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Mass transit management
GEORGE M. SMERK
THE PRACTICE OF BUSINESS Mass transit management The author is a faculty member in the School o f Business, Indiana University.
The newly aroused interest in urban mass transportation has tended to focus on transit hardware. Federally supported research contracts and beguiling advertisements of equipment manufacturers have treated the public to displays of monorails, air cushion vehicles, gravity-vacuum tube trains, and a host of other exotic mechanical devices. The apparent thrust of all this is to create an abiding faith in sheer technology to provide solutions to urban mass transport problems. Unfortunately, the fact that the quality of management is probably the most critical element in mass transportation has been overwhelmed by this parade of sophisticated and often bizarre hardware. Obviously, technology is important, and so is capital. But since the auto age brought intense competition into the urban transportation field, management has almost always been the
DECEMBER, 1971
weakest link in the mass transit chain. The potential effectiveness of mass transportation in American cities will be diminished if the current love affair with hardware pushes the critical role of management out of the picture. One of the danger signs is that federal involvement has tended to stress technology without stressing management improvement to the same degree. It is a truism that tools are only as good as the artisan's skill permits them to be; likewise, the tools of mass transit meet public needs effectively only when directed by skilled managers. Moreover, m u c h of the exotic transit "technology is expensive as well as untried. The debacle of a major monorail installation, for instance, would be a major financial disaster. In all likelihood, when it comes to actual transit development, many cities will prudently hesitate to invest their usually meager resources in such a manner. Because of the risk, any improvement attempted in the foreseeable future is likely to follow familiar lines, using familiar technology. Since it is no secret that, to date, even the tried-and-true tools have not been a thumping success, what might happen with a major installation of a totally n e w approach is a matter of some concern. Moreover, even a new technology cannot be left permanently to engineers to manage. The point is simply that, whatever the technology, management quality is an essential factor.
ROOTS OF THE PROBLEM One reason why management in mass transit is not oriented toward the consumer is that transportation firms usually have complex
G E O R G E M. S M E R K
operating problems that seem to overshadow other managerial concerns. In the formative period of most modes of transportation, the difficulties of scheduling men and equipment, and fighting the elements and the limitations of the facilities were major. Concentration on difficult problems of operation is natural in industries that enjoy a virtual m o n o p o l y in a given m a r k e t - c e r t a i n l y true for most transit firms at one time. Additional factors include the important role of seniority in enterprises in which direct supervision of employees is difficult and the consequent practice of promoting from within. The problem of finding and retaining top people for management has arisen also because transit has been a declining industry for m a n y years, with all the inherent conservatism that arises at times of painful contraction. A strong, stable, well-financed industry would have been able to marshal talent and capital in order to compete more effectively with the automobile. Unfortunately, the industry was weakened by earlier financial manipulation, overcapitalization, and overextension. Skyrocketing inflation during World War I, without commensurate fare increases, further sapped the strength of mass transit firms. Indeed, m u c h of the transit industry met the automobile age in a state of bankruptcy. Small wonder, then, that management's concern for operations was matched by a concern for cost cutting. The morale deflating chores of carrying on a holding action tended to diminish vigor and suppress innovation, and increase the difficulty of meeting real problems effectively. The poor image of the industry made it difficult to attract new blood or hold on to good people. The emphasis on cost cutting rather than marketing is closely related to the cost behavior of the streetcar-oriented transit industry of the 1920's. The fixed facilities of a street railway, like a railroad, create a large burden of fixed costs, which, together with the typical operating characteristics, made it a declining cost industry. That is, as traffic
increases over a large chunk of output, the average cost per passenger declines. The trouble is that as traffic declines the situation reverses itself, and the costs per unit tend to rise. Under these conditions, the transit industry chose to divest itself of its street railway facilities and switch to bus. This relieved the transit firm of the fixed costs of the railway, but intensified the focus on cost cutting rather than quality of service marketing, and consumer needs. In seeking the best possible management personnel, urban mass transportation has found itself outside the mainstream of American business since the 1920's. The mainstream was dominated by growing national firms, which required armies of professional, middle-management personnel. The trend has, of course, continued to the present day. For the person of real talent, the challenge and reward of working for a major national business firm are attractive considerations. Small, more localized enterprises tend to be at a disadvantage in competing for talent. Unfortunately, the transit business is very m u c h local in nature; in addition, financially weak firms are generally not competitive in salaries. Indeed, promoting from within is often the only choice available for finding management personnel. This practice may be disastrous unless the people p r o m o t e d are of top quality. However, most younger men view
...d d
BUSINESS H O R I Z O N S
Mass Transit Management
the job of bus driver, the most c o m m o n starting place in the industry today, as a dead end. Because of seniority, the better runs are held b y older operators. For the man with little seniority, the working hours are often unpleasant and on a split-shift basis, and the pay and other benefits are often not competitive with industry. When better opportunities beckon, the best young men generally leave. As a consequence, the average age of transit personnel tends to be high, and the pool of personnel from which to pick people for management is often not only limited, but made up of people strongly imbued with the past. Such individuals are unlikely to think very much about innovation, improvement, or a new-fangled marketing approach to transit.
LEA R N I N G FROM THE MODERN FIRM
If management has been a traditional weak link, what can be done about it? There are lessons for transit management in the m o d e r n business firm and its concepts. Such a firm focuses on sharply defined objectives (growth, return on investment, share of the market, or whatever) and carefully plans and develops policies that will help it reach its objective. Marketing is a critical factor. Market analysis determines the need, not only in terms of the total d e m a n d but also in terms of precisely what segments of the market want the goods or services, how the various segments may wish to have it "packaged," and where they may wish to purchase it. No well-managed firm will produce a product or service for which there is no demand, regardless of how well and efficiently it can be produced. Once the market is analyzed, the modern business firm turns to the designers, engineers, and the product development experts to see if it can turn out what the public wishes. Distribution experts try to determine the lowest total cost at which the product can be put into the hands of the public in the way the public wishes. The finance staff analyzes
DECEMBER, 1971
the profit potential and arranges for the m o n e y to do the job. Accountants devise information systems and cost controls to ensure a flow of management information and to guard against waste and inefficiency. Marketing and advertising people develop competitive strategies and plan a program of promotion. If, after all this analysis, a product can be produced and sold in line with the firm's objectives, the decision is made to go ahead. The mass transit industry, as a rule, takes none of these logical steps. For most firms, the objective--if one can be d e t e c t e d - i s to cut costs, usually by reducing the quantity and quality of service. Measures of demand are lacking. At best, transit firms usually know only the total n u m b e r of riders but not how m a n y ride a given route. Worse, they usually have no idea of latent demand. Most firms do not advertise or provide notice of service or readable maps. And too often, transit vehicles--frequently old and uncomfortable--operate on time-honored routes, connecting time-honored points, regardless of where the public may really wish to go. To be sure, some of the factors responsible for transit failures are b e y o n d the control of managers--for example, the growth in the use of the automobile, largely stimulated b y public investment in highways; the dispersion of population to the suburbs; and uncooperative or dilatory public officials. Such factors have made minsit operations extremely risky. Indeed, in times of sharply rising labor costs in a labor intensive industry such as transit, profitable operations may be impossible. This still does not mean that subsidized or publicly operated service could not be efficiently managed to provide convenient, high quality service and greatly improved mobility. The need is for a new breed of manager with a professional, business management type of training who can apply a systematic approach to managerial control of transit operations and marketing similar to that
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GEORGE M. SMERK
found in most m o d e r n business firms. When the concern with hardware and technological innovation is put in its proper perspective, transit management will focus on objectives, organization, and the marketing management concept as the route toward becoming a consumer-oriented industry.
