How To Break Captive Demand
I’ve now been in two businesses that have built-in captive demand. EV Charging and parking both benefit from a home field advantage mindset of demand.
In most efficient markets, consumers will shop options by price and quality but in built-in (or captive) demand environments, consumers may forgo shopping options for the selection that’s conveniently right in front of them. Unlike purchasing toothpaste on Amazon or soup at the grocery store, most people will opt for convenience in a parking and charging environment.
In recurring parking or daily charging situations there’s a captive demand due to repeat behavior and the overarching convenience premium. Most people are willing to pay a higher price to park their car in the building in which they work rather than down the street and walk the difference. Most people are willing to pay a higher $/kwh price to charge their vehicle in their home, apartment or office building then having to venture outward to find a charging station. Most people don’t want to shop options when their real estate environment offers it right in front of their face.
Unlike most transient consumer purchases, most drivers make a decision without surveying all of the options. They drive into one garage and typically stick with it. You don’t see people drive into a garage, make a U-Turn and head for another parking lot across the street to save a few dollars. In parking and charging, consumers typically make a quick decision and stick with it.
So what breaks captive demand? Predictive and Dynamic Behavior Prompts.
What does that even mean?
…let’s make up an example…
I’m on my way to the Phillies game and I haven’t booked parking in advance. I know I have to pick one of the ten parking lots that’s within a quarter mile from the stadium. I get a prompt or a text that shares with me in real time that the occupancy of lots A, B and C are now reaching 90% capacity but lot D is expected to be at 60% capacity by the time I arrive in 15 minutes. The dynamic price by the time I arrive will be $24 which is a 20% premium to the normal lot rate while the remaining stalls in A, B and C are now priced at $56, a 75% premium to the normal rate. The text msg prompts me to see if I want to reserve my spot in lot D? I accept and purchase a spot for lot D.
The transparent pricing mechanism and scarcity mindset led me to a purchasing decision and ultimately led me to pick something I may otherwise wouldn’t.
Or, in the case of EV charging it might look like this fictional example:
I’m on my way from Denver to Dallas and I know that I have 45% battery left on my Tesla and by the time I’m at 10% it will be 2:00pm. Tesla’s operating system speaks to EVGo, Electrify America and Francis Energy’s open source charging program and dynamically compete for my next refuel stop. Each one dynamically displays a price on my Tesla screen. EVGo is on my route and offers me a full charge for $0.23/kwh and $6 off the Arby’s next door. The Electrify America station is 6 minutes off my route and offers me $0.33/kwh and a $5 gift card to Starbucks which happens to be 2 minutes from the station. Finally Francis Energy is 15 minutes off course but offers me free charging in exchange for an Instagram picture of me fueling at a Francis Energy (a quid pro quo of influencer status!). I ultimately choose the Electrify America station because of the convenience and the predictive behavior that I like Starbucks after lunch as a pick me up for the long drive.
An operating system that can create a dynamic market for my business and change my buying behavior in what typically would be a rather captive demand to what’s on the route.
Ultimately there’s a value proposition that dictates our buying behavior. In example one, it was a chance to pay a reasonable premium for a relatively convenient parking stall for a baseball game. In example two, it was a chance to enjoy a hot cup of coffee (the discount helped as well) while refueling. So when I think about the business I currently operate within, Metropolis, it gives me some inspiration as to how we can break the chains of captive demand.
Either, we need to provide an experience that feels more enjoyable than other options for drivers, even if it comes at a higher cost (a focus on quality of product) OR we need to capture demand dynamically with lower prices than the competition (i.e. real time demand pricing). The ultimate win and brand building success would be an environment where we are able to capture demand through transparently higher dynamic prices, all justified by a better consumer experience that drivers seek out.
That’s ultimately the value we’re trying to create.