Dynamic pricing hits the big leagues


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Last month, we highlighted the New Jersey Devils’ announcement that they were going to a three-tier pricing structure–variable pricing–that will charge higher than normal prices for the more popular games and lower than normal prices for some of the least popular games. We talked about how it was a trend that you will see more and more in all the major professional sports as teams get more savvy as to the prices that fans will pay to attend games.

Taking the variable pricing model to the next level are (among others) the San Francisco Giants of Major League Baseball. For the past three seasons, the Giants have utilized a algorithmic-based pricing model–dynamic pricing–where the face value of every ticket rises or falls real-time based on changes in demand. This demand is result of myriad factors besides just the opposing team. Everything from the time and day of the game, expected weather, pitching match-ups and even special promotions factor into the rising and falling prices of individual tickets.

The Giants started the model in 2009 with a pilot program for 2,000 outfield and upper-deck seats–usually the last to sell for most games–with the end-result of selling an estimated 25,000 additional tickets worth $500,000 of added revenue.

In 2010, the Giants implemented dynamic pricing for the entire stadium. And while it made sense from a business perspective, the challenge was to convince fans that they weren’t being preyed upon in the team’s quest for higher revenues. Luckily, the Giants ended the 2010 season with their first World Series title since 1954 and revenues increased 7 million.

The supporters of dynamic pricing always point to another (relatively) successful pricing model as their guide–airline pricing. This may be true, but there is one important distinction between baseball and air travel that they need to always be aware of. People (for the most part) put up with the complexity of airline pricing because flying is a means to get somewhere; you’re not getting on that airliner because you enjoy flying. With baseball, it’s different. You go to the game because you want to, not because it’s a conveyance to a more important goal (like getting to your destination). If fans end up hating the dynamic pricing model for baseball as much as they hate the airline model that it’s patterned after, they will stop going to games long before they stop flying.

Here’s the takeaway: Just because dynamic pricing works (from a business perspective) for airlines doesn’t automatically mean that it can be replicated in other businesses. As baseball executives look for ways to increase revenue, the distinction between air travel and sporting events needs to be completely understood.

Republished with author's permission from original post.

Patrick Lefler
Patrick Lefler is the founder of The Spruance Group -- a management consultancy that helps growing companies grow faster by providing unique value at the product level: specifically product marketing, pricing, and innovation. He is a former Marine Corps officer; a graduate of both Annapolis and The Wharton School, and has over twenty years of industry expertise.


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