TOTAL MARKETING CONCEPT Goal Setting
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The primary value of striving toward defined goals of profit or service is akin to what Samuel J o h n s o n found in the prospect of being h a n g e d - i t focuses the mind wonderfully. In short, transit management and public administrators with jurisdiction over a city's transit undertaking must be specific about what the enterprise is supposed to do. The organization must then be tailored to fit the goals. Goals should be workable. "Transit service must be b e t t e r " is not an example of a workable objective. What is " b e t t e r , " and how does a manager k n o w when he has achieved it? The rules of thumb for practical goal setting require that they be clear and definite, attainable, measurable, and reached by a given target date. For example, a goal might be to provide transit service on at least a 15-minute headway, within three blocks of every residence in the city, b y Jan. 1, 1980. This objective would, of course, fit into the over-all goals for the development of the city. Any firm or institution may have a number of major and minor goals that it is trying to reach at the same time. This multiplicity is not a problem as long as they are not in conflict. In transit, goals of an increase in the n u m b e r of passengers carried per year and the provision of high quality service--with precise statements of dimensions of q u a l i t y - a r e not in conflict. However, maximizing service reliability and minimizing maintenance expenditures are goals that will probably conflict.
Any discussion of goals must, of course, include the subject of profit. It is essential that profit be put in proper perspective; overemphasizing profit or considering it in isolation can give the wrong signals to management, particularly in a short-run situation. The private entrepreneur must make a profit if he is to stay in business, and that profit must produce a reasonable return on investment. However, the entrepreneur should not overlook the importance of service of high quality as a necessity in long-range revenue maximization. The transit entrepreneur usually thinks first of profit and only second about service. Cost cutting, often without full realization of the potentially disastrous longrun effects, becomes the order of the day, and may result in substantial cuts in the q u a l i t y and q u a n t i t y - o f service. Any idea of increasing revenue is usually confined to fare increases. This kind of thinking is short-sighted, because it forces a firm into a downward spiral. Cutting service and raising fares reduce ridership, which reduces revenues, which leads to another cut in service and another fare increase. Eventually, the service offered is so poor that there simply are not enough patrons willing to use it, and the enterprise is no longer viable as a private undertaking. A public transit business may also become trapped in the downward spiral. In such a situation, no one is well served; patrons pay high fares, taxpayers pay large subsidies, and neither gets much to show for his money. Under such conditions, transit operations may become a burden to the community. The solution, in goal setting, is to emphasize the quality of service rather than profit in the short run. This does not guarantee profit, obviously, but in marketing a consumer " p r o d u c t , " the quality of the service is paramount if there is to be even the remotest hope of m i n i m u m loss, break-even, or profitable operations. As a result of the failure of an increasing number of privately owned firms, mass trans-
BUSINESS HORIZONS
Mass Transit Management
p o r t a t i o n is b e c o m i n g publicly o w n e d . This change has c o m e as a m a t t e r o f e x p e d i e n c e r a t h e r t h a n ideals. N a t u r a l l y , the p u b l i c l y o w n e d o p e r a t i o n should have service r a t h e r t h a n p r o f i t as its p r i m a r y objective. This is n o t to suggest t h a t a p u b l i c enterprise should n o t generate a surplus if it can while seeking its principal objective. Nevertheless, m a n y publicly o w n e d transit enterprises reflect an unwise, s h o r t - r u n a t t e m p t to f u n c t i o n u n d e r the rubrics o f private enterprise b y insisting t h a t the fare b o x c o v e r all o p e r a t i n g and capital costs. This p r a c t i c e can o n l y t h r u s t the publicly o w n e d firm into the d o w n w a r d spiral. M a r k e t i n g a q u a l i t y p r o d u c t is likely to be given short shrift u n d e r such circumstances. T h e goal s h o u l d b e service and the p r i m e p o l i c y t o go along w i t h it should b e the provision o f s u f f i c i e n t financial u n d e r pinnings, t h r o u g h tax s u p p o r t , to f o s t e r c o n s u m e r - o r i e n t e d practices.
Consumer Behavior Regardless o f the f o r m o f o w n e r s h i p , the k e y to goal setting is c o n s u m e r o r i e n t a t i o n . It is u n l i k e l y t h a t a n y city w o u l d wish to f o r c e its citizens to use mass t r a n s p o r t a t i o n ; likewise, it is unrealistic to e x p e c t citizens t o p a t r o n i z e public t r a n s p o r t m e r e l y as a f o r m o f civic virtue. T h e r e f o r e , it is critical to find o u t w h a t makes p e o p l e as c o n s u m e r s b e h a v e the w a y t h e y do. Successful o p e r a t i o n o f transit is essentially a p r o b l e m o f m a r k e t i n g , in the b r o a d e s t sense, as it relates to c o n s u m e r s and p o t e n t i a l c o n s u m e r s . T h e specific goals, s t a t e d in a w o r k a b l e m a n n e r , will vary f r o m place to place as will the precise details o f managem e n t o r g a n i z a t i o n . B u t in every case, goals and o r g a n i z a t i o n s h o u l d grow f r o m an u n d e r standing o f c o n s u m e r behavior. A l t h o u g h it o f t e n appears t h a t c o n s u m e r s do n o t act r a t i o n a l l y or r e a s o n a b l y , there is usually m o t i v a t i o n and logic b e h i n d a n y act.
