The value proposition and value adding
The Varsity Lakes Station will be an impressive piece of community infrastructure, but to the urban transport user, it literally adds no value. Photo: QR
It is worth dwelling on how the marketing concept of the ‘value proposition’ and the productivity/business improvement concept of ‘value adding’ are dealt with in urban transport.
My training track series has dealt with concepts at length which arise from viewing urban transport from the customer (passenger) perspective rather than the operator, policy or expert position.
Concepts such as “true end-to-end journey time” “median wait time” and so on actually deal with the customer’s experience of urban transport, not the operators. Some operators might be tempted to say that these things are beyond their control; in reality that is not the case. From station layouts to reliability statistics to network planning, each decision or action affects the customer’s experience of urban transport, and accordingly, the customer’s future decision-making.
In a free market (where there is still government intervention to reduce the costs of road and rail, but I digress) the customer will assign a value to a product or service they are buying, and the value must equal or exceed the cost they are paying for the customer to want to use it. I refer you to Phin’s excellent posts on demand functions for more on this.
In urban transport the value proposition (what the customer believes they are paying for) can be broken down into its crudest element as “getting from point A to point B”. The customer has a ‘need’ to be at point B when they are at point A, and they gain value from this being resolved.
Private motoring has numerous advantages at this level, most of which relate to the road network covering far more (or reaching closer to) all the points A and B across the city. From the customer’s origin (A) door to the customer’s destination (B) door, a car and a road are usually closer.
But while the positional advantage is strong for road, the temporal advantage is stronger. Not only is the car and road closer to the origin and destination doors, it is available at call, which minimises the wait time. Public transport systems that aren’t available on demand (for example, all modes except taxi) suffer a disadvantage in this respect.
These two elements of value have already moved public transport a long way from the starting line, before the comparison on other factors, including comfort and price, begins. It will become evident to the reader that all these attributes except price shape the demand for public transport, and the price will then determine the level which apparent demand is manifested.
So how does this relate to the concept of value adding?
By stating what the value proposition actually is, we can then examine each aspect of the public transport service to see if it adds value, and recommend it be discontinued and the cost saved, if it doesn’t. In business improvement circles, value adding also refers to any part of a business process that directly builds value into the product for sale. Activities that don’t, for example, back-office administration, overservicing or waste, are not valued by the customer and end up reducing the value of the business.
The crude value proposition, that urban transport solves my need to be at Point B when at point A, suggests that the customer simply doesn’t value any of the trimmings.
The supply model can then be broken down into a very crude response: a proximity response of having transport available as close to the origin door and as close to the destination door as possible; a frequency response (or at call response if a frequency response can’t be economically provided); and various measures to improve the transit time, incidentals and reliability (so as to improve the true average end-to-end time).
So what value do such items as modal interchanges, electronic signage or new rollingstock add? The answer is very simple: none. They are artifacts of the operator, and are needed to overcome the operator’s problems, not the customer’s.
The customer would rather have a bus or train direct to their destination, of course this is not feasible, but the operator and policy makers should not get carried away regarding interchanges and new signage as a panacea or somehow worthy of public praise. At best the use of these things will mitigate the bad experiences a customer might have in using the system.
If we add elements to the value proposition, however, the equation will shift slightly. If the customer is valuing the experience, as opposed to simply getting from A to B, then the value proposition and value added can increase.
First class will be sought when economy is no longer good enough; people will value better signage, better rollingstock and less crowding.
But how do we value these things when we know that ticket prices (and road user costs) are not a true reflection of the cost of provision? We don’t – and we have lost the granularity that tells us whether a proposed investment is merited by its appeal to the simple value proposition, or the more complex ones.
We end up with paradoxes such as the trains that in peak times run express from Caulfield to Oakleigh: not satisfying the needs of those of the intermediate stations, and not really reducing the time elapsed for those on the express. And because it is only double track, it doesn’t even allow an express to overtake an all stations, hence the expressing train is only running to the usual headway in any event.
