Back and Forth

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Back and Forth

Following is an exchange between myself and a reader of this blog by email. I reprint it here:

Mr Van Horn:

I came across your blog regarding the parking rates today and thought you touched on a very interesting issue regarding the existing way parking prices are set by the garages – most parking rates are set by looking at the garage across the street. I was wondering what’s your opinion regarding the existing pricing method? Do you feel that the garages are optimizing its resources and profit using this method?

My Response:

The commercial garage is one of a few interests left that are completely affected by their location. When I decide to park my car, I decide based on where I am going and on the price to park. Other factors such as the way a garage looks, the lighting, perceived security and the like also play a factor, but in the end, price can swing the deal. Therefore garage prices are set based on the local marketplace.

If garage A set their price at say $5 a day and Garage B next door at $12, which would fill first? In a highly competitive market, like New York City, For instance, rates might change hourly. There, when the first hour might be $20 and the daily cost $50. A 10 or 15% change can make a substantial difference.

Unlike other commodities, if a space is empty for an hour because someone goes across the street, that space cannot be resold later "on sale".

Its now or never. Frankly, the setting of parking rates by reviewing the existing market is the only logical method I have ever considered.

That is the reason for the tremendous disparity between the pricing say in Manhattan and Bakersfield. In Manhattan if you want to park your car, you pay the $50. In Bakersfield there are empty parking spaces everywhere.

If the garage owner wants to have customers, he sets his price to attract parkers.  Of course the cost of the parking space does have something to do with it, the price of parking is set much the same as real estate by location location location.

Thank you so much for your thorough response 🙂

You mentioned something really interesting in the New York market in which rates change hourly. Do you mean by rates actually changing every hour or just different prices for different duration of stay? If it’s the former, does the rate change base on the inventory level in the garage?

Regards,

The manager of one lot has some empty spaces at 11 AM and lowers his prices. The lot across the street sees the lower prices and then lowers theirs.  In the meantime the first lot gets in an additional 10 cars. Doesn’t seem like much, but then when the rates are $30 that’s an additional $300 a day, all for changing a sign.

Happens a lot in NYC, particularly in smaller locations — Note I think its actually illegal to do this, as I believe you must notify the city before raising or lowering rates, but temporary signs go up for a few minutes and make a big difference.

J

My further notation to Janelle, who by the way, is a student, I believe at the Wharton School of Business at the University of Pennsylvania:

The parking industry hasn’t matured as many others have. I suggest that people’s habits can be changed if other services are offered by garages. I will pay more to park in a certain garage at the airport because I like the fact that when I return my car is ready, door open, and I can simply drive out — that is worth an extra $4 a day to me. There is a garage off the Balto-Washington parkway in Columbia, MD, that supports a large shopping mall. I don’t know whether they charge or not, but people love to park there because it is so well lit. Many garages offer amenities (dry cleaning stores, audio books, umbrellas when it rains, car washes) and that brings repeat customers in. Some garage operators offer affinity cards that give slight discounts to certain parkers. Many garages actually increase the lighting at the entrance to attract parkers. (like moths to a flame).

However by an in the large, the reason people park in a certain garage is its proximity to where they are going. They are willing to walk a block, I think, if the price is lower, however not much more. There have been studies done as to how far people will actually walk, and it ain’t much.

Remember, we are talking daily parking here. Monthly parking is a different animal. Often it is paid by the person’s employer — and that opens up another can of parking worms.

I suggest you read "The High Cost of Free Parking" by Don Shoup — Its on Amazon.

JVH

John Van Horn

John Van Horn

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