DECEMBER, 1971
T h e simple m o d e l o f h u m a n b e h a v i o r will illustrate this p o i n t :
Its elements are as follows: A problem arises. Behavior is problem solving in nature. Perception. The realization that there is a problem is communicated to the brain by the senses. Conditioning. This is a filter that affects a person's attitude and approaches to the problem. The most important conditioning is imposed by society. A long-time resident of the United States would be affected and conditioned by Western civilization in general; the nation as a whole and the region in which he lives; the general group or class within that region; the immediate group in which he finds himself; and the group he looks up to and attempts to copy. In the last three groups, symbols are highly important. Alternatives. The person is now ready to evaluate and select among the various alternatives that are open, acceptable, and known. To the consumer, an unknown option is a choice that does not exist in any meaningful or useful way. In evaluating alternatives, a consumer mentally performs a rough calculation of their costs in terms of time, money, and energy. Action. The person now behaves in accordance with the alternative chosen. Feedback. This element of the model determines whether or not the particular problem has been solved by the action. T h e c o n d i t i o n i n g factors and the alternatives o p e n to the c o n s u m e r seem to o f f e r the best o p p o r t u n i t i e s f o r managerial a c t i o n in the transit field. F o r e x a m p l e , m a n a g e m e n t can m a k e a vigorous e f f o r t t o w a r d a f f e c t i n g c o n d i t i o n i n g so t h a t mass t r a n s p o r t a t i o n is a c c e p t e d b y m a n y sectors o f society. Goals and p o l i c y s h o u l d b e shaped w i t h improvem e n t o f transit's image and a c c e p t a b i l i t y b y the public in mind. T h r o u g h advertising, c o m m u n i t y relations efforts, and, o f course, exemplary performance, the conditioning factors r e l a t e d t o mass t r a n s p o r t a t i o n m a y be a f f e c t e d positively. A p a r t i c u l a r l y fertile g r o u n d is the p r o m o t i o n o f mass transit as a reasonable alternative t o the private a u t o m o b i l e . It is
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GEORGE M. SMERK
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well-known that mass transit is not generally considered to be a reasonable alternative, aside from any social stigma that may be attached to its use. In the language of the model previously described, transit is often more costly in time, energy, and/or m o n e y than the private automobile; transit may also be perceived as being more costly, even if such is not the case. The behavior of the consumer will be the same, regardless of the truth. In order to effect the necessary consumer cost reductions, careful rethinking and, perhaps, restructuring of transit routes and schedules are needed to make transit an attractive alternative. This assumes that, in terms of m o n e y , the use of transit is less costly than the use of the auto. Long walks to transit stops, lengthy running times, inconvenient transfers, unpleasant equipment, the lack of waiting shelters, or obsolete and uncomfortable stations and terminals-even surly e m p l o y e e s - i n c r e a s e the energy and time costs of patrons. The usually low out-of-pocket cost for the transit user is no great bargain in the final analysis. This creates a more difficult task for management. It is relatively easy to change a fare; it is far more difficult to rethink a transit operation in order to minimize the time and energy costs. The j o b is made even tougher b y the relative lack of control most transit managers have over rights-of-way. Rail services enjoy grade-separated routes, b u t buses and other transit vehicles must share the streets. If substantial gains are to be made in the quality of the service, transit managers must work closely with city officials, planners, and others involved in the handling of traffic. This is not easy, nor will it yield quick and easy solutions. But it is necessary if reserved lanes, bus-only streets, or other alternatives that help management control transit's operating environment are to be found. The whole business of image improvement requires more than window dressing. The general image of mass transportation is,
today, largely negative. To overcome a negative image is probably more difficult than to create one from scratch and, in the long run, will depend u p o n the quality of service. Management can embark u p o n a short-run program through advertising, new equipment, and attractive visible facilities. Everything, however, will eventually depend u p o n the service package.
Environments of the Transit Manager Consideration must be given to those elements that are under effective control of management. The possible degree of control is important in setting policy and taking action as well as in the vital matter of determining the best organizational structure for a transit firm. As in any enterprise, the management of a transit undertaking operates within a number of environments. Externally, the national and state environments offer the least possibility of effective control. These governments may be asked for financial aid through federal urban mass transportation capital, demonstration, or technical studies grants, or other programs. Within the local environment, transit management may be able to deal with public officials to prevent parking at bus stops or gain exclusive use of certain street lanes or preferential treatment at traffic signals. The ability of a firm to influence its outside environment depends to a large extent upon the abilities of the management team and its organization. Within a given transit enterprise, managers can exercise a considerable degree of control, although they have tended to take a narrow view of the internal variables. This lack of breadth in o u t l o o k has been costly. It has resulted in missed opportunities to serve the public b y efforts attuned to consumer demand concepts. Transit management has traditionally acted as if it had control only over the fare charged (and that usually only with the approval of some regulatory b o d y )
BUSINESS HORIZONS
Mass Transit Management
Functional Organization of Consumer-Oriented Transit Operation
TOP MANAGEMENT
General Services
Marketing and Operations
Information Services
Pe~onnel
Transportation Services
Accounting and Information Services
Plant and Equipment
t
Sales I
Office Services
Maintenance
and the quantity--hence the quality--of service. With such a narrow philosophy of the real variables at its c o m m a n d , transit management is not unlike a cook attempting to make cake with only flour and water. In reality, transit management can manipulate a large number of variables to provide various packages of service. A marketing oriented approach is required, one that demands recognition of all factors under the c o m m a n d of management. A relatively complete list of these factors includes: The goals of the firm and the organization of the firm to meet those goals The information collected by the firm and how it is used for management purposes (including accounting information as well as certain other facts necessary for effective managerial control and decision making) The personnel selected by the firm, how they are recruited and trained, and the methods utilized in dealing with them The equipment and its maintenance The routes and schedules Communication for efficient and dependable
DECEMBER, 1971
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operation, particularly between operators and supervisory personnel The advertising program Public information (maps, schedules, and signs) Relations of the firm with the community. Most transit enterprises have operations as the central function, with maintenance and the bffice and administrative functions as adjuncts. Marketing has been almost totally neglected. In an organization geared to carry out the objectives of a truly consumeroriented transit operation, marketing must be the core function around which the organization is built. This is illustrated in the accompanying figure. In this functional organization chart, "Operations" carries out the various marketing tasks that serve the various goals of the transit enterprise. "Information Services" includes the typical accounting and office functions plus the gathering of information and statistics for managerial decision making. "General Services" includes the hardware and personnel functions,
GEORGE M. SMERK
" . . . marketing.., must be geared to the task of discovering opportunities to serve the public."
maintenance of equipment and facilities, and the purchase or control of supplies. The precise details of the organization would, of course, depend u p o n the scale of the enterprise and the degree of specialization possible.