And the salt in the wound is that if these expresses were replaced with all-stations trains, you could actually enhance the frequency and reduce wait time and total travel time.
So the question is: what value do these services add, and whose value proposition do they address?
I suspect I have the answer, and it is positional rather than real. The outer commuters need to ‘feel’ they are on a train that is bypassing, ignoring and overlooking the needs of those in the bypassed stations, though they get no actual benefit from it.
And the ribbon-cutting effect means that these multi-million dollar enhancements in the way of modal interchanges, electronic gizmos and so on are preferred by politicians over simple enhancements though the former add no value to the customer’s value proposition. Railfans aside, customers don’t buy tickets for the sake of having the ticket. They buy the ticket to ride, as they say.
So the entire Myki investment is a no-value add investment. It is simply an impost on the operator and from the operator, and should be viewed as such.
Excellent post Riccardo – sums up the real costs to transport users very well. As you rightly mention, it’s time that’s the big big cost in urban transport. Even if rail is cheaper in terms of out of pocket costs, opportunity cost will often be the deciding factor. For example, if rail costs $1 less for a trip than the car, that’s well and good, but if the trip takes half an hour longer (valuing time conservatively at $15/hour) then that’s $7.50 lost. Minus the dollar saved in out of pocket costs, the rail user comes out $6.50 behind for the trip.
Comfort is probably a factor in all modes, but predominantly on longer distance trips (say over half an hour). Moreover, this is largely contingent on the ability of the service to provide a competitive trip time. For example, car drivers will generally prefer an air conditioned car to one without, but this is contingent on both cars having the same performance. For example, if the air conditioned car took twice as long to take the trip as non air conditioned one, preferences would be substantially different. So passengers may get a bit of utility from electronic gizmos, comfy seats etc. – but ONLY if the service fulfills the trip time criteria – which Australian public transport almost universally fails to do. And when money spent on gizmos is money not spent on meaningful improvements designed to reduce end to end journey time – they have an active cost to passengers.
Ricc, further to Phin’s comment, one cost that could be included is ‘mental energy’. The starting point here is that we assume ‘everyone is lazy’, or to put it more kindly, ‘wants to expend least effort to achieve the task’ (which in this case is travel). Three examples:
1. In this regard buses and trains are superior to (driving) cars since someone else is doing the driving*. And, especially if the passenger gets a seat, that mental energy can be put to other uses, ie reading.
2. A little known area of passenger effort is in the wait where the passenger is required to hail a bus or tram (or request stop train where they take a flag!). In this case the passenger must keep their eyes on the road at all times for the approaching bus and, particularly with lowly patronised routes (no one else likely to board or alight) on high speed roads the effort is not insignificant. If they read or look away they’ll not hail and miss their bus.
3. Transfer and navigation stress. Fixable with good design, information and decent pedestrian paths/crossings.
(*) Ignoring those who far prefer to be driving/in control and find being a passenger boring.
Thanks to both for comments.
Peter, I agree, and that is why I am hesitant to suggest that turn-up-and-go style metro services, with no seats, should run for more than 30min in any direction, as hanging on the strap for that long is demanding. If a city has a comprehensive network of such metro services and still can’t cope, then it has outgrown itself and new urban planning is required. Melbourne doesn’t of course have this probleml; it doesn’t yet have such a network.
The value proposition for a motorist does not really change with length, although they probably tire of driving after a while. And the mode doesn’t essentially change; a car on a freeway is the same whether for a 15 minute city journey, or a 4 hour intercity one.
But with rail it is a moving feast: strap hanging is fine for up to 30 minutes, commuter standard stock (comfortable seats, and some express running beyond that) but then a move to genuine intercity becomes necessary after I would suggest the 60 to 90 minute mark. The train should hardly stop; turn-up-and-go is not viable and probably unreserved seating is not viable. Up to 4 hours it can be a high speed intercity service, which can cover around 600km. Beyond that is aviation territory.
I would welcome comment on these numbers.
[...] if they move from one train to another to do so. But it overlooks a more fundamental point: the basic value proposition for the majority of users is to get from point A to B is not dependent on the vehicle and their [...]
does anyone know if there is a side by side system with Myki.
