Photo by MattHurst via Flickr

(This was originally published at MobilityLab.org by Mobility Lab contributor Adam Davidson a geography PhD candidate at the City University of New York and an urban planner.)

How many cell-phone minutes do you pay for in a month? Or gigabytes of data? Are you on a family plan? Do you get a group discount from work? What does this even have to do with transit?

If we think of a transit trip like we do a cell-phone minute (or megabyte) we start to realize that there are many ways to package our usage. While cell-phone plans have many flavors that pertain to many different types of users, public-transit fares tend to come in variations of just two flavors: single ride or unlimited.

But, electronic-payment infrastructure, such as Smart Cards, can allow market segmentation that wasn’t possible with cash, token or paper fare media.

Governing bodies of transit agencies should adopt average fare revenue based on ridership projections rather than set actual fare prices. This will allow agencies and their marketers to create many price points based on other pricing models, such as the one used by the cell phone industry that was instrumental in encouraging the adoption of cell phones.

Doing so will allow customers to decrease their marginal costs by increasing their fixed costs. The result would be a more competitive transit trip and greater perceived value of the transit service.

The main hindrance to this system is political. The technology needed to make this work has been around for years now. However, fares are still set under models that were created when the token or travel ticket were the best methods available. Thus, when a fare is set by the government, they approve specific prices for specific journeys and passes with discounts broadly applied or only for specific protected classes of people. Instead of having government set the price, they should set a revenue goal that is based on average fare and ridership.

This arrangement would allow the transit agency to engage in market segmentation — a term implying that people who have different values for a service are charged differently for it. Thus a Wall Street banker could end up paying more to get to work than the janitor in the same office because they have different price-points and needs where they find value.

One way to accomplish this is to sell transit fares the way we sell cell-phone minutes. A customer (a term I differentiate from a rider, since it implies that the person has a choice in how they travel) could conceivably select from a matrix of needs like off-peak usage, the ability to trip chain, their frequency of use and their desire to share their plan with a family member. Promotions and bundling could also serve to attract customers (see examples in my presentation here in this Slideshare).

Smart Fares: What if we sold transit fares like cell phone minutes? from Mobility Lab

Ideally, the fare solicitation process would be overseen by the transit agency but managed by a third-party marketing and sales-force contractor. This agent would be responsible for creating, managing and adjusting pricing scenarios, staffing customer-service centers, and maintaining account portals on the Web, at kiosks and at key transit stations. What is critical here is that they are given an average fare target to meet, with incentives for meeting and improving their performance in terms of revenue, customer satisfaction and social equity.

However, emulating cell phone plans is just one direction that pricing models could go. The main point is that transit agencies should be freed from the political restriction of mandated prices, and instead, be given incentives to innovate and grow their customer support via flexible pricing that meets revenue targets.

Current technology can support this kind of service and experimentation. Pilot projects could begin right away between transit agencies with supportive fare infrastructure and marketers to test such new pricing matrices.

In a successful program, Smart Fares would achieve multiple goals:

• Transit would be able to compete more directly with car travel at the point of decision due to decreased marginal costs, while sunk costs would encourage a boost in ridership and revenue.

• This system would encourage the view that transit riders should be treated as customers rather than users, a distinction which implies that they have a choice when they travel.

• Equity can be enhanced as the transit dependent could be actively encouraged to find value in a plan that fits their needs, and special pricing could still be targeted to them.

As our transportation infrastructure evolves, so should our payment infrastructure.

Smart fares supported by a revenue-based — rather than a price-based — fare policy can allow this innovation to move forward, thus enhancing our public transit systems and all the benefits that they provide.

In case you missed it...

Read our METRO blog, "Operator training: Mastering right turns."