Posts Tagged ‘Dynamic Pricing’

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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495-logoSlate has an article that asks an intriguing question: Who Really Benefits From “Big Data”? (Dec 27). That’s clearly something of a loaded question. Big Data is currently everyone’s favorite answer for everything. The ability to leverage vast amounts of data for new insights and improved decisions holds a lot of promise. There are also many success stories of firms creating new markets or improving profitability or providing great value to customers to back up claims and bolster expectations. Big Data has remade baseball with an emphasis on new statistical measures and has allowed Netflix to suggest the perfect next movie to watch.

Those examples sound great. Of course, consumers may be less enthusiastic about one of the longer standing examples of Big Data, airline revenue management systems. While these have been around for a couple of decades,they bear the hallmarks of Big Data applications. They are built on careful data analysis to forecast how systems will evolve and seek to replace intuition with frequent, reasoned decisions. These decisions may not necessarily be optimal but they clearly balance costs and benefits and can be improved over time. I’m not sure that customers love revenue management systems the way they love Netflix recommendations. Although revenue management systems are just as responsible for some sweet deals as they are over for extravagantly priced tickets, people tend to focus on the latter. Consequently, if you ask who benefits from Big Data and lead with revenue management systems as an example, I would venture that many customers would be leery of embracing Big Data.

So what example does the Slate article go with in thinking about Big Data? Lexus Lanes on the DC Beltway!

Advances in real-time data acquisition, processing, and display technologies means that it is possible to design a toll road that can continually change prices to control how many cars are on the road and how fast they are going. These “hot lanes“ have just been opened along a part of the Washington, D.C., Beltway, the 10-lane, traffic-infested artery that to normal humans is a metaphorical boundary between the real, outside-the-Beltway world and the weird, political one on the inside. (For those of us who live around Washington and must drive on it, however, the Beltway is very concrete indeed, a daily flirtation with delay and frustration, homicidal instincts, and death itself.)

At a cost of $2 billion, a private sector partnership (which gets to keep the tolls) has built a 14-mile-long, four-laned section of highway, parallel to the main lanes of the toll-free Beltway, and has guaranteed to the state of Virginia that it will always keep traffic moving at no less that 45 mph along its length. They do this by continuously monitoring the number of cars (which must be equipped with EZ-Pass transponders) and their speed, and by raising toll prices as necessary to keep the number of cars on the road at a level that will allow the speed to stay at or above the guaranteed minimum. The dynamic toll prices are displayed on huge signs near the entrances to the smart-highway lanes, so drivers get to decide at the last minute whether they want to spend the money to go faster or not. As the traffic on the toll-free Beltway lanes gets worse, some drivers will be willing to spend more to go faster. The worse the traffic is, the more they’ll have to spend. (In the early days of this new technology, numerous accidents were caused by drivers trying to decide how much they were willing to pay, but no doubt this initial problem will sort itself out as people get used to driving-while-economically-rational.


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Here in Chicago, dynamic pricing has come to the theater district. More specifically to the Goodman Theater, a popular non-profit theater company (How theater ticket prices are changing like airline fares, Chicago Tribune, Oct 22).

When the Goodman Theatre announced its prices for its current production, “Sweet Bird of Youth,” starring Diane Lane, it listed $89 as the top ticket price for that show, a price that duly appeared in this newspaper. And had you bought your decent main-floor seat for the Oct. 27 performance three weeks ago, $89 is indeed what you likely would have paid. On Wednesday afternoon, there still were tickets available on the Goodman website for that Saturday evening performance. But the top price? $120. …

Dynamic pricing — otherwise known as revenue management, progressive pricing or the computerized art of changing a ticket price over time based on actual supply and demand — has arrived with a vengeance in the nonprofit world, even if few Chicago institutions have invested in the sophisticated computer software and arts consultants, like the Target Resource Group, that allow the Goodman (and such institutions as the Kennedy Center for the Performing Arts in Washington) to adopt dynamic pricing with such sophistication.

At the Goodman now, prices not only go up, they also go back down. It is possible for you to call the theater’s box office three times during the week, request the same seats and be offered three different prices. …

So is the dynamic pricing model the way a mission-oriented, nonprofit arts group should be operating?


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Back in March we had a post on how the Cubs were going to use dynamic pricing to sell bleacher seats this season. That post apparently caught the attention of someone at SeatGeek, a ticket search engine, and led to me getting the following email:

I’ve followed your past coverage of the Cubs’ decision to bring dynamic pricing to Wrigley Field bleacher seats this season, and I wanted to share with you a comprehensive White Paper that SeatGeek has compiled to help identify the real factors driving dynamic pricing at Wrigley Field.

As the Cubs official website says, a dynamic pricing system allows the team to adjust ticket prices based on “changing market factors.” But what does that really mean? We’re a ticket search engine that aggregates data from over 60+ ticket providers, so we recently ran an analysis to tease out the true factors driving variable pricing of Bleacher tickets this season.

In the attached “Bleacher Bum Economics” report, we examine how the Cubs valued bleacher tickets by day of the week, quality of opponent, and time of day. We’ve also identified a few tips and tricks that Cubs fans can use to save money on Bleacher tickets. For example, we learned that tickets for games on a Saturday are 5x as expensive as Monday games, so picking an early-week game is a great way to consistently find good deals on bleacher seats. We’ve included more tips in the report beyond just these mentioned above as well.

I’m in all favor of finding a bargain in going to a ballgame, but are we really giving away Ricketts family secrets here?


