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Posts Tagged ‘Pricing’

I have a long-standing interest in Black Friday — less because I want to go shopping but more because it poses some interesting questions on how firms compete and how they manage customers. The news this year is that Black Friday is creeping evermore into Thanksgiving proper as retailers keep moving up their opening times. So why are they doing that? Two posts on Businessweek.com put forward theories. The first posits that this is being driven by customer segmentation (The Game Theory Behind Macy’s Thanksgiving Opening, Oct 15).

Traditions are being trampled on by the Corporate Retail Complex! Of course, consumers don’t have to go. Some won’t, and that’s precisely what the strategy folks at Macy’s are betting on.

The purists scandalized by the thought of shopping on the holiday itself aren’t likely to avoid Macy’s altogether. And with the die-hard bargain-hunters swarming the stores on Thursday, Friday shopping will likely be much more pleasant for those who are a little less committed.

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In the basement of the Kellogg School, there is a cafe. It’s a busy cafe, which says more about the available alternatives than about its absolute quality. Because it gets busy and because a good number of its customers are polite enough to walk out of class five minutes early to beat the crowd, I and my colleagues have learned that it is a much better to plan to go down for a sandwich a little before noon than a little after noon. According to CNBC, Goldman Sachs faces similar issues with queuing in its cafeteria and it actively tries to manage the system (The creepy capital efficiency of Goldman’s cafeteria, Oct 17).

The most crowded time of the day to eat lunch is, naturally, during lunch time. For most people, this falls around noon. This creates the phenomenon of the lunchtime rush hour. You know this all too well if you’ve ever tried to stop in your local chopped salad place at, say, 12:30 in the afternoon.

Goldman didn’t like the idea of its people waiting on long lines to get their lunch. People are capital to Goldman. It wants to use its capital efficiently. Standing on line waiting for dumplings or salad or a burger is not an efficient use of Goldman’s capital. …

The cafeteria has a set of timed discounts. If you show up in the cafeteria before 11:30 or after 1:30, you get a 25 percent discount on your food. Goldman incentivizes employees to avoid the rush hour.

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Congestion is a common problem in services. A large number of customers put demands on the system all at the same time and delays ensue. A few weeks ago we posted about GymFlow, an app that tries to address congestion at health clubs by providing better information. GymFlow doesn’t tell you can’t go to the gym at 5:30. It just points out that the gym is going to be a whole lot less crowded if you got 3:30.

Now the Wall Street Journal has an article on a different way to ease congestion by relying on games and lotteries (Gaming the System to Beat Rush-Hour Traffic, Aug 1). It reports on the work of Balaji Prabhakar, a Stanford Computer Science professor, who has tested out various systems to get commuters to tweak their travel habits. The article’s author discusses his approach here:


Here is a summary of one of Prabhakar’s at his place of employ.

His team recently brought the technique home with a federally funded experiment to help Stanford keep its promise to Santa Clara County to alleviate rush-hour traffic. The 3,900 participants—a significant share of the relevant pool of 8,000 parking-permit holders—installed devices on their cars (soon to be replaced with a smartphone app) and got points for arriving and leaving an hour before or after the rush hour.

The popularity of the Chutes & Ladders-like game stunned Stanford’s director of parking and transportation, Brodie Hamilton. He doubted people would take the time to spin the electronic dice to play it, and insisted that Mr. Prabhakar include an auto-play feature. But, Mr. Hamilton says, “I have people on my staff who play it regularly. People are really into it. Balaji was right!”

About 15% of the trips taken by participants have shifted away from rush hour. Students tend to come and leave later; staff tend to come and leave earlier. Smartphones make all this easier to implement: A new mobile app tracks bikers and walkers and gives them points, too.

Those who commuted off-peak got points to play in the on-line game with a chance to win cash. We are not exactly talking a year’s tuition here. The program’s website touts “random cash rewards from $2 to $50.”

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Check out these two images from the Wall Street Journal (Airline Seats Available for Elite Fliers Only, July 12). Both show available seats on an American Airline flight from LA to New York. The first shows what’s available if you lack any status in American’s frequent flyer program. The second shows what seats are offered to a flyer with sufficient status in the frequent flyer program.

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Untitled copyTo be clear, these seating charts are for the same flight at the same time — all that differs in one’s frequent flyer status. Further, while this example comes from American, other airlines play similar games.

Unlike American, Delta Air Lines shows the Preferred seats it has held back for elite customers, but doesn’t allow regular customers to book them until 24 hours before departure. At that time, Preferred seats are offered for a fee to nonelite-level customers.

