The Four Principles of Dynamic Pricing in Transportation

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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

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 managing The same situation repeats itself daily: at rush that 30% or more of drivers in congested traffic flows. Many cities have proven it. Thinking hour, an overwhelming number of cars will downtown traffic are looking for parking. about pricing in a new way can: inevitably clog toll roads, free- and expressways. Every day, this stop-and-go causes frustration, For transportation authorities in particular, these • Increase car occupancy congestion, stress, and pollution, as well as realities translate into many challenges – not • Promote alternatives to driving dangerous conditions for vulnerable road users enough space for additional infrastructure and • Maximize your existing infrastructure such as bicyclists and pedestrians. limited funding among them. And even if funds • Encourage drivers to travel outside peak times are there, a growing consensus is that more – • Guide drivers to more available spaces more roads, more lanes, more parking • Make journeys more predictable – doesn’t necessarily solve the problem. • Reduce emissions

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

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Use smart data to balance supply and demand

conduent.com 4 The four principles of dynamic pricing in transportation

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, When on-street parking rates and highway tolls highway segment, and time of day is crucial are static, people have little reason to consider • Increased occupancy-per-car to getting dynamic pricing right. Here are price in their driving decisions – to travel at a (e.g. car-sharing and ride-sharing) some ways to collect that data: different time, or park a little further away. And that inevitably leads to congestion. • Less travel during busy times • Manual surveys

• Parking in underutilized spaces • Sensors (cheaper or free spaces further away) • Collecting spatial and temporal samples (a lean method that uses fewer sensors) • Alternative modes of travel (public 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 Once you’ve collected the data, you should for a 70% to 90% occupancy rate on a given determine what’s “normal” and when it’s time HOV (High Occupancy Vehicle) lanes: block. This rate allows drivers to find an empty to adjust. Here are the important benchmarks: As opposed to general purpose lanes, spot quickly, then park if they find the rate only cars with a certain number of people acceptable – and if not, they can park further (usually two+) are allowed in HOV lanes. away. In any case, they’re not repeatedly circling the block, causing noise, pollution, HOT (High Occupancy Toll) lanes: and congestion. Further, they’re not distracted For highways it’s relatively easy: normal means These are just like HOV lanes, but open to by the search for a space and pose less of a free-flow traffic, i.e. all vehicles can drive at the single-occupancy vehicles for an extra toll. threat to pedestrians and bicyclists. maximum speed allowed. If that is the case, the toll rate on your HOT or Express lane should be Express lanes: set to the lowest rate. But as demand soars Available to any vehicle for a toll. The toll 70% – 90% during rush hours, your system needs to adjust amount is determined by traffic flow on the prices upward. Drivers can then decide, based on general purpose lane. Planners should aim for 70%-90% their own sensitivity to prices, whether to travel occupancy per block 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.

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Understand the rules for setting reasonable rates

REASONABLE TOLL RATES

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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 when you get the price just right. dynamic rates is making sure the price actually is your best indicator. Economists say that reflects the value in the driver’s mind of the 15% of the spaces on a block should always It takes more than just a “finger parking space or toll road at a given time. be available to ensure adequate turnover in the air” estimate. It’s not rocket and to encourage parkers. science, but getting it right does It all comes down to time savings and comfort: involve some complexity as you’ll That goal (85% occupancy), however, does not 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) catching a flight, picking up the kids from to 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 The rules of thumb for frequency of change are possible, there shouldn’t be more than three real-time (e.g. about every 15 minutes) to reflect closely related to good communication (we’ll talk parking rates on a block in a day. And don’t current traffic flow. If the change is too frequent, about this more in the next chapter): drivers need change the rates more often than monthly it’s likely to increase dissatisfaction among users. to be able to make an informed decision on (better: quarterly, and at the same time each Transparency works slightly differently here: where and when to drive and park – before they year), so as not to confuse regular users. variable message signs should clearly get in the car. communicate the current toll for each freeway 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 Experience

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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

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

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Develop policies that improve the user experience

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

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Develop policies that improve the user experience

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- value. Before you get rid of them, though, time possibility: consider reviving underutilized meters 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. 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. conduent.com 14 The four principles of dynamic pricing in transportation

