BART is facing $100 million budget shortfall and is looking to cut costs. One primary component is the salaries they pay to unionized train and station operators. There is a strike looming if the negotiations do not yield a solution before midnight Sunday August 16th. I am not going to go into the negotiations, the salaries or whether or not either party is wrong. But I would like to point out the perils of focusing on only one component of profit equation – costs.
BART is a non profit but that does not mean they should focus only on the cost side of the profit equation. They have to focus on the revenue side which includes driving more traffic or driving higher revenue from higher prices. BART faced fall in customer traffic of 11%, and they are arguably reluctant to increase ticket prices as there is fear that this would cause further drop in traffic. The Public does not like ticket price increases as well.
What is missing here is
- segmentation of the customer base and defining the economic value add to these segments, identify the price based on this value-add and reference price
- identifying the demand schedule – how many people will stop using BART at different price points
- what more can be done to monetize these commuters – from selling additional services to selling their attention
I am going to address just one aspect here – segmentation. The easiest segmentation is based on where-to-where and how often they use BART in a week. One such segment is daily commuters from East Bay stations who drive and park in their local station and commute to the stations in the city. Here is the economic value add to this segment. Now that is considerable consumer surplus!