E-Mail Article     Request for image use     print page   

Irregular Behavior - ETC and the infrequent customer

Automatic ETC is great for regular drivers, but if you’re not always using toll roads, payment options can be limited. Operators will find that catering for this demographic – which is larger than you might think – could be crucial in future

Electronic toll collection has stimulated a renewed interest in tolling as a transportation funding source and a tool for demand management.

The first ETC system was deployed in 1987 in Norway and 20 years later it is commonplace. This single tool has created a renaissance in tolling and has removed one of the chief arguments against it – having to stop to pay a toll. Pricing public highways is now a part of the transportation policy debate in a way not possible without ETC. Without ETC, congestion pricing, demand management, HOT lanes and express toll lanes would not be possible.

To take ETC to the next level will require a leap of faith much like the one that created ETC in the late-1980s. It has saved travel time, improved air quality and made payment of tolls more convenient. But increasingly, the question is ‘what is next and how do we get there?’. There are many technological possibilities: GPS, EVR, VII, Galileo and mobile telephony are just some of the new methods that are being applied around the world. Will these new tools precipitate tolling policy innovation in and of themselves? What is the goal of implementing these new technologies?

The Future of ETC
Although technology advances can be a powerful stimulus to innovation in electronic toll payment, the requirements of the business case must take precedence.

Rather than focus on the tool, we should ask what the goals are. Many toll operators have begun to set strategies to attain an All Electronic Toll Collection (AETC) environment, which envisions no cash collections, toll plazas replaced with gantries, and all collections conducted through some electronic means. The advantages of AETC are increased time savings, greater environmental benefits from less stop-and-go traffic at the toll plazas, and operational cost savings. Finally, the cost of plaza and building construction, maintenance and utilities are eliminated, along with the fixed costs of handling and counting cash.

Table 1: The above shows the type of customer, percentage of the total customer base and trips made

The mixture of ETC and manual collections have presented operational and technical challenges as well. Conceptually, it is less confusing and technically less complicated to be either all-cash or all-ETC. The most complex configuration of toll collection from a technical perspective is the combination of coin machines and ETC in a single mixed lane. AETC will eliminate complicated mixed-lane configurations.

From the outset of ETC deployment, the industry expected reduced operations costs. However, as violation enforcement and account management functions were added and the fixed costs of cash collection lingered, operations costs tended to increase. AETC will immediately provide notable savings. Capital costs will be significantly less and structures will be more uniform and less costly.

The technology needed to implement AETC is in use today. There are now several fully operational examples of AETC systems deployed as a part of the construction of a new toll highway, but recently toll agencies have begun to consider a conversion to AETC. Although the goal seems clearer, it has remained elusive. Perhaps the question we should be asking is not what the technology is that will make AETC successful, but rather who are the customers and what do they want in an AETC system?

With the deployment of ETC, we have become accustomed to addressing the needs of the frequent customer. The commuter or business person who uses the system daily is more than willing to purchase a transponder, set up an account with a deposit and ensure that the transponder is properly mounted in the vehicle. The industry understands the frequent customer: they want transaction speed, convenience in payment and time savings. Processes are designed with the assumption that the majority of users are frequent repeat customers. This approach has been sufficient, until we come to the point of a full conversion to AETC. At this point, we must focus on the infrequent customer.

The infrequent customer also wants convenience of payment but only for a short time or for a few times a month or year. As the toll road is used less frequently, they are less willing to buy a transponder, place a deposit on account and deal with batteries or any other annoyances of electronic payment. They are less interested in expansion plans and the day-to-day operations as they are less impacted than a frequent customer who has a vested interest. If a convenient means is available to pay tolls in an AETC environment, the infrequent customer is willing to pay a little more per transaction for the service.

'TOLL OPERATORS MUST DEVISE METHODS THAT WILL ATTRACT CASH-PAYING CUSTOMERS TO ELECTRONIC PAYMENT'

The Infrequent Customer
Recent studies of several toll agencies in the USA have been quite revealing in terms of the composition of the typical toll road customer base. Data was collected through the distribution of surveys at key locations. The frequency of use was defined as daily, once a week, twice a month, once a month and twice a year or less. The survey process was conducted and verified to yield statistically valid results by organizations that are entirely familiar with survey design and analysis. Statistical accuracy of the number of customers within each frequency range varied, but was in the range of ±3-5%. The toll roads involved included urban high-volume segments and rural low-volume segments and the results can therefore be generalized to other toll roads. The results were astounding.

Customers who used the toll roads daily generated 33% of the total trips and yet comprised only 2% of the customers that used the toll road. The next most frequent category of once a week generated 27% of the trips and represented only 9% of the customers. When combined, these two frequency categories represented only 11% of the customers but 60% of the total trips on the toll road. Table 1 shows the customers and trips by frequency category.

