Smart Fares: What if we sold transit fares like cell phone minutes?


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If we think of a transit trip like we do a cell-phone minute (or megabyte) we start to realize that there are many ways to package our usage. While cell-phone plans have many flavors that pertain to many different types of users, public-transit fares tend to come in variations of just two flavors: single ride or unlimited. But electronic-payment infrastructure such as Smart Cards can allow market segmentation that wasn’t possible with cash, token, or paper fare media.

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Smart Fares: What if we sold transit fares like cell phone minutes?

  1. 1. What if We sold transit fares like cell phone minutes? Smart Fares Adam Davidson, MCP PhD Student, Geography CUNY Graduate Center, NYC
  2. 2. Goal Encourage transit use as much as possible through a fiscally solvent fare mechanism Problem Transit fares tend to come in 2 flavors: single ride or unlimited.This leaves a huge middle ground where people could choose transit but don’t because the marginal cost is too high and the sunk cost is too low.
  3. 3. Solution Implement ‘Smart Fares’ that decrease the marginal price of rides while maintaining or increasing the average revenue. Simplify the process as much as possible for the consumer. Got a cell phone plan? Peak and off peak pricing Add-ons Bonuses Family Plans Why not a transit plan??
  4. 4. Cell Phone Plan :: Transit Plan A transit ride could be a like a cell minute: •How many do you use in a month? •How much during the day? Night? Weekend? •Do you trip-chain? •Do you travel on other transit systems too? •Do you want to share your rides with your family? Sprint Cell Phone Plan
  5. 5. Smart Fares Are: Are Not: Technologically enabled Flexible – enable market segmentation Encouragement to buy/use more transit Fair – designed to provide value to the user Presented transparently General fare increases Price gouging One-size-fits-all Opaque to the consumer
  6. 6. Obstacles Assets Lack of fare equipment at many agencies that can handle SmartMedia Operations Lack of a robust Customer ServiceTeams in transit enterprises Political Lack of discretion in setting fares. Fares tend to be set by a political process, giving the transit agency little space to engage in marginal pricing.
  7. 7. Policy Solution Governing agency approves the average fare pegged to ridership expectations rather than the final fares. This Allows for: Selling transit in various bundles Cell phone model;Vacation bundling; Bundling with rent, etc Promotions & Sales Best Pricing Guarantees / Services Group/Enterprise pricing Social pricing for good causes
  8. 8. Operations Solution Fare sales are contracted to a marketing and sales organization whose job is to find and maintain customers at optimal revenue This Allows for: A customer-service approach to transit sales rather than a user/engineering approach The contractor manages and employs the CSR team Fare media that can be linked to a personal or enterprise account, then managed over a website, kiosk or with CSR representatives Expertise and flexibility in adjusting fare bundles to reach customers and average fare targets
  9. 9. Old Way The way fares are sold in NYC, using 2009 numbers as an example
  10. 10. 2009 NYC MTA Example 2009Totals Average Fare collected $1.41 Overall Fare Discount 34% Ridership 2.304 billion Fare Revenue $3.249 billion 2009 Fare Structure Jan 1 – June 27 June 28 – Dec 31 Yearly Average Base Fare $2 $2.25 $2.125 MetroCard bonus 15% for top-ups over $7 15% for top-ups over $8 15% for top-ups MetroCard ride after bonus $1.70 $1.91 $1.81 Monthly Unlimited $81 $89 $85 Weekly Unlimited $25 $27 $26 Various discounts such as the Metrocard bonus and the unlimited ride passes brought the effective fare down 34%. When asked the cost of a subway trip riders cite the base fare despite typically having used the bonus.
  11. 11. Sample NYC Rider Profiles Travel pattern Very Infrequent (no MetroCard) Infrequent Casual Rider Regular Rider Daily Commuter Unlimited Round trips / week 0 0.5 1 3 5 8 Rides/month 1 4 8 24 40 64 Real Cost per Month $2.125 $7.23 $14.45 $43.35 $72.25 $85.00 Value per Month (Sticker Price) $2.125 $8.50 $17.00 $51.00 $85.00 $136.00 • Most users will only get the pay-per-ride MetroCard • Mental cost calculations tend not to include the 15% bonus • Marginal cost feels like $2.12; is $1.81 • Some “Daily Commuters” may get the Unlimited out of habit or in case they travel extra during a particular period
  12. 12. Smart Way They way fares could be sold using SmartFares to reach an average fare metric
  13. 13. Pick your Transit Plan Travel pattern Very Infrequent Infrequent Casual Rider Regular Rider Daily Commuter Unlimited Plan Name Single ridePre-Paid Independence Freedom Liberty Unlimited Price $2.75 $9 $22.50 $60 $85 $100 Regular Rides 4 10 30 45 Unlimited Off Peak Bonus Rides 8pm-7am &Weekends N/A 10 30 45 Unlimited BONUS! Free NYCT rides to/from non-NYCT transit N/A 2 6 9 Unlimited Overage Cost $2.25 $2.25 $2.00 $2.00 NA Expires Same day Never expires Never, if topped up in 60 days 30 days 30 days 30 days CustomizeYour Plan Trip Chainer Turn your MetroCard into a 3hr Unlimited with Each Swipe! Add 10% to base plan Family Plan Share your plan with another family members MetroCard! Add 20% to base plan The Complete Package Add both the Trip Chainer and Family Plan, then get a discount! Add 25% to base plan
  14. 14. Sample Metrics Plan Name Very Infrequent Infrequent Casual Rider Regular Rider Daily Commuter Unlimited New Revenue $2.75 $9 $22.50 $60 $85 $100 Peak Rides 1 4 10 30 45 60 Avg Peak Fare $2.75 $2.25 $2.25 $2.00 $1.89 $1.75 Avg all likely used fares $2.75 $2.25 $1.61 $1.43 $1.35 $1.25 Avg fare if all used $2.75 $2.25 $1.02 $0.91 $ 0.86 N/A Old Revenue $2.125 $7.23 $14.45 $43.35 $72.25 $85.00 Old Rides 1 4 8 24 40 64
  15. 15. Other SmartFares Promotional | Bundling EARN FREE RIDES Upgrade your account Promo code: SMART “Spacious One Bedroom apartment includes granite countertops and Unlimited MetroCard” ROUND TRIP TO THE GAME
  16. 16. SmartFare Goals • Interim Sales-points are added between Pay-per-Ride and Unlimited • Riders are treated like customers – if they are offered value they will spend and utilize the service more • The expenditure converts from marginal to sunk cost • Experts at pricing and marketing manage the process, with discretion to adjust packages, bundles and promotions to reach an average fare target • Equity is maintained or enhanced as the transit dependent can be actively encouraged to find a package that offers them the most value. Special pricing can be enhanced.
  17. 17. Next Steps Conduct a pilot project with a transit partner Create a web service to manage accounts Offer Smart Fares to a sample population Try different bundles, promotions and plans Report results If successful, advocate for the political regulation of average fare rather than fare prices.