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When All Else Fails… Raise Rates And Inconvenience Customers More

Jim Prevor’s Perishable Pundit, August 30, 2010

The way you can treat your customers when you have a monopoly is amazing. The volume of letters and packages is dropping each year at the U.S. Postal Service. In 2006 it handled 213 billion pieces of mail; volume dropped in 2007, 2008, and in 2009 the volume handled was only 177 billion pieces. The brilliant solution the Post Office came up with to deal with the terrible problem was to raise rates, so come January 1, 2011, the cost of a first class stamp will rise to 46 cents.

Now that postage has some competition in the form of e-mail, texting, twittering etc., the postal service will have to think differently if it is to stem its rapid decline.

Now The Washington Post reports that the Washington Metropolitan Area Transit Authority is no longer going to allow riders to leave the system without paying full fare. The old system let the riders who had electronic SmarTrip cards leave even if they had a negative balance on their card. The balance due was then deducted when they refilled their card, and the consumer then couldn’t get back in without having a positive balance on the card.

The change was part of many fare changes, including a reduction in the cost of the SmarTrip card from $5.00 to $2.50. The WMATA fears that some consumers will try to game the system by buying new cards rather than paying the balance due on the old.

However, the WMATA had no estimate of how much revenue would be raised by this change, nor how it might impact exit lines as people tried to leave, were told they couldn’t, retried and finally went to the cash exit line.

The WMATA also didn’t say what it would do if a customer didn’t have the cash to pay the balance of the fare. It brings to mind the famous 1959 Kingston Trio song about the Boston MTA “The M.T.A. Song,” which is better known as “Charlie on the M.T.A.” or “The Man Who Never Returned” — which was inspired by the “exit fare” collected in the late 1940s by the Boston MTA when it raised its fare but didn’t upgrade the turnstiles and other fare collection devices.

Here is the famous Kingston Trio version:

Also a Pundit hat tip to Jonathan A. Adler at The Volokh Conspiracy, which has referenced our work here and here for pointing us to a great reference page with complete lyrics, history and links.

Obviously without estimates of revenue lost, it is difficult to assess the WMATA’s actions. We suspect, however, that most businesses would find inconveniencing the customer to this degree unacceptable.

We also wonder if it is not an example of inside-the-box thinking. Why can’t WMATA deduct the fare from everyone’s cell phone? Why can’t a system be set up to automatically add value to the SmartTrip card via credit card when its value drops below a set amount. Why can’t the system automatically deduct any balance due from a credit card so there never is a negative balance?

The easy answers: In the case of the Postal Service… raise prices; in the case of the WMATA… force consumers to settle their balances before leaving the area, have a cost in customer alienation that these public entities don’t seem to be wrestling with. They will probably be OK because the government doesn’t go out of business.

How many of us in the private sector, though, are making similar mistakes? And we don’t have a government guarantee??

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