US Airways also blocks seats for elite-level customers and labels them Preferred. The airline sells what it calls Choice seats in rows near the front of the cabin for $5 to $99 one-way that don’t have extra legroom but do have early boarding privileges. On the whole, US Airways says 9.5% of its coach seats are labeled Choice. Preferred, Choice and exit-row seating, which is sometimes sold for a fee, account for an average of 30% of coach seats on the airline’s planes.

Those seats open up to customers without seat assignments who don’t want to pay starting 24 hours before departure, US Airways said.

Not to surprisingly, a lot of customers find these games rather annoying. In the American example, there is one seat to be had for free for a non-elite flyer in what can only be described as a crappy location. The article has this wonderful quote “American says it doesn’t think blocking open seats from view pressures customers into paying for extra-legroom or Preferred seats.” which makes you wonder whether the folks at American are naive or dishonest.

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t2_2TKTS has long been a Time Square fixture. For those unfamiliar with it, TKTS is a non-profit that sells discounted tickets to Broadway and off-Broadway shows. It recently celebrated its fortieth anniversary and Marketplace had a story summarizing its business (Broadway discount booth TKTS turns 40, Jun 26).

“Shows look at their inventory the day before and they say: I’ve got tickets to sell, I don’t have tickets to sell,” says Victoria Bailey, executive director of the Theatre Development Fund, a non-profit that owns TKTS.

Bailey says TKTS sells nearly 2 million tickets a year. Theaters get the ticket money, and TKTS takes a $4 service charge. Bailey says a good year on Broadway isn’t necessarily a good year for TKTS.

“A good year for TKTS: You need a lot of shows running, doing well enough that they keep running, but not so well that they don’t have empty seats and need us to sell seats for them,” she explains.

That’s all good. The quote in the story that got me thinking, however, was the following.

Larson notes critics have said TKTS pushes ticket prices up because theaters know that they can get rid of seats if they overcharge. TKTS’ Victoria Bailey says Broadway ticket prices have risen sharply over the years. Tickets now generally run $100-150, but can easily be more than twice that. Still, she says, you don’t have to shell out that kind of money to see a show. You just have to wait.

Does having a secondary outlet boost prices?

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How much would you spend to skip a line at a theme park? At Universal Studios Hollywood at least some people are willing to pony up a lot (At Theme Parks, a V.I.P. Ticket to Ride, New York Times, Jun 10).

As stratification becomes more pronounced in all corners of America, from air travel to Broadway shows to health care, theme parks in recent years have been adopting a similarly tiered model, with special access and perks for those willing to pay.

Now Universal Studios Hollywood has pushed the practice to a new level.

It has introduced a $299 V.I.P. ticket, just in time for the summer high season, that comes with valet parking, breakfast in a luxury lounge, special access to Universal’s back lot, unlimited line-skipping and a fancy lunch. …

Universal upgraded its V.I.P. Experience — and raised the price by 50 percent — after realizing that the old one, which did not include lunch, the lounge or other perks, “was selling out more and more frequently,” Ms. Wiley said.

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It’s an absolutely gorgeous in Chicago today. It’s so nice that when our son said he wished he had a Little League game today, my wife and I said that we would see about getting Cubs tickets for tonight’s game against the Rockies. So where should I go look for tickets? Should I buy them from the Cubs themselves or look on the secondary market? The secondary market, of course, means StubHub, the partner for most Major League Baseball teams for reselling tickets. Here’s how the Chicago Tribune puts it (Baseball teams get dynamic with ticket pricing, May 12).

Teams deal with StubHub because the online reseller provides a trusted outlet for season ticket holders to dispose of tickets to games they don’t attend. Buyers also have confidence that tickets on StubHub are not counterfeit.

But the first signs of backlash against StubHub appeared in the past offseason, when MLB renewed its five-year agreement with the website.

Two teams, the New York Yankees and the Los Angeles Angels, opted out of the partnership to form their own ticket exchanges with Ticketmaster because they wanted more control over pricing on the secondary market, said Bob Bowman, CEO of MLB Advanced Media.

StubHub spokesman Glenn Lehrman was more blunt: “There’s one clear reason why those teams are not using StubHub. They did not like to see tickets resold below face value. We let the market dictate prices.”

The Cubs also considered opting out. Team officials were unhappy after some of their tickets were listed on StubHub for less than a $1, not including fees, for the team’s final three home games last season. In 2012, the Cubs lost more than 100 games for the first time since 1966.

To address some of the league’s concerns, StubHub now includes fees in ticket listings. The cheapest baseball ticket on StubHub is $6, which includes commissions and a delivery fee.