The Marketing Program
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The importance of marketing goes far b e y o n d what may seem at first to be merely a stepped-up sales effort. Essentially, the marketing program of a transit firm must be geared to the task of discovering opportunities to serve the public. The privately owned firm will carefully analyze the results of its services and continue those operations which, in the long run, are most profitable. The publicly owned firm will continue to offer certain needed and desired services, regardless of profitability, b u t it will also take steps to develop the transit market so that revenues are maximized. The transit enterprise must adopt a marketing strategy that is relevant to its situation. Because of limited r e s o u r c e s always a fact of l i f e - m a n a g e m e n t must focus its marketing effort. The wisest course is to direct effort toward particular segments of the over-all market. In particular, the investment in marketing should be directed toward nonusers who can reasonably be judged potential users of transit service. The transit company's market does not consist of a homogeneous mass of consumers. There are segments of the market made up of consumers who have different needs and desires requiring different packages of service. The market segment is the smallest unit for which it is worthwhile to tailor a separate marketing program,in terms of the product, price, and the necessary promotion. The concept of the marketing mix, which includes product, price, and promotion, is a handy
way to view the means b y which transit can meet the needs of various segments. Put another way, transit managers must try to reach the segments with various combinations of service, price, and promotional effort. The current practice of providing one level and type of transit service for everyone simply does not apply in a market where many potential patrons have access to automobiles, nor does it apply when people have many potential reasons for travel. For example, the housewife, often temporarily w i t h o u t access to a car during the day, requires service that will allow her to shop or visit friends. Some older people may be willing to pay a slight premium for a bus that would pick them up at their door and deliver them to the door of their destination. On the other hand, young people are able to expend more energy for travel and may not mind transferring, b u t they will want service . to a variety of recreational sites that may be of little interest to other age groups. The task is to distinguish the segments, and then to serve them. The prime over-all marketing strategy for a transit enterprise would be to appeal initially to the most accessible segment or segments of the local market. In the early stages, this would most likely consist of those patrons already served and, of course, those not having alternative transport. Much of the early work would involve tactics and approaches aimed at improving the quality, status, and image" of transit, and the concept of promoting destinations and the use of transit to reach them. By concentrating on reliability, convenience, and other quality factors, the initially served segment, or segments, should be held and used as the base u p o n which to build. Quality improvements and high standards of service should be p r o m o t e d through relevant media; word-ofm o u t h comments b y patrons will help rein-
BUSINESS HORIZONS
Mass Transit Management
force and strengthen the development of the transit image. After the potential of the initial segment or segments is tapped, then the next best segment should be pursued and held, and SO o n .
Probably the best way to segment the transit market is to first offer a service directed at reducing the time, energy, and m o n e y cost of travel, and at improving public acceptance by emphasizing on-time performance, new and comfortable equipment, and reasonable prices. Once patrons have become accustomed to the initial system, research should determine who is using the service. On-bus interviews are relatively simple to conduct. If sufficient budget is available, a market research firm might be engaged to do the work. Next, research should determine who is not using transit. This may be achieved either through home or telephone interviews. Still another m e t h o d would be to select a panel of persons who represent a cross-section of the c o m m u n i t y , and ask them to keep a diary of the trips they take and the means of transportation used. Regardless of the method, certain additional segments should be revealed that are most likely to use transit if some slight change in the marketing mix is made. For example, speeding up service from certain outlying locations to the d o w n t o w n area might attract some persons using automobiles. Some segments of the market would be ruled out as inaccessible to transit. For example, salesmen who are obliged to carry bulky samples with them require automobiles. Only those segments that are accessible and large enough to warrant separate cultivation should be followed up. Market segmentation, on the surface, m a y not appear m u c h different than the modal split techniques used by transportation planners. In modal split, total demand for transportation is estimated and then, through the use of a modal split formula, the percentage of the total trips to be made by automobile, transit, and other means are determined. Modal split formulas have
DECEMBER, 1971
traditionally relied on demographic data, primarily because such facts as age, sex, education, car ownership, income, and so on are readily available. Unfortunately, none of these methods seem to have enjoyed a crashing success; strictly demographic information as a predictor m a y not be too revealing. In marketing a product, m a n y business firms are only secondarily interested in demographic breakdowns; such information is useful only after initial segmentation of the market. The same can hold true for transit.
The Marketing Mix The concept of the marketing mix is a key element in the process of tapping and holding a given segment of a market. The mix consists of all the product, price, and promotion factors under the control of management that may be varied or manipulated to meet the needs of the different segments. In transit, the first part of the marketing mix--product--involves the types of service, the quality of service, and the access afforded customers. Transit service types m a y be divided into categories: regular route, special, and charter services. For regular routes, the configuration of the routes and the schedules operated are the principal variables. Special services are those not following regular routes; such services may be offered to sporting events or to special points of interest. Special subscription services offering door-to-door transportation on a m o n t h l y basis would also fall into this category. Finally, charter services consist of a private package of service under contract to a special group. The quality of service is also important in the product factor. This depends on airconditioning, seating, decor, reliability, shelters for waiting, courtesy of personnel, transfer requirements, travel time, and access. Access to transit traditionally provides routes spaced about a half-mile apart outside the central business district. Such a policy today
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GEORGE M. SMERK
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is hopelessly obsolete. For m a x i m u m ease of access, routes should be laid out no more than three or four blocks apart, depending on street configuration and pattern. Other means of improving access includes subscription bus service, or demand-initiated bus service. The latter depends upon a telephone call from the consumer requesting service; the bus is routed to the consumer's door via radio or other means. Pricing is a s e c o n d ingredient in the marketing mix, one that cannot be considered in isolation from the total package of product and promotion. Whether the price is high or low is probably a matter more closely connected with the quality of the service as perceived by the consumer than with any absolute sum of money. High quality service-frequent, dependable, and clean, with air-conditioned vehicles running on a fast schedule-is likely to be perceived as good value for money and therefore relatively inexpensive. On the other hand, undependable, infrequent service utilizing old, dirty vehicles may be judged as high in cost even though the price charged may be the same in both cases. Whatever the charge, it should be carefully fitted into the mix. The third part of the marketing mix is promotion. Obviously, this includes advertising in various media, ranging from radio and newspapers to circulars and handbills. Promotion also includes public information such as maps, schedules, and signs. C o m m u n i t y relations are also part of the promotion package. This is the process of both directly meeting the public and keeping the public informed of transit service activities. C o m m u n i t y relations should be a two-way street of communication and promotion; the program involves finding out what the c o m m u n i t y wants, not just passing on information. The importance of promotion can hardly be overestimated. In the transit industry today, however, advertising is sparse, maps are often unreadable, and printed schedules--if
they e x i s t - a r e likely to be good examples of cryptographic art. C o m m u n i t y relations often a m o u n t to nothing more than the membership of several officers of the transit enterprise in service clubs or organizations. Rll[ll
It should be clear that the adaptation of modern business techniques to transit is a sensible approach to the problem, regardless of whether the firm is a private or public enterprise. The tremendous success of General Motors is attributed to the concept of largely independent divisions coordinated by committees, not to any unique technological prowess. Likewise, the concept of chain of authority, line-and-staff organization, and the notion of establishing objectives for management are all ways of thinking about and handling a task that lead to successful results. Where is the new breed of management for the transit industry to come from? Some will come from the ranks of those already employed by transit enterprises. Short courses, executive development programs, and institutes can help acquaint personnel with the necessary concepts and ideas. Existing federal programs for management training should be stepped up. Young people majoring in business administration should be encouraged to seek careers in transit management. Indeed, curricula should be devised with some specialized work in mass transportation, perhaps with federal help to get them going. The important thing, of course, is that the transit industry, and cities with public officials charged with transit responsbilities, must actively recruit persons trained in the modern concepts. The suggested managerial approach to transit focuses on the consumer and how to serve him. This seems more practical than the conventional approach of trying to operate at least cost, especially if patronage must be enticed to mass transportation. Certainly, management must adopt a new perspective if transit is to fulfill its promise in helping to improve mobility in urban areas.
