SBJ/March 19-25, 2012/In Depth
Ticket challenge: Getting the price right
Dynamic pricing gathers steam, but will consumers push back?
Published March 19, 2012, Page 1
Then, over a two-week span in September 2010, the Cardinals saw a pair of unpredictable turns take a bit from their coffers.
On Labor Day weekend, the Cincinnati Reds came to town. Historically, that holiday is a tough sell for the Cardinals, and fans in St. Louis haven’t viewed the Reds as a rival. But in this case, the two teams were scuffling atop the division, with the Reds in first place and the Cardinals a close second. They also were coming off a series in Cincinnati that included a bench-clearing brawl that got both managers suspended.
|The St. Louis Cardinals are one of 17 MLB clubs that have incorporated dynamic pricing with some, if not all, of their seats.
Two weeks later, the Cubs came in for a weekday series. Historically, the Cubs have been the Cardinals’ bitter rival. Historically, tickets for that series sold well, even at midweek. But in this case, the Cubs were on the back end of an awful season. Fans who usually made the trip south stayed home.
The Cardinals had priced the game on the high side of their variable pricing scale. They were left with unsold seats and far less revenue than they predicted from the series.
“That’s when it really hit home for me,” Strohm said. “No other business I know sets prices nine months out without the ability to change them. That’s how we did it. But it’s not how we should do it today.”
That same realization appears to be sweeping sports, and especially baseball, with ballparks that are twice as large as NBA and NHL arenas and schedules that run twice as long.
It was only three years ago that the San Francisco Giants became the first team in sports to try dynamic pricing. It wasn’t until last year that three other MLB teams, including the Cardinals, joined them. This season, 17 of 30 MLB clubs will make the switch with some, if not all, of their seats. The results of those who have gone before them were too compelling to ignore.
In a study of MLB clients that fully implemented dynamic pricing last season, ticket pricing software company Qcue found that teams increased revenue by an average of $900,000 for the season by adjusting the price in each section of the ballpark one time for each game.
Demand-based dynamic pricing also has caught on to varied degrees across the NBA, where seven clubs price all their single-game seats dynamically and transparently, allowing fans to see a grid of all their games and make choices based on price, and the NHL, where two teams are doing it. Many teams in both leagues now reserve the right to tinker with prices here and there.
“What teams are realizing with dynamic pricing now is that there’s really not a downside,” said Barry Kahn, founder and CEO of Qcue, the Austin, Texas-based software company that pioneered dynamic pricing in sports and now works with 15 MLB clubs, as well as a smattering of teams in the NBA and NHL. “We always thought the most important thing to show people when we went in was the upside. But we found that people understood the upside. What was holding them back was the fear of what could go wrong.
“Once teams saw that they could drive more revenue and it wasn’t going to cost them their season-ticket base or hurt the way they were perceived by the fans, dynamic pricing became a very easy thing to accept.”
A full, dynamic pricing system typically costs teams $100,000 to $200,000 per year, said industry sources. Scaled down services that include data but not pricing advice can be had for less than $25,000 a year.
The initial hesitation with dynamic pricing, Kahn said, was tied to the dangers of an unfettered market. Teams worried that season-ticket holders might revolt if they regularly saw tickets go for less than they paid, as they sometimes do on the secondary market. They feared that ticket prices for a game might drop all the way to $1, thinking of them like a plummeting stock.
“There was a perception that what we were doing was keeping up with what the market price was,” Kahn said. “There is a difference between the market price … and what the best price is at a given point in time for a team. And it’s the latter that we’re giving you.”
It is a revolution riding the tails of rapid evolution in the ticketing business. Dynamic pricing is the most radical aspect of it. But there have been other sizable shifts.
“The world has changed drastically in the last two years,” said Bill Sutton, a sports marketing professor who consults on ticketing matters with teams across sports. “And it’s still evolving.”
Extending the variable model
The vast majority of teams in MLB, the NBA and NHL price tickets variably at the start of the season, charging more for the games that are expected to sell best, based on variables such as opponent, day of week and month of year. A topic of raging debate as recently as five years ago, when many executives still argued that telling fans that some games were worth more than others put their own brand at risk, variable pricing now is the norm.
|The Charlotte Bobcats adjusted prices after the Los Angeles Clippers traded for Chris Paul and made the team’s visit more marketable.
All of this flexibility has driven teams to take a closer look not only at the way they can change prices, but also the way they set them from the start.
“For a long time, our industry had executives sitting around a table saying, ‘All right, should we go up 3 percent or 5 percent next year?’ And that was it,” said Chad Estis, president of Legends Sales and Marketing, a joint venture that includes the Dallas Cowboys and New York Yankees. “Up until three or maybe four years ago, the answer really wasn’t based on much that was tangible.
“We’re talking about a pile of revenue. This shouldn’t be done on a whim or gut feeling anymore.”
The Atlanta Braves lost a chunk of season-ticket holders a decade ago after an 11 percent price jump that was based not on evidence that fans were willing to pay more, but because the club had increased payroll and wanted to increase revenue to cover the cost. It was the third consecutive year the Braves raised prices by upward of 5 percent. As a result, the club’s season-ticket base fell from a high of about 26,000 to 21,000.
