Increasing public transport revenue or intensifying cannibalization: The effects of introducing a new tariff option in addition to pay-per-use and flat rate options

Abstract

The tariff landscape within Switzerland's public transport network is characterized by limited options: the flat rate (Generalabonnement), designed to accommodate frequent customers, and the pay-per-use model (Halbtax), tailored for those who use the network infrequently. However, there is a gap in provision for medium-frequency customers, who lack an intermediary tariff option. Our study employs a combination of conjoint analysis and market simulations to assess the potential appeal of a hypothetical novel three-part tariff structure, referred to as the bonus tariff. The paper first examines customers tariff selection, probing whether choices are influenced by biases favoring either the pay-per-use or flat-rate options. Further, we calculate the significance of various tariff attributes and identify sociodemographic variables predictive of tariff preference. Attributes such as the pre-pay credit and bonus levels exhibit the highest part-worth utilities. The analysis shows that the bonus tariff would capture a significant market share. A market simulation underscores the sensitivity of the business case to factors including bonus levels and the proportion of customers transitioning from flat-rate subscriptions. The overarching outcome suggests a positive impact on revenue with the introduction of the bonus tariff. The conclusion delves into the reasons for these findings and outlines implications for tariff management strategies.