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Minute based tariffs: car park operators should take the chance
Why waiting for legal constraints to implement per-minute rate cards in car parks?
In a few countries, legal constraints make it mandatory to charge parking fee per minute or quarter hour: a French law voted in March 2014 aims at redesigning any car park price grid by use to make it fairer for users by July 2015. Spain legislated in favor of minutes-invoiced car parks in 2007.
What appears to be a better and fairer price for the customers may be perceived as a major risk for the car park companies’ revenues. Yet, if correctly managed, the conversion from hourly rate cards to per-minute ones (or per-quarter hour) can increase clients’ satisfaction while securing the turnover.
And no need to wait for a legal obligation: this new pricing scale can give a competitive advantage to car park operators who decide to switch to a per-minute rate card.
A customer wants to pay what he consumes, not more
“Any hour begun is due”. This is how the business model of car parks was lead for decades. But like what happened for the telecoms turning from a minute based to a second based consumption, the car park sector is moving to a reduced time frame for invoicing.
In France, customers have showed enthusiasm for this evolution as it is fairer to pay for what they really consume. Many of them were complaining that they paid two hours when they were only staying one hour and few minutes more.
In countries where no legal constraint exists on this topic, one can easily expect that a driver will choose a car park that proposes per-minute pricing. And we can easily imagine the competitive advantage it gives to such a car park company.
This is definitely a strong demand driver that justifies to take the plunge. But the conversion must be done in the right way to make sure the turnover is preserved.
The conversion to per-minute grids represents a high stake for the parking revenues
The conversion of hourly grids to per-minute ones is a sensitive exercise that should rely on an in depth analysis of the demand distribution pattern to prevent a loss of revenue or a brutal increase of tariffs.
To illustrate it, let’s analyze the conversion from an hourly based to a quarter hour based fee for the distribution of 8 vehicles within the range 0 – 1 h.
The distribution is homogeneous with 2 cars staying less than 15 min, 2 between 15 min and 30 min, 2 between 30 min and 45min and 2 between 45 min and 1 hour (2222). The initial fee is 2€ for the first hour for a total turnover of 16 euros.
The first possibility to convert the grid quarter based is to split the tariff per four: 2€/4 = 50 cents. Those 8 vehicles are parked 20 quarters hour (2*1 + 2*2 + 2*3 + 2*4 = 20) for a total turnover of 20*0,50 cents = 10€ which represents a decrease of 37,5% in terms of revenue. To avoid this loss, one could set a price per quarter hour with an index so that 20*0,50*Index = 16€ à index = 1,6. Therefore the price to guarantee the same revenue should be 0,50*1,6 = 80 cents per quarter hour.
For an homogeneous distribution of parking duration, the converted fee to quarter hour is therefore 60% higher than the split per four to keep the same turnover. We can notice also that vehicle staying less than half an hour would pay 1,6 €, less than 2€ before, and those staying longer would pay more.
The results obtained with the same logic but for 2 different distributions of 8 vehicles (3221 and 1223) are gathered in the table below:
Impact of the distribution of vehicles for the conversion to a quarter based grid.
Depending on the distribution, the price per quarter that ensures the same turnover varies considerably. Moreover the distribution would likely not be the same for each stage to be converted.
But most important is the consistency to ensure between the various stages for which a price per quarter is proposed: indeed, the price per quarter hour for the stage 1h – 2h of course has to start at the price obtained after conversion of the stage 0h – 1h (for instance 3,20€ in our example).
This example illustrates that the conversion is not that simple and requires to solve rather complex math. In real life, the situation is even rendered more complex if a park proposes day and night grids.
To define the best solution model the approach to use is close to Revenue Management Techniques.
More for the early adopters
As we have demonstrated, the conversion of price grids is not intuitive and must rely on an in depth analysis of the frequentation’s distribution. The opposite would be gambling with the revenue or with the amplitude of price for customers.
Understanding the stakes of the conversion and the way to do it, a car park early adopter can benefit from a real competitive advantage without jeopardizing his revenue. We assume the earlier the conversion is done, the more customers the parking will grab to its competitors.
Ready to go!?