The keys to acceptance: fairness fairness, privacy, and smart investment privacy 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 A study has shown that drivers have learned to Active enforcement protects revenue and Communication is crucial in creating an read dynamic tolls as a proxy for congestion.1 ensures that honest Express lane and parking understanding of the why, the how, and the what In a sort of reverse supply/demand rule, they’re meter users don’t get the short end of the stick. of your dynamic pricing initiative. It’ll take a bit actually more likely to choose toll lanes when the But it’s impossible to send a police car after each of effort and some time. But we promise it gets posted prices are high. Of course, that doesn’t non-HOV using the HOT lane without payment. easier (if you do these four things): mean that authorities should increase tolls to (It would create even more congestion.) 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 they’ve within an acceptable spectrum. 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. conduent.com 16 The four principles of dynamic pricing in transportation

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

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

conduent.com 17 The four principles of dynamic pricing in transportation 83% What’s next? of Americans back tolls that make roads safer, less Making the case for your congested and more reliable dynamic pricing project

For planning authorities and 5-8% of the toll. That’s similar to the cost of The dynamic pricing pay-off: municipal officials, dynamic pricing collecting fuel tax.4 what L.A. got out of it is best positioned not as a windfall Financing – Federal grants might be a Starting in 2012, the city of Los Angeles for budgets but a way of cutting financing option: they helped fund the parking began implementing demand-based congestion, creating faster, more management system in Los Angeles. parking. Here are the initial results: predictable travel times, safer roads, Smart data sources – A large portion of the • An initial rate reduction at 60% less pollution, and nicer cities. costs is related to data collection (sensors, etc.), of the meters but several cities are also testing an asset-light These should be the key success metrics approach – using cameras to monitor spaces for • A rate increase at only 27% of meters of your initiative. Yet you’ll still have to make a few weeks, combined with enforcement data the case that dynamic pricing is the logical next and partial sensor coverage – to significantly • An average hourly rate reduction of 11% step, with proof points, and arguments against reduce costs.5 perceived obstacles. • A 2% overall increase in revenue Acceptance – 83% of Americans support tolling The good news: it’s not as hard as you might on existing highways.6 • 10% less parking congestion think. Have a look at these stats: Safety – Getting people parked faster can save • 5% more occupancy of Costs – The cost of toll collection in a mature lives: accidents involving pedestrians and underused spaces system (after amortisation of infrastructure, bicyclists happen most often during such as gantries, etc.) is generally around the hunt for parking or as vehicles are leaving spaces. 7 conduent.com 18 The four principles of dynamic pricing in transportation

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 We hope we’ve been able to show you what of traveling by building new market models and matters in demand-based pricing. You’ll have solidifying resources for investing for the future. noticed that it’s a roll-up-your-sleeves initiative that can help you tackle the reality of your Demand-based pricing helps you get ready for toughest traffic challenges. the future of travel. But most importantly, it sends an important signal to your residents and It’s well worth your effort. visitors: that you are committed to improving And it’ll get you ready for the next step up. the quality of life and making the most of precious resources.

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Thanks for reading!

At Conduent, 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 these assets:

Make your City city flow analytics Ten ways data can improve your Seven causes of congestion city planning, traffic flow, public and how cities are tackling them transportation and parking efficiency conduent.com

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Sources

1 http://www.cit ylab.com/commute/2013/08/hot-lanes-are-even-more-popular-when-theyre-expensive/6577/ 2 htt p://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

21 About Conduent

Conduent is the world’s largest provider of diversified business process services with leading capabilities in transaction processing, automation, analytics and constituent experience. We work with both government and commercial customers in assisting them to deliver quality services to the people they serve.

We manage interactions with patients and the insured for a significant portion of the U.S. healthcare industry. We’re the customer interface for large segments of the technology industry. And, we’re the operational and processing partner of choice for public transportation systems around the world.

Whether it’s digital payments, claims processing, benefit administration, automated tolling, customer care or distributed learning – Conduent manages and modernizes these interactions to create value for both our clients and their constituents. Learn more at www.conduent.com.