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It’s been almost three weeks since pitchers and catchers reported so it’s time to talk a little baseball. Specifically, it’s time for an update on how Major League teams are trying to separate fans from their dollars. The trend this year is dynamic pricing. This has been going on for a while. The Giants were the first franchise to try it and a few other  teams joined the bandwagon last year. This year 17 of 30 big league teams are deploying dynamic pricing (Baseball Teams Are Acting Like Airlines, Planet Money, Mar 6) — that means that there are more teams using dynamic pricing than there are teams using a designated hitter. One of those teams is the Chicago Cubs (Moneyball: Cubs team up with Sox in offering ‘dynamic’ ticket pricesChicago Business, Feb 20).

Note that this goes beyond just pricing differently by day of week or opponent. As we have written about in the past, teams have been more aggressive along these lines and the Cubs are no exception. I bought a six game pack of tickets. Over six games, the tickets have five different face values ranging from $24 for an April game against the Brewers (go ahead, make me an offer) to $72 for a June game against the Red Sox (sorry, I’ve got a Little Leaguer who thinks these are worth way more than seventy-two of dad’s dollars).

What we are talking about here is changing the price of a seat depending on how well they are selling (which presumably reflects everything from the standings to the weather). For the Cubs, this will apply to 5,000 bleachers but may eventually expand to the rest of Wrigley.  Supposedly (according to the Chicago Business article), that could be worth $11 million in extra revenue. That money is coming, presumably, out of scalpers’ pockets.

“Teams are looking at (dynamic pricing) to capture some of that secondary market that they’re not capturing,” says Colin Faulkner, the Cubs’ vice president of ticket sales and service, who implemented the new system when he worked for the NHL’s Dallas Stars before moving to Wrigley Field in 2010. Mr. Faulkner says the dynamic pricing will supplement a tiered system in the bleachers, where initial costs range from $17 to $78 apiece.


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A common complaint about the travel industry is that pricing is unfair. The guy in the seat next to you on the plane may have paid a hundred dollars less or a two hundred dollars more than you did. Airlines are well known to monkey with prices on a given route — and even on a given flight — very aggressively forcing travelers (particularly leisure travelers) to diligently watch prices. Indeed, this blog’s most popular post over the past year has been Gady’s post on why airfares are cheaper on Tuesdays.

These pricing mechanisms are broadly lumped together as revenue management systems. Airlines are not alone in this racket. Hotels and car rental firms have also long been practitioners of revenue management. See, for example, the well-known Interfaces article on how revenue management “saved” National Car Rental (Jan/Feb 1997). But it is hard to get around the fact that customers don’t particularly like them. Sure, a traveler may occasionally score a great bargain on an itinerary when the stars align but more often than not, they have to spend a lot of time and effort trying to find the best deal.

This obviously creates a business opportunity for firms that simplify the process of finding a good price. Travel websites like Kayak would be an example but these sites offer just a snap shot. That is, they can tell you the best current price but they cannot guarantee a better price in the future.  Bing Travel’s Price Predictor feature can estimate whether prices will go up or down but you would still have to come back at the right moment to get the better price.

That gets us to AutoSlash, a service featured in a recent New York Times article (A Rate Sleuth Making Rental Car Companies Squirm, Feb 18). Here’s how it works:

A little online booking engine called AutoSlash, however, offers the following promise: Book free on its site, and a couple of times a day until your travel date it will search for coupons or lower rates. If it succeeds, it rebooks you automatically. AutoSlash claims success 85 percent of the time, a statistic born out by my own experience using it for all of my own rentals.


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So Ticketmaster wants to bring revenue management to a concert venue near you (Ticketmaster to Tie Prices to Demand, Apr 19, Wall Street Journal). This is in many ways long over due. Airlines and others have made a science out of pricing scarce resources in the past 20 years so it is not surprising that someone would eventually get around to concerts and sporting events. (Ticketmaster is also eyeing ballparks and teams such as the Giants are already using dynamic pricing. The Cubs actually auction off a few seats for each game.) The immediate impetus has been a disappointing year of ticket sales.

Last year was brutal for the concert industry, with ticket sales plunging 12% despite a modest decline in average prices. Recent price drops follow more than a decade of steady increases, a trend that helped mask fundamental problems.

“2010 taught us we have real challenges as an industry,” [Ticketmaster Chief Executive Nathan] Hubbard said. “One of them is pricing.”

Echoing the frustration of executives throughout the concert industry, Mr. Hubbard said that the best seats appear to be consistently priced below what fans are willing to pay, leading to a multibillion-dollar “secondary market” in which scalpers can reap profits by reselling tickets above face value. At the same time, he said, 40% of concert tickets sit unsold industry-wide, meaning that the ostensibly cheap seats for many shows are simply not cheap enough.

The article goes on to note that one complication in using dynamic pricing for concerts is the number of parties involved. Bands, promoters, venues etc would all have to be on board with the plan. Given that Ticketmaster is now one with Live Nation, which promotes bands and tours, they may be in a position to make this all happen.

There are some other potential stumbling blocks, however. (more…)

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Why do firms dynamically modify their price? There several reasons, but the main goal of dynamic pricing is to allow for better allocation of products to customers according to their preferences while exploiting such differences to improve the overall profitability of the firm. (Prices may also reflect changes in the willingness to pay of customers or changes in the costs of providing the service).

The Wall Street Journal recently had an article (“Whatever You Do, Don’t Buy an Airline Ticket On … “) that made the case that one should not buy airline tickets over the weekend since these are consistently higher than the prices during the middle of the week, which, in my opinion, makes very little sense.  Don’t get me wrong: it’s not that I am saying that it does not happen. I am merely saying that it makes very little sense to alter the prices so frequently, in a manner that seems to add very little value to the airlines.  What kind of temporal differences does the airline exploit here?



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