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. conduent.com 2 The four principles of dynamic pricing in transportation 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. conduent.com 3 The four principles of dynamic pricing in transportation 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 conduent.com 5 The four principles of dynamic pricing in transportation 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. conduent.com 6 The four principles of dynamic pricing in transportation Understand the rules for setting reasonable rates REASONABLE TOLL RATES conduent.com 7 The four principles of dynamic pricing in transportation 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. conduent.com 8 The four principles of dynamic pricing in transportation 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. conduent.com 9 The four principles of dynamic pricing in transportation Develop policies that improve the User user experience Experience conduent.com 10 The four principles of dynamic pricing in transportation Develop policies that improve the user experience A change in behavior doesn’t When considering dynamic pricing, always happen overnight.