Dynamic pricing based on fluctuating demand and supply is a concept we are all too familiar with. Any Uber rider today is well aware of surge pricing based on real-time market conditions. The app calculates z number of users seeking rides in a given area, taking current traffic conditions into account. It then sets a price by calculating a fare that users are willing to pay. Read more about demand-based parking.
Parking faces a similar demand curve. Based on the location, time of the day, and ease of access, some spots see higher demand than the others. So why shouldn’t operators adopt dynamic pricing where supply and demand drive parking rates, varying by the hour based on location and availability of spots?
The Trailblazing SFPark Initiative
While India hasn’t yet adopted such a system, several cities in the U.S. have recently experimented with demand-based pricing for on-street parking. In 2011, San Francisco piloted the SFpark program where it upgraded all of its 29,000 parking meters to ‘smart meters’, enabled for demand-based price changes throughout the day. During its two-year pilot phase, the SFpark initiative was successful in demonstrating how demand-based pricing could improve parking availability without aggravating the problems of double parking and congestion.
The key finding – demand-based pricing resulted in a 43% decrease in average time spent searching for a parking space, which decreased from 11 minutes to 6 minutes. This also had implications for reduced traffic and greater safety for pedestrians. Blocks that were previously empty when parking came at a flat rate of $2.00-$3.50 per hour experienced much higher demand with rates as low as $0.25 per hour in some locations.
Indeed, tech-enabled initiatives such as this help reduce carbon emissions due to reduced wait times for drivers and provide urban planners with real-time data that can be mined for predictive capabilities. In turn, these can be used to improve future estimations of parking rates, leading to better capacity planning for existing lots and efficient investments in new lots. More recently, areas like Colorado, Iowa, and Washington D.C. have implemented demand-based pricing for on-street parking to reduce traffic and raise additional revenue.
Why is Demand-Based Parking ‘Smart’?
Apart from drivers, parking prices impact a multitude of areas in a city. If prices are too high, people may seek to avoid parking altogether, leading to too many vacant spots, loss in business, and reduced tax revenues. If prices are too low, there will be a shortage of spaces with drivers circling around spots, wasting time and fuel and worsening traffic.
Demand-based pricing can solve these issues and help parking operators maximize revenue. During times of high demand, increased prices can help control occupancy and generate more revenue. When demand is low, lower prices will attract additional customers to empty spaces. In a free market system, demand and supply ought to determine the pricing. Coupled with the efficiencies from digital systems, there is no reason why parking operators cannot leverage technology to maximize revenues. Riders also benefit from saving on fuel, reduced wait times, and better planning with the knowledge of vacant parking lots. Such a stress-free experience would increase the productivity of all stakeholders, including parking lot attendants. In short, demand-based pricing results in a win-win situation where we see less frustration, smarter travel choices, and reduced congestion on the roads.
Detractors of dynamic pricing have voiced concerns that it is just a ploy to increase revenues from parking. Such political opposition has kept initiatives like SFpark from extending to other cities even as its managers claim to charge the lowest possible price without creating a shortage.
On the other hand, supporters of demand-based pricing claim politicians cannot raise rates simply to make more money since it is the demand that ultimately dictates price. Moreover, the process of setting the price is based on a higher, not lower, degree of transparency. Despite varying political arguments, demand-based pricing certainly offers greater choice to consumers. In an ideal world where buyers can see all available parking spaces and their prices, they can choose their individual optimal meeting point of value and cost.
Leveraging Technology for Dynamic Pricing
To measure parking demand, technology comes to aid. Technological innovations are now making it possible for parking operators to find the optimal price point at a given time and yield maximum ROI. With wireless sensors, Wi-Fi networks, smartphones, and automated systems, deducing that price point is easy. The idea is to use sensing technology to keep track of open spots and raise rates when supply is limited and lower them when spots are in plenty.
The result – an ideal price point for parking facility operators that also works well for customers. Thus, operators can explore such solutions to maximize revenue while drivers minimize frustration and stress as a smooth parking experience ensues.