Illld
BUSINESS HORIZONS
THE PRACTICE OF BUSINESS Mass transit management The author is a faculty member in the School o f Business, Indiana University.
The newly aroused interest in urban mass transportation has tended to focus on transit hardware. Federally supported research contracts and beguiling advertisements of equipment manufacturers have treated the public to displays of monorails, air cushion vehicles, gravity-vacuum tube trains, and a host of other exotic mechanical devices. The apparent thrust of all this is to create an abiding faith in sheer technology to provide solutions to urban mass transport problems. Unfortunately, the fact that the quality of management is probably the most critical element in mass transportation has been overwhelmed by this parade of sophisticated and often bizarre hardware. Obviously, technology is important, and so is capital. But since the auto age brought intense competition into the urban transportation field, management has almost always been the
DECEMBER, 1971
weakest link in the mass transit chain. The potential effectiveness of mass transportation in American cities will be diminished if the current love affair with hardware pushes the critical role of management out of the picture. One of the danger signs is that federal involvement has tended to stress technology without stressing management improvement to the same degree. It is a truism that tools are only as good as the artisan's skill permits them to be; likewise, the tools of mass transit meet public needs effectively only when directed by skilled managers. Moreover, m u c h of the exotic transit "technology is expensive as well as untried. The debacle of a major monorail installation, for instance, would be a major financial disaster. In all likelihood, when it comes to actual transit development, many cities will prudently hesitate to invest their usually meager resources in such a manner. Because of the risk, any improvement attempted in the foreseeable future is likely to follow familiar lines, using familiar technology. Since it is no secret that, to date, even the tried-and-true tools have not been a thumping success, what might happen with a major installation of a totally n e w approach is a matter of some concern. Moreover, even a new technology cannot be left permanently to engineers to manage. The point is simply that, whatever the technology, management quality is an essential factor.
ROOTS OF THE PROBLEM One reason why management in mass transit is not oriented toward the consumer is that transportation firms usually have complex
G E O R G E M. S M E R K
operating problems that seem to overshadow other managerial concerns. In the formative period of most modes of transportation, the difficulties of scheduling men and equipment, and fighting the elements and the limitations of the facilities were major. Concentration on difficult problems of operation is natural in industries that enjoy a virtual m o n o p o l y in a given m a r k e t - c e r t a i n l y true for most transit firms at one time. Additional factors include the important role of seniority in enterprises in which direct supervision of employees is difficult and the consequent practice of promoting from within. The problem of finding and retaining top people for management has arisen also because transit has been a declining industry for m a n y years, with all the inherent conservatism that arises at times of painful contraction. A strong, stable, well-financed industry would have been able to marshal talent and capital in order to compete more effectively with the automobile. Unfortunately, the industry was weakened by earlier financial manipulation, overcapitalization, and overextension. Skyrocketing inflation during World War I, without commensurate fare increases, further sapped the strength of mass transit firms. Indeed, m u c h of the transit industry met the automobile age in a state of bankruptcy. Small wonder, then, that management's concern for operations was matched by a concern for cost cutting. The morale deflating chores of carrying on a holding action tended to diminish vigor and suppress innovation, and increase the difficulty of meeting real problems effectively. The poor image of the industry made it difficult to attract new blood or hold on to good people. The emphasis on cost cutting rather than marketing is closely related to the cost behavior of the streetcar-oriented transit industry of the 1920's. The fixed facilities of a street railway, like a railroad, create a large burden of fixed costs, which, together with the typical operating characteristics, made it a declining cost industry. That is, as traffic
increases over a large chunk of output, the average cost per passenger declines. The trouble is that as traffic declines the situation reverses itself, and the costs per unit tend to rise. Under these conditions, the transit industry chose to divest itself of its street railway facilities and switch to bus. This relieved the transit firm of the fixed costs of the railway, but intensified the focus on cost cutting rather than quality of service marketing, and consumer needs. In seeking the best possible management personnel, urban mass transportation has found itself outside the mainstream of American business since the 1920's. The mainstream was dominated by growing national firms, which required armies of professional, middle-management personnel. The trend has, of course, continued to the present day. For the person of real talent, the challenge and reward of working for a major national business firm are attractive considerations. Small, more localized enterprises tend to be at a disadvantage in competing for talent. Unfortunately, the transit business is very m u c h local in nature; in addition, financially weak firms are generally not competitive in salaries. Indeed, promoting from within is often the only choice available for finding management personnel. This practice may be disastrous unless the people p r o m o t e d are of top quality. However, most younger men view
...d d
BUSINESS H O R I Z O N S
Mass Transit Management
the job of bus driver, the most c o m m o n starting place in the industry today, as a dead end. Because of seniority, the better runs are held b y older operators. For the man with little seniority, the working hours are often unpleasant and on a split-shift basis, and the pay and other benefits are often not competitive with industry. When better opportunities beckon, the best young men generally leave. As a consequence, the average age of transit personnel tends to be high, and the pool of personnel from which to pick people for management is often not only limited, but made up of people strongly imbued with the past. Such individuals are unlikely to think very much about innovation, improvement, or a new-fangled marketing approach to transit.
LEA R N I N G FROM THE MODERN FIRM
If management has been a traditional weak link, what can be done about it? There are lessons for transit management in the m o d e r n business firm and its concepts. Such a firm focuses on sharply defined objectives (growth, return on investment, share of the market, or whatever) and carefully plans and develops policies that will help it reach its objective. Marketing is a critical factor. Market analysis determines the need, not only in terms of the total d e m a n d but also in terms of precisely what segments of the market want the goods or services, how the various segments may wish to have it "packaged," and where they may wish to purchase it. No well-managed firm will produce a product or service for which there is no demand, regardless of how well and efficiently it can be produced. Once the market is analyzed, the modern business firm turns to the designers, engineers, and the product development experts to see if it can turn out what the public wishes. Distribution experts try to determine the lowest total cost at which the product can be put into the hands of the public in the way the public wishes. The finance staff analyzes
DECEMBER, 1971
the profit potential and arranges for the m o n e y to do the job. Accountants devise information systems and cost controls to ensure a flow of management information and to guard against waste and inefficiency. Marketing and advertising people develop competitive strategies and plan a program of promotion. If, after all this analysis, a product can be produced and sold in line with the firm's objectives, the decision is made to go ahead. The mass transit industry, as a rule, takes none of these logical steps. For most firms, the objective--if one can be d e t e c t e d - i s to cut costs, usually by reducing the quantity and quality of service. Measures of demand are lacking. At best, transit firms usually know only the total n u m b e r of riders but not how m a n y ride a given route. Worse, they usually have no idea of latent demand. Most firms do not advertise or provide notice of service or readable maps. And too often, transit vehicles--frequently old and uncomfortable--operate on time-honored routes, connecting time-honored points, regardless of where the public may really wish to go. To be sure, some of the factors responsible for transit failures are b e y o n d the control of managers--for example, the growth in the use of the automobile, largely stimulated b y public investment in highways; the dispersion of population to the suburbs; and uncooperative or dilatory public officials. Such factors have made minsit operations extremely risky. Indeed, in times of sharply rising labor costs in a labor intensive industry such as transit, profitable operations may be impossible. This still does not mean that subsidized or publicly operated service could not be efficiently managed to provide convenient, high quality service and greatly improved mobility. The need is for a new breed of manager with a professional, business management type of training who can apply a systematic approach to managerial control of transit operations and marketing similar to that
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GEORGE M. SMERK
found in most m o d e r n business firms. When the concern with hardware and technological innovation is put in its proper perspective, transit management will focus on objectives, organization, and the marketing management concept as the route toward becoming a consumer-oriented industry.
