Posted on by Nikhil

Marketing Strategies for Toll Facilities

So your consortium has won the concession of the toll facility – now it’s time to figure out how to increase the traffic levels on the facility so that you can pay off the interest payments that are coming up.  This paper discusses marketing strategies and techniques can improve the top line for the toll facilities. The paper focuses on toll facilities such as toll roads or toll bridges; however, the ideas presented herein are general enough to be applied to other toll facilities such as rail transit systems, rail roads or airports.

I. Background

Recent activity in the privatization of the toll facilities in the US has spurred a lot of interest among policy makers.  The amounts bid on these transactions are expected to be quite high resulting in high levels of interest payments to bond-holders. This means that the facility operators will need to maximize the revenues that the facilities produce.

The toll facility operators in the US have typically relied on the normal traffic growth (due to increase in population and employment) as the main source of increases in the traffic/revenue levels. These increases are generally high during the first few years of operations (due to the ramp-up effects) and then the traffic levels increase at a nominal rate once the road reaches a mature stage. One element that is missing from lexicon of the majority of toll facility operators is “marketing” and how innovative marketing strategies can be used to generate significantly higher than normal rates of growth of traffic (and thereby revenues) for the facility.

In this paper, we describe marketing techniques that can be used to induce more patrons to use the toll facilities. In the next section we describe standard methodologies for segmenting the customer base of the facility. Section III focuses on how to translate knowledge about customers into specific action plans that can improve the patronage of the facility. Next we discuss ancillary businesses that can provide additional sources of revenues to the facility. The final two sections summarize the guidelines for developing marketing programs and common pitfalls to avoid during the process.

II. Know Your Customers

Having a very good understanding of who your current and potential customers are is a critical requirement of a successful marketing program. Since all customers are not alike, the typical way to understand the customers is to divide them into a manageable number of segments that are homogeneous in their behavior relevant to their toll facility usage.

A number of techniques are available that can assist in segmentation. Usually the process involves survey of users of the toll facility as well as users of competing facilities to provide data for segmentation. Depending on the facility characteristics, it may be important to survey users of competing facilities – this will provide useful information on potential sources of new patrons. Once the data is collected, statistical analysis is used to split the users into discrete segments. The statistical analyses can involve one or more of several techniques such as conjoint analysis, factor analysis, discriminant analysis, discrete choice analysis, etc.

Characteristics of a good segmentation scheme include:

  • The segmentation scheme is based on variables that are easy to understand and reflect either traveler’s socio-economic or trip characteristics. Examples of good variables in the toll facility context include:
      • Trip characteristics

    – Length (long trips vs. short trips)
    – Time (Peak period vs. non-peak period)

      • Traveler characteristics

    – Income levels
    – Educational levels (can serve as a proxy for income levels)
    – Residence / Work location
    – Attitudes towards paying tolls
    – Etc.

  • The individuals within each segment are relatively homogeneous – in the toll facility context, this means that the individuals within a specific segment have similar attitudes/behaviors towards the use of the toll facility while the individuals in different segments have attitudes/behaviors that are significantly different
  • The segment populations are easily identifiable – by this we mean that it is easy to identify the segment members (for example a segment reflecting high income commuters is relatively easy to identify than say a segment reflecting people who love paying tolls.
  • In addition to the segments being identifiable, the segments should also be quantifiable. One should be able to estimate the market size (number of users as well as their value) of each of the segments
  • The total number of segments in any particular scheme should be small. It is often very easy to fall into the trap to identifying a large number of segments of users that have slight variations in terms of their usage of or attitudes towards the toll facility. However, this typically results in too many segments that cannot be properly handled by the facility operator.

Once the segmentation is done, the next step is to quantify the segments. The objective of this analysis is to determine the size of the segment – this should be done both in terms of number of users and the value of the users. The value of the user is not just the tolls that the users pay but also the amount the users may spend on the ancillary businesses that operate on the toll facility (for example, travel plazas). Other important metrics to estimate during the quantification process is the growth rate for each of the segments and the lifetime value of a particular segment.

III. So What Do I Have To Do

Once the market segments are identified, the next step is to identify a set of characteristics or attributes that the toll facility can provide and that the customers are looking for. In essence, these characteristics/attributes will form the basis behind any marketing program as they form the link between the buyer (i.e., user of the toll facility) and the seller (i.e., the toll facility).

The most common attribute between the toll facility and the user is the travel time savings offered by the toll facility. Other attributes can include safety and security, reliability of travel times and speeds, presence of travel plazas along the toll road, etc.

Typically each segment that is identified will have a different set of attributes. The quantitative surveys used for developing the initial market segments sometimes do not provide detailed information to be used for identifying the key reasons that a representative of a particular segment would want to use the toll facility. For this, qualitative one-on-one interviews are perhaps the most used technique. The qualitative interviews provide in-depth information that can be analyzed to deduce the factors behind one’s decision to use the toll facility.

