The following post was originally published in April 2011.
Ticketmaster announced recently that it will be moving toward a “dynamic pricing” model. Sometimes called ‘rational’ pricing, this model seeks to maximize revenue from a finite capacity product. It is the same pricing strategy that the airline and hotel industries have turned into a science. Let’s consider the pros and cons of this move.
Ticketmaster described the change as being consumer-friendly, claiming it will cut out the scalper market, provide greater value for consumers, and help venues and artists sell-out their events. Indeed, the announcement has been widely accepted as good news for consumers, but is it really? Here are several ways in which the customer can benefit from dynamic pricing:
- it is theoretically TRUE market pricing. As we learned in Economics 101, pricing should reflect the forces of supply and demand. One should expect to pay higher rates for a hotel in Calgary during the Stampede and lower rates for a trip to Atlantis during the hurricane season. Smart buyers, on the whole, should be able to beat the market by planning their purchases against the demand cycle.
- it rewards early shopping and faster decision-making. Once the pricing model is known and the policies are clear, everyone can ‘play the game’ to save money.
- it may create ‘last minute’ bargains. Perishable inventory, like seats on a plane or a hotel room, may be sold at substantial discounts vs. list in order to generate ‘final hour’ revenues to help cover fixed costs in the business.
There are clearly benefits to dynamic pricing, but can the customer lose in this scheme as well? Absolutely, for example:
- he who hesitates may pay more. Sellers can motivate early purchase and penalize later buying to drive earlier occupancy fill.
- purchase fences might be instituted to drive volume. How often have we seen the best hotel rate with a “must stay on Saturday” fence? How long before we see the lowest concert prices tied to the purchase of a minimum of 3 tickets?
- the vendor may institute a no refunds policy in exchange for the deepest discounts (hotels do this a lot)
- customer satisaction may plummet if pricing policies are not absolutely clear (“what do you mean $175 for a Lady Gaga ticket – it was $129 for the same seat yesterday!”)
On balance, we like dynamic pricing and think that it can and should be applied in other limited-capacity instances to maximize revenue and bring value to early-purchase buyers. Businesses such as golf courses, attractions, non-airline public transit providers, live theaters, conventions, trade shows, and even restaurants can all benefit from adopting a rational pricing model. RS/JS
The Bottom Line
Dynamic pricing is a different way of looking at business and it requires a new discipline to manage it. The results of adopting this model, however, can be profound – to customers and shareholders alike. For revenue enhancement strategies that can accelerate your business, contact Stratum Five for a discussion.