Dynamic Pricing: A New Revenue Stream for Parking
Yield management is a pricing strategy by which any business that has a fixed number of products can optimise revenue. It is the process of selling the right product to the right customer at the right time.
Demand-based pricing of fixed-time, limited resources such as hotel rooms, rental cars, train, plane and bus tickets is a familiar concept, with most people willing to pay different prices for the same product at peak times or out of season.
Ride-sharing app Uber manages revenue in peak times with surge pricing: Fare rates automatically increase as demand outstrips the supply of available drivers near the passenger’s location, ensuring a reliable service for those people who are prepared to pay a premium for not having to wait. Users who would rather avoid the price hike are notified via the app when the price drops again.
Can it work for parking?
Availability in parking is defined by the number of parking spaces in a facility. This fixed number represents the inventory of that parking lot. A space can be used multiple times per day with fees charged in hourly, half-daily, daily or other designated time slots.
There have traditionally been several ways to optimise revenue from car parking. Building car parks over multiple floors maximises use of real-estate space. Vehicle flow can be carefully planned, mapped and controlled so as much of the lot area as possible can be allocated to parking. Some operators offer ancillary services such as a car wash or petrol pumps, others hire out their facilities for makeshift commercial use like farmers’ markets, festivals and events. One Miami Beach car park has even been used as a wedding venue.
Modern innovation plays a part in optimising space too. The car park at the Emirates Financial Towers in Dubai boasts the largest intelligent parking system in the world. Its automated vehicle stacker can manage up to 360 cars per hour, moving as many as 6 cars in or out every minute. The total capacity of the facility is a massive 1191 cars over 9 floors.
As car parks develop to integrate cutting edge technology, two pricing models exist.
- Fixed rate: The familiar parking fee; drivers pay the same price per hour to park whether demand is high or low. Fixed rates are sometimes varied with fixed incentives such as early bird specials or event rates to help generate more revenue. For example, the town centre car parks in Exmouth, Devon UK, offer a fixed out-of-season day rate of £2, the normal charge for a two-hour stay, in an effort to attract more people to the local shops.
- Dynamic Pricing: Prices are adjusted based on real-time supply and demand. Cutting rates when demand is low can attract more drivers to park at the facility. People choose to drive and park rather than using alternatives such as ride-share apps or public transport. Rates can be increased at peak times, when high demand places parking at a premium. This is a proven way to get more revenue from the same inventory.
The starting point for successful dynamic pricing is to forecast demand for parking. Look for daily, weekly and monthly patterns, identify when occupancy is at its lowest and when demand is high. While you can make some reasonable assumptions about occupancy based on experience, accurate data makes it possible to see this information in real-time and to predict future use. Historical data will allow you to see rises and falls in use by time of day, day of the week, seasonally, and around special events.
Data can be collected through an online parking e-commerce platform such as that offered by Rezcomm, and via other digital innovations including registration plate recognition and mobile pay.
An online platform enables the operator to set flexible rates which can be switched in an instant, and to measure the success rate of changes with integrated reports systems. By working with an e-commerce partner such as Rezcomm, operators can integrate an online booking process into their website, offering certainty for the driver through pre-booking. Mobile-pay adds convenience for the customer. Dynamic pricing can be paired with digital signage to allow operators to vary rates for drive-in customers as well as online/mobile users.
Understanding and using the data
This data is only valuable if it is properly organised and interpreted.
A parking and revenue management solution should be fully responsive and allow the operator to use the data to build a yield management strategy. The software enables the operator to:
- Better understand customer behaviour and habits
- Quickly and efficiently distribute available parking spaces
- Determine optimum pricings
- Assess performance and return on a daily, weekly, monthly and annual basis
- Accurately predict fluctuations in demand and determine corresponding price changes
While it may seem counterintuitive to charge less when you are making less profit, empty spaces equate to lost revenue. Lowering rates when you have a lot of empty spaces encourages more people to park, increasing overall yield.
In reality, no car park is the same. Drivers look for parking that is near their destination. If a customer is going to the theatre, a car park across town from the Theatre District will never compete with parking right near the venue. Consider pairing with local amenities to offer a parking package with a theatre or cinema ticket.
Some car park operators price space according to convenience or size, with larger spaces or those in prime locations at premium rates. When all the standard spaces are full and only premium spaces remain these premium spaces are offered at a lower cost. Customers who expected to get a standard space get a nice surprise and a sense of good customer satisfaction.
There may be times you want to offer special rates and/or employ strategic and tactical controls as far in advance as possible. Perhaps your car park is near a major sporting ground that has just been chosen to host a large-scale event in two years’ time. It’s not too early to start planning your strategy for marketing and pricing to maximise the revenue from each space. As the event approaches, make use of the reports produced by your revenue management software to check the results of your yield management strategies, and be prepared to make adjustments based on both the success of your strategy and the success of your competitors.
An Ongoing Process
Yield management is not a one-time job; it is ongoing throughout the life of your business. Monitor and review your strategies regularly and look for opportunities to improve revenue. Think of this as a chance to forecast future demand too. Be clear what your goals are and be honest about whether you have achieved them
Keep Your Customers Happy
Within all the considerations of variable pricing and revenue improvement, it can be easy to forget that parking is a service. Customers - especially frequent or repeat customers - appreciate pricing consistency. They don’t like to see parking costs fluctuating too frequently or too excessively. People like to know what to expect and to feel they are getting a good deal.
Find a price point that gets drivers parking in your lot as consistently as is realistic, and design your dynamic pricing in a way that makes sense and seems fair to your customers.
Then work on the aspects of your business that make the biggest impression: Customer service, and good quality, well maintained facilities.
If you would like to speak to Rezcomm about how we can help with yield management for your parking inventory, contact us today.