“It was the tail wagging the dog,” said Derek Schiller, executive vice president of sales and marketing for the Braves,
who joined the club from the Atlanta Thrashers in 2003. “There was little understanding of what the repercussions were going to be. The only analysis was on the additional revenue. They didn’t do elasticity studies or any other kind of analysis on pricing in the marketplace.
“There was not a whole lot of data taken into account.”
Fast forward to this season, when the Braves opted to test dynamic pricing on about 8,000 seats in the outfield that
“I think the hurdle in the past was that there wasn’t a lot of data or technology helping teams understand what the price ought to be,” Schiller said. “So even if you thought you should do more, you didn’t have the tools. We have analysis that’s driven by true data now. It’s not a guess. So when we have the opportunity to take a look at dynamic pricing in a section of our ballpark where we’d like to see more advanced buying, it helps make those decisions more secure.
“I still have some reservations about dynamic pricing. But I can look at it now, in these seats at least, as an acceptable risk.”
For many teams, dynamic pricing has come as a logical progression from the variable pricing that has become commonplace. Analytical tools provided by vendors like Qcue, Digonex and Stratbridge, and ticketing providers such as Ticketmaster, Tickets.com, Paciolan and Veritix allow teams to more reliably predict the market for games at the start of the season and react efficiently to shifts in demand.
Chris Granger, executive vice president of the NBA’s team marketing and business operations division, said that all 30 NBA teams this season are using variable pricing and most are employing some type of dynamic pricing strategies for regular-season games.
“They’re both efficient in different ways,” said Pete Guelli, executive vice president and chief sales and marketing officer for the Charlotte Bobcats, who, despite the worst record in the league, have managed to keep attendance from falling. “It’s not about pricing around opponents but also around dates. The initial step is variable and it is critical because it defines what the revenue streams will be for the year, but dynamic pricing makes sure that you don’t miss any opportunities. We have seen dramatic spikes in individual games sales, and a lot has to do with dynamic pricing.”
|The San Diego Padres will use dynamic pricing for all seats this season, a big departure from last year, when the team priced all of its home games the same.
“It gave us a huge opportunity to drive more revenue for a game that we didn’t anticipate being in demand,” Whitfield said.
Kahn said many clients who used his company’s tools to help them place games in the correct price category soon came to realize that no matter how much the data improved, they still were going to miss opportunities on some games and overshoot the mark on others.
“For me, the light bulb went off when I realized how little flexibility we really had,” said Jarrod Dillon, vice president of ticket sales and services for the San Diego Padres. “Even if we’re variably priced to the T, if the next Stephen Strasburg comes along or the next Barry Bonds home run chase happens, we have no way to react to that.”
The Padres will implement dynamic pricing for all seats this year. That’s a radical departure for a team that last year priced all 81 home games the same.
|Tracking the rise in average ticket prices for entertainment options|
|Price of admission|
per ticket 2011-12
|Disney World (adult)||$85.00||+35%|
|Note: Gap in NHL data reflects season lost due to labor dispute
Sources: Team Marketing Report; The Broadway League; National Association of Theatre Owners; AllEars.net (charts and scans of historical Disney ticket)
Abbamondi is an example of a shift toward analytics that has swept front offices across sports. A graduate of MIT and Stanford business school, Abbamondi was an assistant general manager with the St. Louis Cardinals when the Padres hired him a year ago to work on both business and baseball.
A matter of timing
Thus far, much of the attraction to dynamic pricing has been the ability to drive more revenue from high-demand games and goose sales for tickets that aren’t moving. But, increasingly, teams are considering the potential to change not only how many tickets they sell, but when they sell them.
The message the Padres crafted around their shift to dynamic pricing focuses on the fact that they set on-sale prices below what they expected fans would pay, making it likely that those who buy first will get the best deals. It’s too early to tell if it’s working, Dillon said, but he and Abbamondi are optimistic about its chances. If it doesn’t work, they can adjust again.
That’s been one of the lessons passed along by the teams that already have implemented dynamic pricing, and stressed by Qcue.
In its MLB analysis last season, Qcue found that teams that moved prices up did so at an average of $3.27 per seat. Price drops came at an average of $13.63 per seat. Both mirror Qcue’s advice to teams to move up conservatively to test the market, but to drop prices precipitously in order to catch the consumer’s eye. The average price move was a $1.55 increase.
Last season, the Cardinals saw attendance drop by 200,000, a dip they attribute to the soft local economy and the lack of a close pennant race. Yet ticket revenue increased by 2 percent.
“You are going to be surprised by some of the recommendations, both on how high the price should be on some games and how low they should be on others,” Strohm said. “It counters how we’ve priced tickets for years now. You’re going to end up pricing tickets in some locations much higher than you’ve ever priced tickets. But you’re also going to reach a lower price point than you ever offered. You’ve got to trust the data that you’re seeing versus going with past practices.
“Changing your habits is not easy. But you’ve got to trust the data.”
Staff writer John Lombardo contributed to this report.