TOTAL MARKETING CONCEPT Goal Setting
10
The primary value of striving toward defined goals of profit or service is akin to what Samuel J o h n s o n found in the prospect of being h a n g e d - i t focuses the mind wonderfully. In short, transit management and public administrators with jurisdiction over a city's transit undertaking must be specific about what the enterprise is supposed to do. The organization must then be tailored to fit the goals. Goals should be workable. "Transit service must be b e t t e r " is not an example of a workable objective. What is " b e t t e r , " and how does a manager k n o w when he has achieved it? The rules of thumb for practical goal setting require that they be clear and definite, attainable, measurable, and reached by a given target date. For example, a goal might be to provide transit service on at least a 15-minute headway, within three blocks of every residence in the city, b y Jan. 1, 1980. This objective would, of course, fit into the over-all goals for the development of the city. Any firm or institution may have a number of major and minor goals that it is trying to reach at the same time. This multiplicity is not a problem as long as they are not in conflict. In transit, goals of an increase in the n u m b e r of passengers carried per year and the provision of high quality service--with precise statements of dimensions of q u a l i t y - a r e not in conflict. However, maximizing service reliability and minimizing maintenance expenditures are goals that will probably conflict.
Any discussion of goals must, of course, include the subject of profit. It is essential that profit be put in proper perspective; overemphasizing profit or considering it in isolation can give the wrong signals to management, particularly in a short-run situation. The private entrepreneur must make a profit if he is to stay in business, and that profit must produce a reasonable return on investment. However, the entrepreneur should not overlook the importance of service of high quality as a necessity in long-range revenue maximization. The transit entrepreneur usually thinks first of profit and only second about service. Cost cutting, often without full realization of the potentially disastrous longrun effects, becomes the order of the day, and may result in substantial cuts in the q u a l i t y and q u a n t i t y - o f service. Any idea of increasing revenue is usually confined to fare increases. This kind of thinking is short-sighted, because it forces a firm into a downward spiral. Cutting service and raising fares reduce ridership, which reduces revenues, which leads to another cut in service and another fare increase. Eventually, the service offered is so poor that there simply are not enough patrons willing to use it, and the enterprise is no longer viable as a private undertaking. A public transit business may also become trapped in the downward spiral. In such a situation, no one is well served; patrons pay high fares, taxpayers pay large subsidies, and neither gets much to show for his money. Under such conditions, transit operations may become a burden to the community. The solution, in goal setting, is to emphasize the quality of service rather than profit in the short run. This does not guarantee profit, obviously, but in marketing a consumer " p r o d u c t , " the quality of the service is paramount if there is to be even the remotest hope of m i n i m u m loss, break-even, or profitable operations. As a result of the failure of an increasing number of privately owned firms, mass trans-
BUSINESS HORIZONS
Mass Transit Management
p o r t a t i o n is b e c o m i n g publicly o w n e d . This change has c o m e as a m a t t e r o f e x p e d i e n c e r a t h e r t h a n ideals. N a t u r a l l y , the p u b l i c l y o w n e d o p e r a t i o n should have service r a t h e r t h a n p r o f i t as its p r i m a r y objective. This is n o t to suggest t h a t a p u b l i c enterprise should n o t generate a surplus if it can while seeking its principal objective. Nevertheless, m a n y publicly o w n e d transit enterprises reflect an unwise, s h o r t - r u n a t t e m p t to f u n c t i o n u n d e r the rubrics o f private enterprise b y insisting t h a t the fare b o x c o v e r all o p e r a t i n g and capital costs. This p r a c t i c e can o n l y t h r u s t the publicly o w n e d firm into the d o w n w a r d spiral. M a r k e t i n g a q u a l i t y p r o d u c t is likely to be given short shrift u n d e r such circumstances. T h e goal s h o u l d b e service and the p r i m e p o l i c y t o go along w i t h it should b e the provision o f s u f f i c i e n t financial u n d e r pinnings, t h r o u g h tax s u p p o r t , to f o s t e r c o n s u m e r - o r i e n t e d practices.
Consumer Behavior Regardless o f the f o r m o f o w n e r s h i p , the k e y to goal setting is c o n s u m e r o r i e n t a t i o n . It is u n l i k e l y t h a t a n y city w o u l d wish to f o r c e its citizens to use mass t r a n s p o r t a t i o n ; likewise, it is unrealistic to e x p e c t citizens t o p a t r o n i z e public t r a n s p o r t m e r e l y as a f o r m o f civic virtue. T h e r e f o r e , it is critical to find o u t w h a t makes p e o p l e as c o n s u m e r s b e h a v e the w a y t h e y do. Successful o p e r a t i o n o f transit is essentially a p r o b l e m o f m a r k e t i n g , in the b r o a d e s t sense, as it relates to c o n s u m e r s and p o t e n t i a l c o n s u m e r s . T h e specific goals, s t a t e d in a w o r k a b l e m a n n e r , will vary f r o m place to place as will the precise details o f managem e n t o r g a n i z a t i o n . B u t in every case, goals and o r g a n i z a t i o n s h o u l d grow f r o m an u n d e r standing o f c o n s u m e r behavior. A l t h o u g h it o f t e n appears t h a t c o n s u m e r s do n o t act r a t i o n a l l y or r e a s o n a b l y , there is usually m o t i v a t i o n and logic b e h i n d a n y act.
