There have been decades of price fixing set by parking Tzars who are driving agendas unrelated to parking. A poor understanding of supply and demand creating parking “bread lines’ not unlike those seen in Russia in the 1970’s, almost totally oblivious to what happens on the street every day. Not until this type of parking is swept from the streets, like this type of philosophy was swept from the Soviet Union all those year ago, will we actually get a responsive, correctly priced commodity, with pricing and availability signals eagerly gobbled up by the consuming market place. Until this is instituted, we could be paying too much for parking as easily as we could be paying not enough.
Modern parking is not like the Soviet Union I hear you stammer! Well, there is less now than there was but we are still seeing the effects of that style of parking management every day. Parking staff get abused because they garner no respect in the public’s eyes, our managers are sometimes not treated seriously in the streets’ hierarchy, and they may not be trusted to make simple operational decisions …… like pricing.Ā
Why do people not value parking and respect the people in it? It is because price fixing and rationing has never allowed the TRUE VALUE of parking to be floated in the market place. In fact, there has been no market place, proving my point. This was done originally because price was never linked to the desire to change behavior until much later and after the car was well ensconced in the city. After all, why charge when the horse could be parked anywhere?
Still today, many cities have price fixing and rationing as a standard parking operation, that is, no dynamic pricing and no regular changing price to match usage or even the season.Ā
When prices are held below the natural price levels, investor capital seeks better returns elsewhere. No investment is entertained but those looking for good returns, so the parking industry, an industry that we all touch every day, is left with two outcomes, 1) technology and the internet of things had a delayed entry into the industry; and 2) parking is viewed as a labor contract and not an expertise contract.Ā
With a labor contract you get no expertise, just more of the same: No improvement in your operation and methodology and you may as well forget adding that clause in your agreement about the operator providing comprehensive marketing, development and benchmarking reports.
The price-controlled entity, created with public funds and without incentive, desire or market force to improve, tends to offer dated technology and service, high cost margins, and limited customer offers, which culminates in a lack of value from the asset.
Markets need to charge the appropriate price to allow the market system to work, to weed out the weak and failing companies and to reward those that are good at it. This is how a market should work, to charge the appropriate price, build up capital and offer better services and technology and even add extra lobbying weight.
Questions about what the appropriate price is can now be solved with Shoup’s work driving the “price’ into the background and understanding “utilization rates’ for the asset as a much better tool to achieve long term demand management.
I have heard people, experts at something, tell me what the price will be. “The price will be $5 per hour”. You respond by saying “Why? How did you get to that price? What did you benchmark that against?” Most of the time it’s a price that they feel they can sell to other Councillors or to the public. It has nothing to do with management of demand or driving outcomes to fit into transport plans or asset management.
So, the question then becomes, “What is the appropriate price?”. Most seem shocked when I say, it’s actually impossible to over-price or under-price parking because with a variable price ensuring a perfect utilisation rate, the price is always just right. If you manage your asset to ensure proper usage by applying utilisation rates, in the same manner as you manage a factory machine, running at perhaps 95% day in and day out, then you must change your price to achieve the utilisation target.Ā
If the utilisation climbs too high, you raise your price which will result in the utilisation rate falling back into control or back into range. If the utilisation falls too low, you drop your price which will result in the utilisation rate climbing back into control or back into range. Basic economics supply and demand.
One of the best ways to view modern price setting is by looking at this sine wave example:
Here the price is set and the car parks are full to overflowing and then empty. This could represent hours, days or seasons. It shows how inefficient a fixed price regime actually is. This is how parking has been managed for decades.
In the second image, this is how an efficiently controlled asset is managed. We swap the price and utilisation rates around, so the price moves instead of the utilisation rate. The asset is better managed and all the benefits of this flow to the community.
The price-controlled
entity tends to offer dated technology and service, high cost margins, and limited customer offers..
So, if you start with $5 and then monitor it, with good communication to the users, the changeover say a month of the occupancy rates, gets the treatment through the pricing elasticity calculations to come up with a new price for the next month. It may now become $4 or $6 or even stay at $5
At some stage a fixed price option will always be either be too high or too low. This creates vacant car park sites that badly need an upgrade and maintenance (due to a lack of revenue and therefore investment), or congestion and frustration as cars circle to find a vacant space. Either option is a sign of a poorly managed site.Ā
Soviet-style price controls create an undervalued and under-respected resource where long lines of consumers gather to take advantage of a city’s miscalculations like loaves of bread. Also, the city then struggles to justify any return investment in the asset as there is no revenue to facilitate the improvements, so the baker stops making bread as he is not making enough money for the hours he puts in. It’s time for Glasnost and Perestroika in the parking world.
Kevin Warwood is the Chief Operating Officer, IPARK,Riyadh, Kingdom of Saudi Arabia. He can be reached at Kevin.warwood@gmail.com.
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