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. What if We sold transit fares like cell phone minutes? Smart Fares Adam Davidson, MCP PhD Student, Geography CUNY Graduate Center, NYC ADavidson@gc.cuny.edu
- 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. 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. 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. 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. 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. 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. 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. Old Way The way fares are sold in NYC, using 2009 numbers as an example
- 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. 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. Smart Way They way fares could be sold using SmartFares to reach an average fare metric
- 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. 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. 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. 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. 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.