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Guest Commentary: The myths about dynamic pricing
I was recently asked to be a panelist at the upcoming Ticket Summit 2010 and it made be think back to the last two Ticket Summit events that I’ve attended.
The first was the conference’s second year. Back then, Alfred Branch was the lone reporter for TicketNews, StubHub was the controversial young company, and there were only three representatives from the primary market (although once you consider that Fred Rosen was retired and Qcue was in its infancy, there was actually just one, Derek Palmer of Tickets.com).
Fast forward to this past July. StubHub’s president gave a keynote address, the New Jersey Nets had a booth, and Qcue was the controversial young company. In fact, our pricing panel stirred up such a healthy debate on what dynamic pricing really is and how it affects brokers and season ticket holders, that I thought it would be appropriate to revisit the three the biggest misconceptions raised during the discussion.
“With dynamic pricing, I won’t be able to resell my tickets for bad games since teams will just drop prices.”
What if I told you that prices are more likely to rise than fall over time, even for the worst games? Dynamic pricing is about being smarter with pricing, not just dynamic. That means that at the start of the season, a game played on Tuesday night against the last place team will start at a lower price than a game played on Saturday afternoon against your archrival. And there isn’t much that can happen to that Tuesday night game to make it worse. Sure it can rain, but barring that, prices will only move up as tickets sell and the game becomes, with any luck, better than it looked on paper.
You’ve always known that those games had different values because you could sell them for different prices -- but with dynamic pricing, you can’t pretend you paid the same price for them anymore, because you didn’t. Once you consider your real cost for those low value games, you’ll quickly realize that you can sell them at a fair price and dynamic pricing helps.
“I just found an interesting blog post about dynamic pricing for Giants tickets. For the first two games, it looks like ticket prices increased leading up to the game. Under the dynamic pricing model, don’t prices generally go down as the game approaches?”
If you track prices for tickets on StubHub or the other exchanges, you’ll see ticket prices drop immediately prior to an event. But dynamic pricing is very different from pricing on the secondary market. One element of this is that teams have more tickets to sell, meaning that they’re going to be more conservative with prices earlier in the sales cycle. As more tickets sell, and availability decreases, the prices leading up to a game will actually increase.
If you aren’t convinced that primary and secondary market pricing are different, take a look at group sales. Any team will gladly give you a discount for 25 tickets together because they have 20,000+ seats to sell and bigger sales are advantageous. But that same purchase on the secondary market will cost you a premium because for a broker, 25 seats together is a scarce commodity.
“Dynamic pricing is going to devalue my tickets. The team will just try to undercut me on the secondary market.”
Season ticket holders are the lifeblood of teams, and teams will always protect those loyal customers. Dynamic pricing brings more fans to the game, providing a better fan experience across the stadium, and increasing the resale value of tickets. More tickets sold also means more revenues for teams, which ultimately translates into lower costs for season ticket holders.
Dynamic pricing is really about teams being more intelligent and flexible with pricing – which means protecting your most loyal customers and increasing the value they receive. Increasing attendance and more accurately pricing premium games are two ways in which dynamic pricing achieves those goals.
Barry Kahn is the founder and CEO of Qcue, the world’s only dynamic pricing engine for live entertainment events. Sports teams, concert promoters and venues use Qcue’s patent-pending technology to set the right price at the right time, and provide the best value for fans, from the onsale date right up to the event date. Customers and partners include the San Francisco Giants, Major League Baseball and Tickets.com.
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Okay Barry.
The theory of dynamic pricing does actually function (not well) in the airline, hotel, and car rental industries (aren't they all business models we'd like to emulate). It is also in-play in the financial markets (strike two).
The problem in the ticket market is that your data source is circular not linear. In other words, you (a primary) scan certain 3rd party and "partner" sites for prices, mash that up against your internals (historicals, days remaining, number and type of tickets outstanding, opponent, etc.), then adjust primary prices. Who set those 3rd party prices? What knowledge or control do you have of their basis or criterion? Where is the voracity in your data? Next, the third party sites being competitive sellers also adjust -- and the circle repeats both UP and DOWN.
Some might call it false market manipulation (brokers needing large quantities of seats for tight events have been doing this on the boards for years). At the very least it has no more foundation in price stability or sell-through than the oil cartels setting production limits. With oil over $145/barrel world consumption only dropped 5% and real arbitrageurs made a killing in both directions.
The illustration of the SF Giant's speaks well to this point.
On one point Barry was correct. Real arbitraging brokers should not fear dynamic pricing, in both the long and short run they will make more money, it will just be assigned to different tickets in a new way and on different time horizons. The people buying and selling tickets on the side, or not fully engaged in the profession of arbitrage in tickets will not survive en-masse when dynamic pricing is fully engaged. Just look at travel agents and airline booking fees.
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if mr kahn wants to be taken seriously he really needs a new pic. he looks like he's been sleeping in an alley and hasn't had a shower for a week. dude, you ain't in the frat house no more, or are you?