Once these attributes are identified, specific marketing programs that promote these characteristics need to be developed and implemented. Because the decision factors of each customer segment may be different, several specific programs that target specific customer segments may need to be developed.

To keep within the marketing budget, it may be necessary to stagger the deployment of the programs by creating a matrix that shows which segments have to be targeted in the short term and which segments in the long term. The deployment strategy can be developed considering factors such as the current size of the segment, future size of segments, current level of usage of the toll facility, level of influence that a particular segment’s strategy has on other segments, etc.

It is very important to also leave out certain segments that are either very difficult to target or that are unlikely to use the toll road on a regular basis. By leaving out such segments explicitly, the marketing team can focus on the segments being targeted.

IV. Ancillary Businesses

Ancillary businesses can provide an important source of revenue for the facility operators. These businesses have the potential of generating up to 10-20% of the income for the facility owner. The key questions that should drive the development of these businesses are:

  • Would the businesses provide a consistent income stream?
  • Would these businesses help in successful implementation of strategies developed for one or more of the target segments?

The best businesses are those that satisfy both these requirements. However, there are many businesses that satisfy only one of the above requirements – such opportunities need to be evaluated on a case-by-case basis. In general, any business that that can provide a consistent income stream should be considered as long as the business does not have a negative impact on either the operations of the facility or the patronage of the facility.

Note that for all ancillary businesses to operate, it is critical that the facility owner obtain appropriate permits as required by the local and national laws. Also, the facility owner must ensure that the lease/sale/concession agreement with the State allows for development of these businesses .

Some of the businesses that the facility owners should consider include (this is not meant to be an exhaustive list but rather than an illustrative list of potential ideas):

  • Traveler plazas with shops: This is probably the most common business that existing toll facilities operate. By leasing out space in traveler plazas to restaurants, coffee shops and gift shops, the facility can generate a steady income stream
  • Gas stations: Most traveler plazas also have one or more gas stations in their vicinity. The gas stations can provide a steady rental income to the toll facility.
  • Cell towers: With the boom in cellular phone usage, certain toll facilities (long distance toll roads) can lease out space to cell phone companies to locate their cell towers. Rents for each site can be in the $1,500 – $5,000 per month range depending on the location .
  • Fiber optic and other utility lines: Toll roads can also lease out space to utility companies. If the toll road is under construction, it may be a good idea to plan for these utility lines.
  • Hotels on the road alignment: Toll facilities can enter into agreements with hotel operators/developers to locate their hotels within the toll facility’s land. This is only applicable when the toll facility has adequate land available for such a development.
  • Naming rights: Finally, the toll facility can sell naming rights to the appropriate bidder (similar to naming rights on arenas and sports facilities).

V. Summary Guidelines for Facility Owners

The key ideas discussed above can be summarized as follows:

a. Know your customer and your competition

  • Critical to develop good insights into who your customers are, their characteristics, their needs and desires
  • Segment the market into discrete groups that are easily identifiable and quantifiable
  • Estimate the size of the market segments along with their growth potential

b. Determine target segments

  • Select a handful of key segments that you will focus on in the short term, the medium term and the long term
  • The segment selection should include a mixture of your current customers, your competition’s customers, segments with high growth potential and segments with large sizes

c. Segment specific strategies

  • For the selected target segments, develop specific strategies
  •  Phased development of different segments is essential in order to keep the implementation of the strategies manageable

d. Ancillary businesses

  • Create strategies for ancillary businesses such that they are either providing a consistent revenue stream or they are tied into the specific strategies for the target segments

e. Continuous process of examination, adaptation and modification

  • Develop metrics to measure the impact of the segment specific strategies
  • Set up milestones and performance goals for each strategy
  • At regular intervals (once a quarter at the least) review each strategy and its performance, lessons learnt and develop remedial / corrective measures as appropriate to get the strategy back on track
  • Do not be shy to discard strategies if they are found to be ineffective

VI. Pitfalls

Some of the common pitfalls that should be avoided in order for the marketing program to succeed are:

a. Inadequate management support

  • The marketing program will not survive if it’s not given strong management support
  • Senior management presence and critical input at review meetings will ensure commitment of the entire organization behind the marketing programs
  • Good programs need adequate funding and resources to be fully effective – a reasonable budget needs to be established

b. Too many segments

  • One of the most common mistakes is to focus on too many segments at the same time
  • This can be avoided by carefully phasing the focus on different segments

c. One-off programs

  • The marketing programs need to be developed as continual long-term programs
  • Often organizations start the process and then do not engage in modifications or corrective actions to the strategies

VII. Closure

This paper has presented some ideas on how to use marketing strategies to maximize the top line for the toll facility. Most of the strategies discussed in this paper have been used reliably over the past several decades by consumer products and other industries. The transportation infrastructure sector, with the increasing use of public-private partnership mechanisms, now has the opportunity to develop innovative ways to increase the patronage of toll facilities.