Imagine you are responsible for almost 20 million people.
You make difficult decisions impacting their financial security, health and safety. As a leader of so many, the decisions you make have consequences on social well-being, commercial productivity, and the climate. With all that you are responsible for and make decisions on, how difficult can a pricing decision be?
Now imagine you are the Governor of New York and you have to make a critical pricing decision. Given the complexity of decisions you make each day, how hard is a pricing decision?
As it turns out, a very difficult decision.
New York City has the worst congestion of all major metros in the world.
This impacts not only financial productivity, but also has important consequences on health and wellness, and on climate change. In fact, congestion in NYC is so bad that it can be faster to ride a bike than drive in Manhattan.
One way leaders of major cities have attempted to address this is by implementing congestion pricing. Cities such as Singapore and London have implemented such pricing to tackle congestion by influencing driver behavior, generating income to reinvest in public transport and other infrastructure initiatives.
After several years of research and discovery, New York and its leaders felt the business case was sufficient to pursue congestion pricing. New York invested more than $700 million a decade to follow the lead of cities such as London to implement tolling cameras (many already installed), billing systems, and pricing plans and communication.
Less than a month before the new congestion pricing was to go live, New York’s Governor Hochul decided to pull the plug and stop congestion pricing implementation.
What congestion pricing would have helped to accomplish
- Financial: It is estimated that congestion pricing would bring in more than $1 billion per year. Using London as an example, congestion pricing generates more than $180 million per year in net income or several billion in additional income since the pricing was launched in 2003. In Singapore, the congestion pricing or electronic road pricing (ERP), generates $110 million to $150 million annually.
- Infrastructure: The new income would have enabled NYC to make much needed improvements to the largest mass transit network in the U.S. In fact, New York allocated $15 billion for modernizing outdated infrastructure including the subway system.
- Climate pollution: Reduction of fossil fuel powered vehicles, and with lower congestion, the vehicles that are traveling within a congestion zone metro are traveling more efficiently producing less pollution. If London is used as an example, in the early years after implementing congestion pricing CO2 emissions were reduced approximately 16% and traffic volume was reduced 15% to 20%. Singapore had similar outcomes where CO2 emissions declined 10% to 15%, and traffic volume decreased approximately15% during peak hours
Detractors and critics
Pricing, whether new pricing or changes to existing pricing, is rarely without detractors or critics. In the case of New York and the New York Governor, congestion pricing also had its fair share of detractors.
- Commuters were against an added expense to commute and travel into the city. For some it felt like a “tax” to travel and work.
- Businesses – small and big alike – did not want the additional cost the congestion pricing would bring to its employees, suppliers and customers. In a survey by Partnership for New York City found that 58% of small business owners were concerned that the new congestion pricing would reduce customer visits.
- Politicians that serve the interests of the commuters and businesses, were detractors of congestion pricing. Some politicians also took issue with the cost and time needed to implement congestion pricing. There was also a concern by those in the outer boroughs without easy access to public transport that the congestion pricing unfairly targeted them.
Important lessons from New York’s experience with congestion pricing
While the future of congestion pricing in New York is uncertain, there are several lessons that you can apply to your own business:
- When stakes are high, decisions are complex: Pricing is multifunctional and one of the most visible things a company can do – so there are many stakeholders with opinions on what pricing decisions are needed. Embrace this. We have seen instances where companies spend more than 9 months just trying to find some direction, let alone decision, because of the number of stakeholders and their perspective on prioritization and strategy. Navigating this is crucial to not only make critical pricing decisions, but creates opportunities to gain the benefits.
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- A clear pricing vision builds support, otherwise creates confusion: One of the reasons why pricing doesn’t “work” is not the quantitative analysis or testing, but because the market, customers, internal team members don’t understand the vision your pricing is intended to achieve. This is usually a sign that a strategy doesn’t exist. Helping stakeholders understand why pricing exists, why certain decisions are made is part of the communication process.
- Pricing will evolve (as will the opportunity): Pricing opportunities shift as macro conditions change, new competitors emerge, technology evolves, and your team’s speed and capabilities (what we call the pricing management system). Creating something new is scary and hard. People struggle with change. Customers have stronger feelings about losses than benefits. We see this often in our research and work with innovative companies. Some companies adapt and create new opportunities. Others get stuck. Navigating change, adapting and moving is where you enhance your pricing competitive advantage. This is where you create opportunities to seize the benefits.
- Pricing influences perceptions and behavior: The debate about New York’s congestion pricing was less about the precision of the number ($15), but about the perceptions and behaviors the pricing will influence. Questions included not only what are the benefits, but who benefits and how are those benefits shared. This is the foundation of the value proposition and business case. When it comes to your pricing strategy, you should be thinking broader. Your pricing should create differentiation, create (positive) perceptions, and willingness to change behavior because of benefits.
Final Thoughts
While the future of congestion pricing in New York remains uncertain, the attempt provides invaluable insights into the complexities of pricing decisions and stakeholder management. Leaders must recognize the multifaceted nature of such decisions and the importance of a clear, strategic vision to navigate the challenges. By understanding the diverse perspectives of stakeholders and the inherent difficulties of implementing innovative solutions, businesses can better prepare for and manage similar scenarios. Ultimately, the experience of New York underscores the need for thoughtful, well-communicated pricing strategies to achieve sustainable and beneficial outcomes for all involved.
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