The significance of this distribution is amplified when one considers the number of discrete customers that fall in each frequency classification. Table 2 uses an average annual daily traffic (AADT) of 150,000, which approximates the travel on the toll roads studied.

Table 2: The above includes average annual daily traffic: note that 88% of customers are infrequent - i.e they use the toll road less then once a week

The customers who travel daily generate 33% of the traffic and therefore 49,500 of the 150,000 AADT. As there is one daily use customer per day per trip, there are a total of 49,500 customers a year that travel daily.

All subsequent frequency categories require more than one customer on a daily basis to generate the percentage of trips reported by the survey. Those customers who travel once a week, for instance, comprise 27% of the trips, or 40,500 on a daily basis. It requires seven weekly customers to generate the 40,500 daily trips or 283,500 customers a year.

More than one customer is required to satisfy each frequency category, except the daily frequency. When this number is multiplied by the number of trips a day, the number of customers in each frequency can be calculated. For a roadway that has AADT of 150,000, there are approximately 3.3 million unique customers and have the distribution shown. Table 2 indicates that 88% of customers are infrequent users of the toll roads – i.e. customers who use the toll road less than once per week – yet most ETC programs are devised to serve the 12% of customers. Clearly, a strategy of using transponders only will simply serve to drive the infrequent customer into a violator status. Decision processes for the infrequent customer are not driven by the cost of the transponder or the effectiveness of marketing programs.

If the toll industry remains set on the goal of converting existing systems to AETC, electronic payment program focus must shift from frequent customers to those who are infrequent. Electronic payment methods must be developed that serve the infrequent customer as efficiently as we have served those who are daily users.

Electronic Payment Options for the Infrequent Customer
In the past, the infrequent or occasional visitor used cash to pay tolls, which was quite convenient. If toll agencies wish to dispense with this form of payment, new payment methods must approach the convenience of cash and must be implemented so that associated operational costs are less than those associated with cash collections. The data implies that a strategy of using ETC for all customers is unlikely to succeed, so other electronic payment methods must be considered.

With the advent of electronic payment, is this a sign that you will see less and less of in the future?

The toll operators, which have implemented AETC in the past have done so on Greenfield projects where there is no expectation of paying with cash. To convert to AETC, the toll operator must devise methods that will attract large numbers of cash-paying customers to electronic payment, otherwise the tendency of current cash-paying customers will be to drive through the toll gantries and become violators. The likely response of the toll agency is to increase enforcement and tighten the rules for sending notices. In this situation, the costs for processing non-ETC transactions will grow proportionally to the number of customers involved and the data shows that nearly 90% of the customers are infrequent customers. It is the last 30-40% ETC penetration that is composed mostly of infrequent customers.

Some toll agencies have simply billed customers if they don’t have an ETC transponder and have passed through the administrative costs on each transaction. Although this allows the toll operator to recover the back-office costs of AETC, it does not attract infrequent customers to use the facility. Such an approach might be termed a post-payment process.

Some agencies have started to introduce prepaid infrequent programs or preregistered accounts. Here, the concept is to obtain payment and license plate information in advance of – or within a short time after – having used the toll road. Information is provided using a cell phone during travel or over the internet before or after the trip. As the back-office costs are less, the costs that are passed through to the customer are less. This pre-registered account is similar to an ETC account but requires much less information. Once established, tolls can be charged using ALPR. These accounts are sometimes established for a short period of time, perhaps a vacation period. Basic information collected includes payment data, name, license plate number and termination date.

If an infrequent customer fails to establish a prepaid ETC or ALPR account – or to settle a bill sent from the agency – the customer goes into a violator status. Many people in the toll industry attempt to convert these delinquent accounts into customer accounts – it is an excellent opportunity to convert these customers into prepaid customers, either ETC or ALPR. Beyond this point, the violator must be pursued through the court system, a process that can be very costly to both the toll agency and the customer. Just as businesses sell ‘receivables’ to a third party, toll operators have begun to turn the collections process over to a contractor in exchange for a payment equal to the tolls due and accumulated administrative costs.

Convenience Counts
As the toll industry moves toward AETC, the payment methods offered to infrequent customers will be crucial. As ETC has been such a great success, some people have assumed that more is better. The data demonstrates that we have dealt with only 10% of the customer base when 60% ETC penetration is reached. To accomplish AETC conversions, we must deal with the other 90% of the customer base, by offering programs that provide convenience for the infrequent customer.

It would therefore seem that the future of tolling has more to do with understanding the customer than it does with the technology tools available. 

---

Bookmark and share