Will metcards be retained (seems unlikely given they are already running out of spare parts!).
I know in London they have Oyster cards but had to keep their standard ticketing system because not everyone wanted/needed an Oyster Cards.
In Melbourne is the plan for everyone who takes even 1 trip on a train/tram/bus to have to get a Myki card? and what do they do? just throw the plastic card away after 1 use and buy another one on their next PT trip? (I’m thinking about random people who catch 1 train a year to the races at Flemington or a day tripper from interstate wanting to get around the CBD on trams)
[...] I wrote earlier about the value proposition and value adding in public transport the first point that was picked up was that for many people, particularly in a [...]
i think total end-to-end journey cost is a more detailed way of describing the customer’s value proposition. Time is experienced in different ways at different stages of the journey (ref: Tod Litman, vtpi.org) –
As Peter points out, having to watch the road to hail your tram is ‘costly’;
walking to the stop is ‘costly’ (especially so if it requires crossing roads);
waiting in the dark is ‘costly’, and extremely so if you feel unsafe;
waiting for train whose arrival time is unknown or uncertain is very costly (price of risk), especially if you have to be somewhere at a certain time;
If the view out of the window of the train is interesting, the seats are comfortable, and i have a travel companion, then maybe the cost of the time spent in the train is quite low.
Myki can actually limit my total end-to-end cost if it is easier than a metcard. (I don’t see how it could be easier to use than a metcard, but may be easier to buy and store without bending). I’d note that ticketing convenience costs probably represent the smallest part of the total cost of a journey though.
These variations in the costliness of time in different journey sectors can be estimated experimentally : http://www.vtpi.org/tca/tca0502.pdf
This way of looking at the customers expereince bascially concurs with Riccardo’s, but nuances it in a way that allows investments to be better targeted at travelers’ needs.
Thanks to all. Especially Jason, excellent paper.
When I looked at domestic aviation, we rolled up all sorts of ‘quality’ measures together and put a price on them. Not sure I like the approach, but had few other choices. Doing a numeric study does that to your analysis.
I tend to be very skeptical of so-called comfort benefits in mass transit. We live in cities that are under terrible stress from congestion and while it might seem plausible that cars offer more comfort than a metro train packed to the gills, the real value proposition is get there quickly, reliably, no fuss. Cars, even in cities with abundant motorways, increasingly fail on that count. Trying to head down that path, so to speak, for rail is a no-go. Very different value propositions and little to learn from motor vehicles.
At least price measures let you equate them with the supply side – if a customer price of (opportunity cost of) time, convenience, comfort etc equals some number and we can get a robust supply side number, we are starting to talk sense.
I think I might replace my median travel time with 95% percentile time. A slight bias towards the operator and away from the passenger by using this measure, but median is not very intuitive. Of course I use ordinal, rather than weighted measures of centrality and dispersion, as I’m interested in a typical experience.
One of my other problems, which maybe you’d all like to think about.
Why, when customers have “simple” (Cynefin) value propositions are operators and politicians coming up with “complex” supply responses?
Look at the Varsity Lakes example. How does this station answer the simple value proposition? Surely the same money spent on a more reliable and frequent rail service would be better. How long do people plan to linger at the station?
Jason – this bit worked for me
Based on an extensive review of international studies, World Bank economist
Kenneth Gwilliam recommends that, when evaluating transportation improvements
for international development, work travel time should be valued at wages and
benefits, and that a default value for adult personal travel (including commuting)
travel time should be 30% of household income per hour unless better local data are
available, as summarized in the table below.
Most people have SOME capacity to subsitute work for leisure and VV, and might run a ‘bank’ of personal capacity to work overtime, or alternatively not, or even take a RDO or sickie.
And work tends to be more demanding of punctuality than leisure pursuits, although I remember reading a book called “How to become the CEO” which recommended getting to work 15min early every day, and leaving 30min after each day – but its key point was that people will be 15 minutes late to work, but religiously on-time to the cinema!