The Cubs also are one of two teams that cut off StubHub sales six hours before game time, up from two hours in 2012. By ending sales on StubHub earlier, the Cubs presumably hope to sell more last-minute tickets.

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A (really) brief follow up on yesterday’s post on pricing Warrior basketball tickets. Checkout what our colleagues Sandeep Baliga and Jeff Ely are doing with the price of Northwestern basketball tickets! Here is how the describe on their Cheap Talk blog:

We are using a system which could roughly be described as a uniform price multi-unit Dutch Auction. In simpler terms we are setting an initial price and allowing prices to gradually fall until either the game sells out or we hit our target price. Thus we are implementing a form of dynamic pricing but unlike most systems used by other venues our prices are determined by demand not by some mysterious algorithm.

But here is the key feature of our pricing system: as prices fall, you are guaranteed to pay the lowest price you could have got by delaying your purchase. That is, regardless of what price is listed at the time you reserve your seat, the price you will actually pay is the final price.

What that means is that fans have no reason to wait around and watch the price changes and try to time their purchases to get the best possible deal. We take care of that for you.

This program is available for games against Ohio State (Feb 28) and Penn State (Mar 7).

 

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Back in the early 90s, I was in graduate school in the Bay Area and playing in a regular faculty-PhD student basketball game. At the time, the Golden State Warriors held a high draft pick and while waiting for everyone to show up for our game, there was an animated discussion about what the Warriors would. Our conclusion was that they would screw it up. After all, they had recently traded away Mitch Richmond and had previously had traded away Robert Parish so they could get their hands on Joe Barry Carroll. Twenty years on, the Warriors basketball  performance hasn’t gotten a lot better. Sure, they are currently sixth in the West and would make the playoffs if the season ended today. But that would only be their second playoff appearance since I left the Bay Area many years ago.

That long history of mediocrity makes the team’s business performance all the more remarkable. In each of the last eight seasons, they their average home attendance has been over 18,000 — giving them one of the highest average attendance in the NBA. How have they managed to do this? They used lots of data in order to make sure that seats don’t go unsold while also making sure that they don’t give out unnecessary discounts (Warriors Go On Offense to Fill Seats, Wall Street Journal, Feb 6).

The team looks at data generated by Ticketmaster as well as resale-market sites like StubHub, and pores over weather forecasts and ticket sales from competing entertainment in the Bay Area.

The Warriors examine, for example, how much ticket buyers historically paid for a Tuesday night contest against the Houston Rockets versus a Friday night game against the Rockets. This helps the team predict how much it can charge for tickets without curbing demand. In some scenarios, price-points can change hourly, part of a growing sports-business practice adapted from airline bookings known as “dynamic pricing.”

The Warriors also use data when planning to move the last unsold seats for a game with an online offer. The team will take its 200,000-person email list and break it into chunks, testing different times, different subject lines and different links in the body of the message to gauge what brings the quickest response.

“We’ll send 100,000 messages 10 minutes after a victory, and 100,000 the next day,” says Mr. Schneider, 33 years old, now in his 11th season with the Warriors. Data on response time, tickets sold and the price point for each ticket tier will determine how the team tailors future pitches.

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It’s been a bad flu season with hospitals in many cities overwhelmed with patients. This is largely a preventable problem. The annual flu vaccine is not perfect but a wider use of the vaccine would provide some amelioration. So why don’t more people get a flu shot? Some reporter at the LA Times seemed to think that cost might be a factor (Why does a flu shot cost so much?, Jan 21). After all, getting the shot at your local pharmacy will set you back $30 or so. However, as the reporter found out, given the supply chain challenges of producing and distributing influenza vaccines, the real question is why flu shots cost so little.

That’s because the process of manufacturing the flu shot and distributing it is a huge headache for pharmaceutical companies. The influenza vaccine must be made anew each year, beginning in February. Researchers determine what strains to put in the vaccine after looking closely at what types of flu are most prevalent in the Southern Hemisphere throughout its winter, which is our summer. …

Vaccines for other illnesses, such as measles, mumps and rubella, can be used until their expiration date, which is often years after they’re made. Influenza vaccines are really only used September through January and then go in the trash. And there are no regulations saying people have to get flu vaccines, meaning it’s very difficult for companies to estimate how many they should make. …

This year, companies have produced about 145 million doses, he said. Only about 129 million have been distributed. Last year, companies lost even more on the flu vaccine because it was such a light flu season and fewer people decided to get the shot. Only about 42% of the U.S. population got an influenza vaccine last year, which meant that about 30 million doses were never used and had to be destroyed.

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