DECEMBER, 1971
T h e simple m o d e l o f h u m a n b e h a v i o r will illustrate this p o i n t :
Its elements are as follows: A problem arises. Behavior is problem solving in nature. Perception. The realization that there is a problem is communicated to the brain by the senses. Conditioning. This is a filter that affects a person's attitude and approaches to the problem. The most important conditioning is imposed by society. A long-time resident of the United States would be affected and conditioned by Western civilization in general; the nation as a whole and the region in which he lives; the general group or class within that region; the immediate group in which he finds himself; and the group he looks up to and attempts to copy. In the last three groups, symbols are highly important. Alternatives. The person is now ready to evaluate and select among the various alternatives that are open, acceptable, and known. To the consumer, an unknown option is a choice that does not exist in any meaningful or useful way. In evaluating alternatives, a consumer mentally performs a rough calculation of their costs in terms of time, money, and energy. Action. The person now behaves in accordance with the alternative chosen. Feedback. This element of the model determines whether or not the particular problem has been solved by the action. T h e c o n d i t i o n i n g factors and the alternatives o p e n to the c o n s u m e r seem to o f f e r the best o p p o r t u n i t i e s f o r managerial a c t i o n in the transit field. F o r e x a m p l e , m a n a g e m e n t can m a k e a vigorous e f f o r t t o w a r d a f f e c t i n g c o n d i t i o n i n g so t h a t mass t r a n s p o r t a t i o n is a c c e p t e d b y m a n y sectors o f society. Goals and p o l i c y s h o u l d b e shaped w i t h improvem e n t o f transit's image and a c c e p t a b i l i t y b y the public in mind. T h r o u g h advertising, c o m m u n i t y relations efforts, and, o f course, exemplary performance, the conditioning factors r e l a t e d t o mass t r a n s p o r t a t i o n m a y be a f f e c t e d positively. A p a r t i c u l a r l y fertile g r o u n d is the p r o m o t i o n o f mass transit as a reasonable alternative t o the private a u t o m o b i l e . It is
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GEORGE M. SMERK
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well-known that mass transit is not generally considered to be a reasonable alternative, aside from any social stigma that may be attached to its use. In the language of the model previously described, transit is often more costly in time, energy, and/or m o n e y than the private automobile; transit may also be perceived as being more costly, even if such is not the case. The behavior of the consumer will be the same, regardless of the truth. In order to effect the necessary consumer cost reductions, careful rethinking and, perhaps, restructuring of transit routes and schedules are needed to make transit an attractive alternative. This assumes that, in terms of m o n e y , the use of transit is less costly than the use of the auto. Long walks to transit stops, lengthy running times, inconvenient transfers, unpleasant equipment, the lack of waiting shelters, or obsolete and uncomfortable stations and terminals-even surly e m p l o y e e s - i n c r e a s e the energy and time costs of patrons. The usually low out-of-pocket cost for the transit user is no great bargain in the final analysis. This creates a more difficult task for management. It is relatively easy to change a fare; it is far more difficult to rethink a transit operation in order to minimize the time and energy costs. The j o b is made even tougher b y the relative lack of control most transit managers have over rights-of-way. Rail services enjoy grade-separated routes, b u t buses and other transit vehicles must share the streets. If substantial gains are to be made in the quality of the service, transit managers must work closely with city officials, planners, and others involved in the handling of traffic. This is not easy, nor will it yield quick and easy solutions. But it is necessary if reserved lanes, bus-only streets, or other alternatives that help management control transit's operating environment are to be found. The whole business of image improvement requires more than window dressing. The general image of mass transportation is,
today, largely negative. To overcome a negative image is probably more difficult than to create one from scratch and, in the long run, will depend u p o n the quality of service. Management can embark u p o n a short-run program through advertising, new equipment, and attractive visible facilities. Everything, however, will eventually depend u p o n the service package.
Environments of the Transit Manager Consideration must be given to those elements that are under effective control of management. The possible degree of control is important in setting policy and taking action as well as in the vital matter of determining the best organizational structure for a transit firm. As in any enterprise, the management of a transit undertaking operates within a number of environments. Externally, the national and state environments offer the least possibility of effective control. These governments may be asked for financial aid through federal urban mass transportation capital, demonstration, or technical studies grants, or other programs. Within the local environment, transit management may be able to deal with public officials to prevent parking at bus stops or gain exclusive use of certain street lanes or preferential treatment at traffic signals. The ability of a firm to influence its outside environment depends to a large extent upon the abilities of the management team and its organization. Within a given transit enterprise, managers can exercise a considerable degree of control, although they have tended to take a narrow view of the internal variables. This lack of breadth in o u t l o o k has been costly. It has resulted in missed opportunities to serve the public b y efforts attuned to consumer demand concepts. Transit management has traditionally acted as if it had control only over the fare charged (and that usually only with the approval of some regulatory b o d y )
BUSINESS HORIZONS
Mass Transit Management
Functional Organization of Consumer-Oriented Transit Operation
TOP MANAGEMENT
General Services
Marketing and Operations
Information Services
Pe~onnel
Transportation Services
Accounting and Information Services
Plant and Equipment
t
Sales I
Office Services
Maintenance
and the quantity--hence the quality--of service. With such a narrow philosophy of the real variables at its c o m m a n d , transit management is not unlike a cook attempting to make cake with only flour and water. In reality, transit management can manipulate a large number of variables to provide various packages of service. A marketing oriented approach is required, one that demands recognition of all factors under the c o m m a n d of management. A relatively complete list of these factors includes: The goals of the firm and the organization of the firm to meet those goals The information collected by the firm and how it is used for management purposes (including accounting information as well as certain other facts necessary for effective managerial control and decision making) The personnel selected by the firm, how they are recruited and trained, and the methods utilized in dealing with them The equipment and its maintenance The routes and schedules Communication for efficient and dependable
DECEMBER, 1971
13
operation, particularly between operators and supervisory personnel The advertising program Public information (maps, schedules, and signs) Relations of the firm with the community. Most transit enterprises have operations as the central function, with maintenance and the bffice and administrative functions as adjuncts. Marketing has been almost totally neglected. In an organization geared to carry out the objectives of a truly consumeroriented transit operation, marketing must be the core function around which the organization is built. This is illustrated in the accompanying figure. In this functional organization chart, "Operations" carries out the various marketing tasks that serve the various goals of the transit enterprise. "Information Services" includes the typical accounting and office functions plus the gathering of information and statistics for managerial decision making. "General Services" includes the hardware and personnel functions,
GEORGE M. SMERK
" . . . marketing.., must be geared to the task of discovering opportunities to serve the public."
maintenance of equipment and facilities, and the purchase or control of supplies. The precise details of the organization would, of course, depend u p o n the scale of the enterprise and the degree of specialization possible.
