drive and park – before communicate the current toll for each freeway they get in the car. segment on the Express lane.

The case for clearly distinguishable price segments Experience has shown that a noticeable difference in parking rates works better than a slight one: increases of $0.25 have been less effective for parking management than increases of $0.50.

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Develop policies that improve the user user experience eperience

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Develop policies that improve the user experience

A change in behavior doesn’t When considering dynamic pricing, always happen overnight. This chapter remember: it’s not about revenue. It’s about a long-term change in people’s travel habits. is about crafting easy-to-choose That’s why the alternative to business as usual alternative travel options. (driving at peak times and parking in the middle of everything) always needs to offer travelers something valuable in return, such as

• Ease of use • Predictability • Faster journey times • Cost savings

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Develop policies that improve the user experience

1 Fail in the area of driver experience, and you’ll The two golden rules of dynamic pricing fail with your dynamic pricing initiative. Here are communication three things to keep in mind from day one: Beware of communication fatigue: 1. Communication it’s a fine line between transparency and overkill. Try to time the frequency of your Drivers usually accept the idea of paying for a messages so as to avoid “update widdow”. 2 convenience, but it’s important that they know what they’re getting for their money (especially Clarity trumps accuracy: if travel and parking used to be free). remember what we said about supply, demand, and the rules for setting rates? Make sure to accompany your demand-based That’s all still true – but don’t let perfect project with plenty of easy-to-understand be the enemy of the good. Always education. Ideally, your communication choose clarity of information over 3 campaign would include tactics of all kinds, both getting prices 100% right. online and offline, as well as the use of variable message signs.

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Develop policies that improve the user experience

1 2. Flexibility • Demonstrate goodwill with out-of-towners who don’t have a transponder or account. Making the new systems easy to use – and easy Many agencies don’t immediately enforce to use correctly – will massively help acceptance. when out-of-state license plates are involved: That means: if they’ve used the Express lane on fewer than three occasions, operators simply send • Help drivers install a transponder and set a polite notice informing the driver that they 2 up an account. haven’t been charged, but should set up an account. (Parking enforcement is usually • Support different payment options for stricter, since payment doesn’t usually parking meters: cash, credit card, phone and require an account) app payments. 3

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Develop policies that improve the user experience

1 3. Helping drivers choose Make the buck go further

Always make sure your drivers know about the An unused meter is inefficient: where city options available to them. Educate drivers about space comes at a premium, it’s unwise to their alternatives and help them plan. Transit hold on to parking spots that don’t add apps have been key to making that a real-time value. Before you get rid of them, though, possibility: consider reviving underutilized meters 2 using a time-based incentive: for example, Journey planners calculate the best mobility turning a two-hour meter into a four-hour options for any given journey, based on the time meter can make a lot of sense: of day, user preferences (such as price and modes of transport) and real-time traffic data. • It’s a great incentive for drivers to move away from congested areas and gives Parking apps help users find available spaces them an affordable place to park. 3 at their destination and point them to less expensive options in the vicinity. (Some even • It increases credit card transactions, let drivers reserve a space off-street.) which cuts down on meter collection. • It reduces wear and tear on the meters. • It improves both occupancy and revenue. That’s a lot of municipal bang out of the same buck.

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The keys to acceptance: fairness, privacy, and smart investment

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The keys to acceptance: fairness, privacy, and smart investment

Ways to win over the skeptics Emphasize Transparency Develop a realistic enforcement policy

Communication is crucial in creating an A study has shown that drivers have learned to Active enforcement protects revenue and understanding of the why, the how, and the read dynamic tolls as a proxy for congestion.1 ensures that honest Express lane and parking what of your dynamic pricing initiative. It’ll take In a sort of reverse supply/demand rule, they’re meter users don’t get the short end of the stick. a bit of effort and some time. But we promise it actually more likely to choose toll lanes when But it’s impossible to send a police car after each gets easier (if you do these four things): the posted prices are high. Of course, that non-HOV using the HOT lane without payment. doesn’t mean that authorities should increase (It would create even more congestion.) tolls to maximize revenue. It’s crucial for driver acceptance that the correlation between traffic An effective best practice is to use photo flow and tolls (value) remains accurate. Tolling enforcement, then debit the account of the authorities are highly regulated to make sure violator for the toll plus an administrative fee prices are clearly communicated and remain (not a “ticket”!). Simply inform them that within an acceptable spectrum. they’ve neglected to set their transponder to HOT. The benefits:

• The violator pays an increased toll (which stings a little, but not too much – in case they genuinely forgot). • You don’t lose out on the revenue. • It sends the right message to your honest users. xerox.com The four Principles of Dynamic Pricing in Transportation 17