All one has to do to see ACTUAL BUYER BEHAVIOR under Mr. Kahn's theoretical Utopia is to look at the RESULTS of their key experiment this year: the 2009 San Francisco Giants home games:
- best overall record of the past 5 years
- best home record in the NL and 2nd-best in baseball
- WORST ticket sales in the HISTORY of the ballpark
- LOWEST ticket revenues in the HISTORY of the ballpark
- LOWEST turnstile attendance in the HISTORY of the ballpark, and
- the team will enter 2010 with the LOWEST season ticketholder base in the HISTORY of the ballpark
Mr. Kahn, like the geniuses running MLB ticketing decisions (e.g. the horrendous Stubhub exclusivity deal), ignores basic economics: by undercutting season ticket holder and forcing them to compete in a single marketplace with NO FLOOR TO PRICING and UNRESTRICTED ACCESS to sell (this year, any street hood with internet access got to list tickets with the SAME priority AND DURATION as season-ticketholders), they've essentially jettisoned most of their season-ticket base. Now, NOBODY buys tickets in advance, as they assume that better/cheaper tickets will always be available later, and they are right for 95% of the games.
Eight seasons ago, the ballpark was SOLD OUT TO 101% OF CAPACITY -- that means the AVERAGE game was a sellout PLUS a chunk of standing room. This season, only THREE games were actual sellouts (for the other 78, you could walk up to the window and buy a pair or better of seated seats an hour before gametime, INCLUDING Opening Day). You could buy dozens of seats for less than $10 for the final Dodgers game -- this was UNHEARD OF in team history (let alone ballpark history).
And don't blame the economy, as it was the CHEAP seats that largely went unsold. For MOST games, you could buy tickets off Stuhub for LESS THAN $10.
This is a sea change. A permanently softened market. A damaged brand. And all because they treated their season-ticketholder base as a bunch of suckers to be undersold and played in a desperate play to sell tickets rather than properly improve and market their true PRODUCT -- the game experience itself.
I don't know if you can really blame ALL (or even most) of that on dynamic pricing. The truth is the Giants first seven years of the park were filled with a consistently competitive team, an all-star slugger who, steroids or not, was a HUGE draw, and the All-Star Game. They also have fairly high tickets prices and are one of a few baseball stadiums that have PSL's. Since Bonds left, there hasn't been much to go see at AT&T. Factor in the economy and the Giants' high ticket prices, and there are a lot of factors that played into the Giants' revenue issues. It's also important to note that, while MLB on a whole lost 5-6% of attendance, the Giants stayed basically flat(their avg. attendance for 2009 was only 34 fans fewer than 2008).
That's not to say I'd say dynamic pricing was a success for the Giants either. Even though they only really allocated it on their worst seats, the prices were too high. I was looking at catching a Dodgers game up there this summer, and the 'dynamic' prices were $ 60 for a nosebleed outfield seat for a midweek game. Yes, it's the Dodgers, but I was able to get two field level seats for the same price as the nosebleed outfield seats would have cost with service charges. As for tickets going for cheap on the that's nothing new. Over the last few years when I've gone up there, I've been able to get good deals on the street right before the game.
It will be interesting to see how the Giants adjust their dynamic pricing strategy for 2010.
Well, if you're going to throw wholesale falsehoods into the mix, the discussion pretty much breaks down. Perhaps that is, in fact, your goal.
"The truth is the Giants first seven years of the park were filled with a consistently competitive team"
Depends on how you define "competitive". In the past 7 years, reached the playoffs ONCE, for the MINIMUM # of home games, and were only remotely competitive in two of the other 6 season.
"They also have fairly high tickets prices"
Your source for this is... _what_? You realize that a MAJORITY of season tickets are $12 or less, right? Front-row lower box is $39 (or $33). "high"?
"Even though they only really allocated
on their worst seats"
Actually, the BEST of the bleachers (section 136-137) were dynamic when bleachers were included... plus the plethora of OTHER discounts included almost ALL seating categories, including CLUB seats (how about FRONT ROW LOWER BOX for $20 on MEMORIAL DAY?)
"It's also important to note that, while MLB on a whole lost 5-6% of attendance, the Giants stayed basically flat(their avg. attendance for 2009 was only 34 fans fewer than 2008)."
Outright lie. TICKETS ISSUED is NOT _attendance_. There were thousands of issued but never-resold or used tickets (e.g. suckers who bought up $6 tickets by the hundreds and got nothing for them). Compare TURNSTILE attendance and then get back to us.
"It will be interesting to see how the Giants adjust their dynamic pricing strategy for 2010."
Well, they'll have just about the entire ballpark to sell, so I'd guess they'll try just about everything so they can be sure to alienate the few remaining STHs.
Since they opened PacBell in 2000, they've been to the playoffs three times, including a World Series in 2002. They have won 90 or more games five times and had winning records in six of their ten seasons there. They have also hosted an All-Star Game and had the home run champion playing left field until 2007. You must be a little dense if you don't think the fact that Bonds left, that they've been garbage the last few years, and yes it IS an expensive place to watch a game - they ranked 10th highest in Team Marketing Report's fan cost index rankings going into 2009, putting them ahead of teams like the Cubs and Mets.
