Sunday, November 27, 2011

Fare pricing and transit ridership

Gabe Newell, co-founder of Valve Corporation, recently gave an interview about game pricing strategies, with some perhaps surprising information as to the level of revenue increase thanks to lowering the price of games.

“The sale is a highly promoted event that has ancillary media like comic books and movies associated with it. We do a 75 percent price reduction, our Counter-Strike experience tells us that our gross revenue would remain constant. Instead what we saw was our gross revenue increased by a factor of 40. Not 40 percent, but a factor of 40. Which is completely not predicted by our previous experience with silent price variation.”

While retail purchases of games is, obviously, not the same as mass transit, the synergistic effect of heavy advertising combined with temporary reductions in fares should achieve the result of large increases in transit ridership. Presuming a decent level of service and that non-sale fares are kept at reasonable levels, a high proportion of the patrons ought to be kept, resulting not only in major increases in ridership and farebox recovery ratio, but also in political support for the capital funds needed for expansion and service enhancements.

Coaster, for instance, has seen a major gain in ridership this past year due in large part to lowered fares. According to page 47 of the November LOSSAN meeting, which details a Coaster ridership survey, 68% of new pass holders started riding due to lower fares, in full or in part. This is while showing 20-30% gains in ridership year over year and 26% of all monthly pass holders surveyed had started since January of this year, when a price reduction went into effect.

There are two major notable factors concerning ridership however. The first is that only 30% of Coaster passholders pay the full fare themselves. 23% have it paid entirely by their employer (46% of all new pass holders) with a similar amount receiving subsidies from their employer (over half of whom pay less than half the full fare out of pocket as a result). Advertising should probably focus upon this market then, seeking to win more customers from a pool already interested in Coaster ridership thanks to the very low fares. This could be as simple as liaising appropriately with individual companies near Coaster stations (or in San Diego proper) and getting permission to hang posters in the break rooms advertising Coaster and mentioning the individual company’s transit subsidization policies.

Such a simple means of advertising would do rather well as current Coaster advertisement is atrocious. 52% of those surveyed first heard of Coaster by word of mouth. Valve’s price drops don’t occur in a vacuum and they could not achieve such remarkable gains as 40-fold revenue increases without heavy sales promotions. Valve does have the advantage of a somewhat captive market when it comes to their promotions. All Steam games are, of course, through Steam and advertising for sales is presented when logging into Steam or upon exiting a game.

While there is not such a similar captive audience means for commuter rail ridership, the same principle of heavy focused advertising along with discounted fares should result in greatly increased ridership, with the loss of captive audience being made up for by a higher degree of advertising with consequent spending. This is something that Metrolink, with its stagnant ridership since the downturn of the economy and low existing ridership per route mile, needs to look at in order to boost its ridership numbers.

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