The keys to acceptance: fairness, privacy, and smart investment

Address privacy concerns Build out your system Two examples of re-investment

For some users, transportation technology – Revenue from meters and tolls provide resources • According to California state law, transponders and apps and the like – evokes that you can invest in your infrastructure (such as Express lane revenue needs to go fears of Big Brother. These drivers simply don’t road and meter maintenance or lighting). into maintenance, administration, want authorities to track their movements. Doing so not only makes your life easier, but operations, toll collection and Here’s how to provide peace of mind: sends a strong message of your intent with enforcement. Any remaining revenue dynamic pricing. is put into funding initiatives that cut • Link the transponder and the user’s personal congestion in the same traffic corridor information with an internal account number – such as transit subsidies, or new that doesn’t reveal the driver’s identity. transit vehicles. 2 • Offer them the option to create an • Parking management has played a anonymous pre-paid account. significant role in rejuvenating Old Pasadena. Meter revenue stays in the • Protect apps and payments, and make sure community: it goes into street cleaning they’re PCI compliant. and trash collection.3 • Make it clear that sensors and cameras only detect vehicle positions – they don’t store registration information. • Delete records once your transactions are complete.

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83% What’s next? of Americans back tolls that make roads safer, less congested Making the case for your and more reliable dynamic pricing project

For planning authorities and • Costs. The cost of toll collection in a mature The dynamic pricing pay-off: municipal officials, dynamic pricing system (after amortisation of infrastructure, what L.A. got out of it such as gantries, etc.) is generally around is best positioned not as a windfall 5-8% of the toll. That’s similar to the cost of Starting in 2012, the city of Los Angeles for budgets but a way of cutting collecting fuel tax. 4 began implementing demand-based parking. Here are the initial results: congestion, creating faster, more • Financing. Federal grants might be a predictable travel times, safer roads, financing option: they helped fund the • An initial rate reduction at 60% of less pollution, and nicer cities. parking management system in Los Angeles. the meters • Smart data sources. A large portion of the • A rate increase at only 27% of meters costs is related to data collection (sensors, These should be the key success metrics of etc.), but several cities are also testing an • An average hourly rate reduction of 11% your initiative. asset-light approach – using cameras to monitor spaces for a few weeks, combined • A 2% overall increase in revenue Yet you’ll still have to make the case that with enforcement data and partial sensor • 10% less parking congestion dynamic pricing is the logical next step, coverage – to significantly reduce costs. 5 with proof points, and arguments against • 5% more occupancy of perceived obstacles. • Acceptance. 83% of Americans support underused spaces tolling on existing highways.6 The good news: it’s not as hard as you might • Safety. Getting people parked faster can think. Have a look at these stats: save lives: accidents involving pedestrians and bicyclists happen most often during the hunt for parking or as vehicles are leaving spaces. 7 xerox.com The four Principles of Dynamic Pricing in Transportation 19

Conclusion Better traffic flow today and great capabilities for the future

Dynamic pricing is moving people The way we get around will continue to change faster today. And it’ll get you as new technologies and services evolve. places tomorrow. The infrastructure you build for dynamic pricing today can help you transition to these new ways of traveling by building new market models and We hope we’ve been able to show you what solidifying resources for investing for the future. matters in demand-based pricing. You’ll have noticed that it’s a roll-up-your-sleeves initiative Demand-based pricing helps you get ready for that can help you tackle the reality of your the future of travel. But most importantly, it toughest traffic challenges. sends an important signal to your residents and visitors: that you are committed to improving It’s well worth your effort. And it’ll get you the quality of life and making the most of ready for the next step up. precious resources.

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Thanks for reading!

At Xerox, we believe that if you start changing driver mindsets and behaviors today, good things will happen. You’ll engineer less frustrating commutes, you’ll gain a powerful tool for actively managing congestion, and you’ll create a better environment for everyone in your community.

If you agree, you might like some of these assets:

A transportation experience manifesto Why multimodal customer experience should be any transport planner’s top priority Make your City Sharing city flow analytics the city

Ten ways data can improve your city How seven cities are re-inventing Seven causes of congestion planning, traffic flow, public transportation mobility for everyone and how cities are tackling them and parking efficiency

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Sources

1 http://www.citylab.com/commute/2013/08/hot-lanes-are-even-more-popular-when-theyre- expensive/6577/ 2 http://www.itscalifornia.org/Content/AnnualMeetings/2015/Presentations/TS11-4-MTA- NetTollRevenueReinvestment.pdf 3 http://www.oldpasadena.org/map.asp 4 http://ibtta.org/publication/debunking-myths-highway-tolling 5 http://docs.trb.org/prp/16-2490.pdf 6 http://ibtta.org/blog/83-americans-support-tolls-improve-existing-highways 7 https://www.linkedin.com/pulse/mobility-moving-new-definition-parking-matt-darst?trk=prof-post

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