Dynamic pricing based on demand and supply fluctuations is not a new concept. Anybody familiar with ridesharing apps is well aware of the surge pricing the platforms use. The app considers the number of users looking for rides in a particular area and the current traffic situation to set a rate that is seemingly reasonable to both the driver and customer.
Parking also experiences a demand curve of its own. Some spots can experience higher demand than others depending on factors like ease of access, car shade, and electric vehicle charging capability. Similarly, a parking lot can have more cars at certain times than at others. A shopping mall's parking, for example, typically has more vehicles in the evenings and over the weekends than during weekdays.
More often than not, customers are willing to pay more for a better parking space or any space when demand is high and capacity is limited. They also expect a low rate for less convenient spots or when the parking lot has many free spaces. By adopting dynamic pricing, operators can base their rates on demand and supply variations rather than using flat rates. That way, they can maximize revenue when demand is high and uphold customer satisfaction when demand is low.
The appeal of demand-based parking pricing
Many parking lot operators are yet to implement dynamic pricing. Most parking facilities charge fixed rates regardless of demand. These rates are often determined using numerous assumptions and unorganized historical data. As a result, operators miss valuable opportunities for revenue generation.
The primary appeal of demand-based pricing is that it enables parking managers to maximize returns by charging more for parking spaces and parking times that experience the highest demand. This strategy offsets any potential losses during off-peak periods.
Moreover, lowering rates for low-demand spots in off-peak times can incentivize drivers to occupy them. Therefore, operators can get some returns from spaces that are typically empty when demand is low.
For drivers, dynamic pricing offers an opportunity to pay for parking based on the actual value of a space. People who normally park during low-demand periods or in spots that are in less demand can enjoy paying less than usual.
Additionally, demand-based pricing can make parking more available during peak times. Because parking will be most expensive when demand is highest, drivers will be motivated to vacate their spaces sooner than planned. As a result, new visitors can find parking faster and spend less time driving around a parking lot.
Charging more for prime-time parking or more convenient spaces can also be beneficial to drivers. Motorists willing to pay more will be more likely to find their premium spots empty when cheaper ones are occupied. Furthermore, some drivers may opt for other transport modes during peak parking times. Public transport, cycling, or walking are all alternatives that can help to reduce the environmental impact of driving.
Cities are gradually adopting dynamic pricing
Dynamic pricing is a fairly new concept in the parking industry, but it has gained significant momentum in recent years. Several U.S. cities have implemented this model for on-street public parking.
San Francisco, for instance, upgraded all its parking meters to “smart meters”, unlocking demand-based rates throughout the day. So far, the project has successfully demonstrated the gains of dynamic pricing, particularly on parking availability. The approach has resulted in a 43% reduction in the average time spent looking for a parking space, which has brought positive implications on traffic and pedestrian safety. Parking spaces that were previously empty with flat rates of $2 per hour are experiencing much higher demand with new dynamic rates of as low as $0.25 per hour.
Adopting dynamic pricing allows city parking operators to offer motorists more value for their money. The data used to develop demand-based pricing strategies can also inform other decisions, such as capacity planning and parking lot expansion.
How can technology help?
The effectiveness of dynamic pricing hinges on the mode used to measure parking demand. Thankfully, modern technology is making it possible for parking operators to determine the optimal price point for particular spaces and times for maximum ROI. With parking reservation apps like Pavemint, operators can know when most drivers visit their lots and which spaces enjoy the most demand. This data can enable them to keep track of space occupancy more accurately and raise or lower rates when demand is higher or lower than supply.
Demand-based pricing creates the ideal price point for parking that works well for both operators and customers. As a parking lot owner or manager, you can explore this approach to maximize revenue while giving drivers a smoother parking experience.