Revenue Management in the Parking Industry: New Business Opportunities

Revenue Management is a powerful tool to increase revenues. This has been proven in the airline industry, but also other industries provide Revenue Management opportunities. Recently, PreMa has successfully applied Revenue Management techniques for one of the worlds largest off-airport parking facilitators, creating millions of additional yearly revenue.
The passenger seated next to you in an airplane most likely paid a different price for his ticket than you did for yours. This price differentiation is a result of Revenue Management (RM). The use of RM is common practice in the airline industry and determines the difference between profit and loss for most airline companies. Because of its commercial success, RM is currently also used in many other industries, such as hotels, tour operators and car rental companies.

Recently it has also been proven that RM techniques can be applied successfully in the parking industry. In a joint effort between CWI, ORTEC and VU University, PreMa has applied RM for one of the worlds largest off-airport parking facilitators. This has boosted the yearly revenue and led to a strong enhancement of the competitive edge of our customer.

RM is a method to increase revenue by selling the available amount of capacity (for example an airplane seat or a parking spot) in a smart manner, by offering different prices to different customers. In order to determine how much capacity can be offered at what moment and at what price, statistical methods and optimization models are used.

RM is usually applied to products or services that are perishable and have a fixed amount of capacity: the number of seats in an aircraft is fixed and an empty seat cannot be sold when the aircraft has departed. If the price offered is (too) low, the capacity will sell out quickly but the revenue wont be high. At a (too) high price much capacity will remain unused. Applying RM will result in an optimal balance by selling the available capacity at different prices.

The willingness to pay for a product or service often varies for different groups of customers. Consider for instance the difference between a student and a businessman. RM utilizes these differences. The different groups of customers can often be distinguished on time of booking or flight, but also by the choice of sales channel or additional features (such as extra service or cancellation options). By offering different products at different prices, demand is stimulated for various groups of customers. When applying RM, the availability of the different products is managed carefully to prevent from selling too much capacity at a low price. If necessary, the availability is adjusted during the process.

RM can be applied to parking facilitators with great effect. Similar to airplanes, the capacity of a parking location is fixed and time-bound. Furthermore, the increase in the use of information technology offers much data on the parking behaviour of customers. This data can be used to analyze customer behaviour, possibilities for price differentiation and eventually price and availability. This means that revenues can be increased by utilizing the already available data in a smarter way.

Technological advances have also introduced new sales channels, such as mobile phones and the internet. Just like differences in parking time, parking duration and subscriptions, the different sales channels offer good possibilities for price differentiation.

PreMa has applied RM for one of the worlds leading off-airport parking facilitators. Based on an analysis of parking behaviour we have introduced smart price differentiation and market segmentation. We also developed and implemented demand forecasting and optimization models. These models are used to determine how many parking spots should be offered at which time and which price. Applying these models has led to an increase in annual revenues of millions of dollars, thereby strongly enhancing the competitive edge of our customer.

To summarize, the use of RM techniques has been successfully applied for one of worlds leading off-airport parking facilitators. This case demonstrates the great revenue potential that RM offers parking facilitators, which is currently often left unused. This, while the needed data is already available for use!
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