You must be kidding yourself if you think the "best of the bleachers" are considered "good" seats. Of course they put the seats that they have the toughest time selling on the dynamic pricing program...why would they risk devaluing the seats they have no problem selling?
As for the validity of attendance numbers, I just went by the official MLB numbers. If they counted the comp tickets in this year, then they also counted them last year, so the overall attendance comparison is still relevant. Ironically, your initial ranting was about how they lost so much revenue this year, yet you say that tickets that were sold but unused shouldn't be part of this conversation. Why not? Whether the tickets were used or not is irrelevant just as long as the Giants made money off them. In fact, if the Giants are selling tickets that people aren't using, it could be seen as affirmation of Qcue's success because they're selling tickets they probably wouldn't have been able to sell before.
The point is this...it's obvious you, like me, are not a big fan of the dynamic pricing concept, and you seem to have some major hate-on for the Giants, but at the end of the day there were a variety of conditions that went into the decline in fan interest in the Giants.
"You must be a little dense..."
Classy! I point out where your reasoning is faulty, and you jump to personal attacks.
"...if you don't think the fact that Bonds left, that they've been garbage the last few years"
But I've _shown_ that team performance does not correlate well to sales -- sales were BETTER when the team was WORSE, even mostly-Bonds-less 2005 season.
"...and yes it IS an expensive place to watch a game - they ranked 10th highest in Team Marketing Report's fan cost index rankings going into 2009, putting them ahead of teams like the Cubs and Mets."
That's an EXTREME example of trying to contort data to support your bogus position. Wrigley is 95 YEARS OLD and lacks modern revenue-enhancing amenities, and your reference to the Mets counts ONLY the OLD Shea Stadium, NOT the current building.
"You must be kidding yourself if you think the "best of the bleachers" are considered "good" seats."
Again, a straw man. Your false point that only the worst seats *of each given category* is what I responded to. FOR THOSE CATEGORIES WHERE DYNAMIC PRICING WAS USED, sometimes the BEST seats OF THAT CATEGORY were included... and sometimes priced BELOW what SEASON TICKETHOLDERS paid.
"As for the validity of attendance numbers, I just went by the official MLB numbers. If they counted the comp tickets in this year, then they also counted them last year, so the overall attendance comparison is still relevant."
Another straw man. I NEVER referred to COMP tickets at ANY point. You have a fundamental problem with honesty in debate.
"In fact, if the Giants are selling tickets that people aren't using, it could be seen as affirmation of Qcue's success..."
So, you ARE a Qcue sockpuppet. This makes sense. But again, I gave specific examples where Qcue models were NEVER involved, e.g. the endless stream of static discounts undercutting season ticket holders (KZONE, RONALD, CAIN, TZOO, etc.)
So, according to Barry, dynamic pricing won't devalue the least valuable games on the secondary market any further, they'll just devalue the premium ones...GREAT! Considering, in many cases, brokers make more money off the 20% of big games a team has off the 80% of mediocre and bad ones, I'm sure we'll all be glad to know you want to help devalue that 20% further.
Your argument about dynamic pricing helping increase the value of lessor demand games is weak. Right now, many teams already discount tickets to a midweek matinee against a bad team that they can't sell tickets for. This is really no different and won't change anything.
Finally, the reason I don't care about dynamic pricing is because I rarely buy the types of seats that teams use this method on. If you look at the inventory the Dallas Stars and San Francisco Giants are using dynamic pricing on, it's their worst inventory. If you're a broker and you're trying to make your living selling nosebleed outfield seats in AT&T Park, you should probably be looking for a new career anyway. If you see a team applying this to lower level/field level seats, or their more premium seats, then you should run - not walk - away from that team anyway, because they obviously have serious attendance and revenue problems to risk their more in-demand inventory with dynamic pricing.
Overall, dynamic pricing has existed for many teams for years, in the way of variable pricing schemes that many pro sports teams adopt. This just allows teams to do it in real-time, whereas before they couldn't really adjust their tickets manually every single day based on demand, but now they can. As of right now, we're not seeing it apply to the inventory that teams (and brokers) value, so for now I think it's worth giving the benefit of the doubt to. Despite Barry's fantasy of teams lowering prices as a result of additional revenues, it doesn't pose any real risk to season tickets right now.
"If you aren’t convinced that primary and secondary market pricing are different, take a look at group sales. Any team will gladly give you a discount for 25 tickets together because they have 20,000+ seats to sell and bigger sales are advantageous. But that same purchase on the secondary market will cost you a premium because for a broker, 25 seats together is a scarce commodity."
I think this is a really weak example for the point you're trying to make. Group sales aren't really the primary market. They're a different animal altogether.
This is really a stretch.
"More tickets sold also means more revenues for teams, which ultimately translates into lower costs for season ticket holders."
Really? I wanna live in your world.