The Marketing Program
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The importance of marketing goes far b e y o n d what may seem at first to be merely a stepped-up sales effort. Essentially, the marketing program of a transit firm must be geared to the task of discovering opportunities to serve the public. The privately owned firm will carefully analyze the results of its services and continue those operations which, in the long run, are most profitable. The publicly owned firm will continue to offer certain needed and desired services, regardless of profitability, b u t it will also take steps to develop the transit market so that revenues are maximized. The transit enterprise must adopt a marketing strategy that is relevant to its situation. Because of limited r e s o u r c e s always a fact of l i f e - m a n a g e m e n t must focus its marketing effort. The wisest course is to direct effort toward particular segments of the over-all market. In particular, the investment in marketing should be directed toward nonusers who can reasonably be judged potential users of transit service. The transit company's market does not consist of a homogeneous mass of consumers. There are segments of the market made up of consumers who have different needs and desires requiring different packages of service. The market segment is the smallest unit for which it is worthwhile to tailor a separate marketing program,in terms of the product, price, and the necessary promotion. The concept of the marketing mix, which includes product, price, and promotion, is a handy
way to view the means b y which transit can meet the needs of various segments. Put another way, transit managers must try to reach the segments with various combinations of service, price, and promotional effort. The current practice of providing one level and type of transit service for everyone simply does not apply in a market where many potential patrons have access to automobiles, nor does it apply when people have many potential reasons for travel. For example, the housewife, often temporarily w i t h o u t access to a car during the day, requires service that will allow her to shop or visit friends. Some older people may be willing to pay a slight premium for a bus that would pick them up at their door and deliver them to the door of their destination. On the other hand, young people are able to expend more energy for travel and may not mind transferring, b u t they will want service . to a variety of recreational sites that may be of little interest to other age groups. The task is to distinguish the segments, and then to serve them. The prime over-all marketing strategy for a transit enterprise would be to appeal initially to the most accessible segment or segments of the local market. In the early stages, this would most likely consist of those patrons already served and, of course, those not having alternative transport. Much of the early work would involve tactics and approaches aimed at improving the quality, status, and image" of transit, and the concept of promoting destinations and the use of transit to reach them. By concentrating on reliability, convenience, and other quality factors, the initially served segment, or segments, should be held and used as the base u p o n which to build. Quality improvements and high standards of service should be p r o m o t e d through relevant media; word-ofm o u t h comments b y patrons will help rein-
BUSINESS HORIZONS
Mass Transit Management
force and strengthen the development of the transit image. After the potential of the initial segment or segments is tapped, then the next best segment should be pursued and held, and SO o n .
Probably the best way to segment the transit market is to first offer a service directed at reducing the time, energy, and m o n e y cost of travel, and at improving public acceptance by emphasizing on-time performance, new and comfortable equipment, and reasonable prices. Once patrons have become accustomed to the initial system, research should determine who is using the service. On-bus interviews are relatively simple to conduct. If sufficient budget is available, a market research firm might be engaged to do the work. Next, research should determine who is not using transit. This may be achieved either through home or telephone interviews. Still another m e t h o d would be to select a panel of persons who represent a cross-section of the c o m m u n i t y , and ask them to keep a diary of the trips they take and the means of transportation used. Regardless of the method, certain additional segments should be revealed that are most likely to use transit if some slight change in the marketing mix is made. For example, speeding up service from certain outlying locations to the d o w n t o w n area might attract some persons using automobiles. Some segments of the market would be ruled out as inaccessible to transit. For example, salesmen who are obliged to carry bulky samples with them require automobiles. Only those segments that are accessible and large enough to warrant separate cultivation should be followed up. Market segmentation, on the surface, m a y not appear m u c h different than the modal split techniques used by transportation planners. In modal split, total demand for transportation is estimated and then, through the use of a modal split formula, the percentage of the total trips to be made by automobile, transit, and other means are determined. Modal split formulas have
DECEMBER, 1971
traditionally relied on demographic data, primarily because such facts as age, sex, education, car ownership, income, and so on are readily available. Unfortunately, none of these methods seem to have enjoyed a crashing success; strictly demographic information as a predictor m a y not be too revealing. In marketing a product, m a n y business firms are only secondarily interested in demographic breakdowns; such information is useful only after initial segmentation of the market. The same can hold true for transit.
The Marketing Mix The concept of the marketing mix is a key element in the process of tapping and holding a given segment of a market. The mix consists of all the product, price, and promotion factors under the control of management that may be varied or manipulated to meet the needs of the different segments. In transit, the first part of the marketing mix--product--involves the types of service, the quality of service, and the access afforded customers. Transit service types m a y be divided into categories: regular route, special, and charter services. For regular routes, the configuration of the routes and the schedules operated are the principal variables. Special services are those not following regular routes; such services may be offered to sporting events or to special points of interest. Special subscription services offering door-to-door transportation on a m o n t h l y basis would also fall into this category. Finally, charter services consist of a private package of service under contract to a special group. The quality of service is also important in the product factor. This depends on airconditioning, seating, decor, reliability, shelters for waiting, courtesy of personnel, transfer requirements, travel time, and access. Access to transit traditionally provides routes spaced about a half-mile apart outside the central business district. Such a policy today
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GEORGE M. SMERK
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is hopelessly obsolete. For m a x i m u m ease of access, routes should be laid out no more than three or four blocks apart, depending on street configuration and pattern. Other means of improving access includes subscription bus service, or demand-initiated bus service. The latter depends upon a telephone call from the consumer requesting service; the bus is routed to the consumer's door via radio or other means. Pricing is a s e c o n d ingredient in the marketing mix, one that cannot be considered in isolation from the total package of product and promotion. Whether the price is high or low is probably a matter more closely connected with the quality of the service as perceived by the consumer than with any absolute sum of money. High quality service-frequent, dependable, and clean, with air-conditioned vehicles running on a fast schedule-is likely to be perceived as good value for money and therefore relatively inexpensive. On the other hand, undependable, infrequent service utilizing old, dirty vehicles may be judged as high in cost even though the price charged may be the same in both cases. Whatever the charge, it should be carefully fitted into the mix. The third part of the marketing mix is promotion. Obviously, this includes advertising in various media, ranging from radio and newspapers to circulars and handbills. Promotion also includes public information such as maps, schedules, and signs. C o m m u n i t y relations are also part of the promotion package. This is the process of both directly meeting the public and keeping the public informed of transit service activities. C o m m u n i t y relations should be a two-way street of communication and promotion; the program involves finding out what the c o m m u n i t y wants, not just passing on information. The importance of promotion can hardly be overestimated. In the transit industry today, however, advertising is sparse, maps are often unreadable, and printed schedules--if
they e x i s t - a r e likely to be good examples of cryptographic art. C o m m u n i t y relations often a m o u n t to nothing more than the membership of several officers of the transit enterprise in service clubs or organizations. Rll[ll
It should be clear that the adaptation of modern business techniques to transit is a sensible approach to the problem, regardless of whether the firm is a private or public enterprise. The tremendous success of General Motors is attributed to the concept of largely independent divisions coordinated by committees, not to any unique technological prowess. Likewise, the concept of chain of authority, line-and-staff organization, and the notion of establishing objectives for management are all ways of thinking about and handling a task that lead to successful results. Where is the new breed of management for the transit industry to come from? Some will come from the ranks of those already employed by transit enterprises. Short courses, executive development programs, and institutes can help acquaint personnel with the necessary concepts and ideas. Existing federal programs for management training should be stepped up. Young people majoring in business administration should be encouraged to seek careers in transit management. Indeed, curricula should be devised with some specialized work in mass transportation, perhaps with federal help to get them going. The important thing, of course, is that the transit industry, and cities with public officials charged with transit responsbilities, must actively recruit persons trained in the modern concepts. The suggested managerial approach to transit focuses on the consumer and how to serve him. This seems more practical than the conventional approach of trying to operate at least cost, especially if patronage must be enticed to mass transportation. Certainly, management must adopt a new perspective if transit is to fulfill its promise in helping to improve mobility in urban areas.
Illld
BUSINESS HORIZONS