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Reimagining the Curb (Part 2): 5 Factors Driving Demand-based Pricing

This is the final part of a two-blog series on curbside management. Part 1 focuses on initial steps transportation authorities should take to optimize curbside demand. In part 2, (below) Matt Darst digs deeper into factors required to implement demand-based pricing.

In addition to applying the correct pricing algorithm to suit municipal parking needs and local requirements, there are five additional factors that play crucial roles in pricing parking to optimize curbside demand.

  1. Segments – Parking rates may be partitioned across the hours of each day to optimize demand. The challenge here is to reduce the likelihood of pricing errors while still keeping segments simple. To ensure that motorists take pricing into their parking decisions, municipal curbside managers must ensure rates are easy to understand and communicated to drivers in advance.  Changing rates ‘on the fly’ without alerting the public won’t help municipal leaders influence driving behaviors.

It’s important to note that the difference between drivers understanding hourly parking rates and having no expectations concerning the cost of parking is the difference between serving customers and holding drivers hostage. Customers are informed of their options and make decisions accordingly.  Hostages arrive at a meter and will pay whatever’s required to park because it’s too late to turn around and go home. Based on the quality of each parking experience, drivers are less likely to return when faced with sudden, arbitrary or difficult parking scenarios.

Policy-makers should implement as few segments as possible, while still encouraging rate structures that reduce demand during peak time periods. That typically translates to three or four segments per day and, whenever possible, they should begin and end on the hour to reduce confusion. It’s much easier for customers to plan their trips when they know rates will increase at noon as opposed to 12:23pm. Generalizing segments of time across a number of days is recommended whenever possible to further simplify messaging.  

LA Express Park implemented the following segments Monday through Friday to strike a good balance between clarity and accuracy:

  • 8am – 11am
  • 11am – 4pm
  • 4pm – 8pm

In Los Angeles, meters operating on Saturday and Sunday required only one segment due to reduced weekend utilization.

  1. Increments. The amount of a rate increase or decrease must be sizeable enough to influence behavior. Smaller changes are generally inelastic and are less likely to impact demand. Larger changes will be noticed.

In Los Angeles, rates were initially reduced at 60% of the parking meters by an average of 11%. Rates were only increased at 27% of parking meters. The rate changes were all increases or reductions of 50 cents or more. The new rates led to a 10% reduction in parking congestion at the highest utilized meters and a 5% improvement at underutilized meters. In addition to improving convenience, the adjustments improved revenue by 2% as well. Demand for parking was relatively unchanged in tests using smaller increments.

  1. Frequency. Typically, fewer well-communicated rate changes carry more weight than frequent modifications. Customers may suffer from communication fatigue, or the exhaustion felt from receiving too much information, if rate changes occur more than four to six times per year.
  1. Thresholds. Price adjustments are generally limited to bands established by ordinance. The bands, however, must provide enough flexibility to change behavior. Laws that prohibit adjustments beyond a percentage of the original hourly rate create an artificial cap. Such caps are less successful because they assume the original rate structures properly addressed demand, which is rarely the case.
  1. Time limits. To price parking properly, parking managers should use as many tools as available. One tool that doesn’t get used often enough is maximum meter stays, or time limits, which are as necessary and effective as the other foundational demand-based pricing tools to influence parking demand.   

Existing time limits are often arbitrary. They don’t fully address demand or the types of businesses served by the meters on a specific city block. Time limits rarely correlate with overarching goals. By increasing time limits in areas where utilization is especially low, transportation managers can shift meter use away from high occupancy areas. In Indianapolis, for instance, the city was able to improve utilization by 20% at underused meters, by simply extending time limits.

Ultimately, when customers get parked quicker, there’s less congestion, fewer distractions, a lower likelihood of injury or harm to pedestrians and bicyclists, along with fewer altercations. However, demand-based curbside management must be properly implemented, as in L.A. and in Washington D.C., by utilizing the expertise of data scientists and machine learning to evaluate each city’s parking systems and make recommendations for pricing that includes segments, increments, frequency, and maximum stays.

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