Last week we looked at historic Super Bowl ticket prices throughout the years. Starting with a $10 ticket price for Super Bowl I in 1967, face value prices have skyrocketed over the past 45 years - this Sunday’s game (Super Bowl XLVI) carries a face value price of $900 (for the cheap sears) up to $1,200 dollars for some of the prime seats at Lucas Oil Stadium in Indianapolis. And a quick look on SeatGeek—a website that tracks ticket prices for events like the Super Bowl—shows that seats are selling anywhere from $2,000 - $5,000 in the secondary market.
As you can see in the chart below, the (face value) price increases have been relatively steady over the past 45 years.
The cumulative growth of ticket prices from 1967 to this week’s game is just short of 9,000%. That’s an annual growth rate of nearly 10.5%
And even when you adjust for inflation, the cumulative growth is still a staggering 1180% since that first Super Bowl game.
So what does all this mean? Perhaps there’s a better way to look at how high Super Bowl ticket prices have risen. Below is a table that lists of the value of goods and services from 1967 - it also lists the same prices of those goods and services today. But it also lists the extrapolated prices of those same goods and services had they risen at the same rate as Super Bowl ticket prices. Perhaps the most surprising result is that a Harvard education (tuition + room & board) would cost over five times more than today’s actual price ($270,000 vs. $52,000) had it followed the same growth as Super Bowl ticket prices. Given the dramatic price rise in college costs over the past 50 years, it’s hard to believe that ticket prices have risen even faster.
| Description |
1967 Cost |
Extrapolated 2012 Cost |
Actual 2012 Cost |
% Difference |
| First-class stamp |
$.05 |
$4.50 |
$.45 |
900% |
| Loaf of bread |
$.22 |
$19.80 |
$2.50 |
692% |
| Gallon of Milk |
$1.03 |
$92.70 |
$3.65 |
2440% |
| Gallon of regular gas |
$.33 |
$29.70 |
$3.75 |
690% |
| Ford Mustage automobile |
$2,600 |
$234,000 |
$23,000 |
917% |
| Harvard tuition + room & board |
$3,000 |
$270,000 |
$52,000 |
419% |
| Median household income |
$7,143 |
$642,870 |
$50,000 |
1186% |
| 30-second Super Bowl television commercial |
$42,000 |
$3,780,000 |
$3,000,000 |
26% |
Not surprisingly, the only item in the table that came close to tracking Super Bowl ticket price rises is the cost of a 30-second commercial during the game. Starting at $45,000 during Super Bowl I, a 30-second commercial for this weekend's game will cost $3M - comparing favorably with the extrapolated cost of $3.78M.
If future price increases continue at the same rate, then the (face value) price for a ticket to the Super Bowl ten years from now will be about $2,500 per ticket. Save your money!
I missed this when it came out last week, but Nick Bilton of the New York Times wrote an interesting article on how dynamic pricing—a pricing model where the price rises or falls based on real-time changes in demand—affected users of Uber – the service that allows people to order livery cabs through a smartphone application. Dynamic pricing, long hated (but accepted) by most airline customers for the past two decades is now becoming more common in our everyday lives. And judging by the reaction by Uber’s customers, it still has a long way to go until it is viewed in a positive light.
On New Year’s Eve, Dan Whaley, a tech entrepreneur in San Francisco, got into a black Town Car and was driven one mile to a holiday party. The ride cost him $27. At the end of the night out, Mr. Whaley took a Town Car home from the party. This time, the exact same ride cost $135.
Mr. Whaley was using Uber, a service that allows people to order livery cabs through a smartphone application. On New Year’s Eve, Uber, a start-up in the city, adopted a feature it called “surge pricing,” which increases the price of rides as more people request them.
Although New Year’s Eve was very profitable for Uber, customers were not happy. Many felt the pricing was exorbitant and they took to Twitter and the Web to complain. Some people said that at certain times in the evening, rides had spiked to as high as seven times the usual price, and they called it highway robbery. Uber’s goal is to make the experience as simple as possible, so customers are not shown their fare until the end of the ride, when it is automatically charged to their credit card. While the app does not show the total fare in dollars when customers book a ride, Uber did show a “surge pricing” multiple to customers booking rides for New Year’s Eve.
Economists call this “dynamic pricing.” It is deployed by only a small number of businesses, like hotels, airlines and car rental companies, which raise prices on weekends and holidays when demand surges.
The author then asks, “why do people accept this pricing from the airlines and hotels but become irate with Uber?”
One reason is that the airlines (and hotels to a lesser extent) use dynamic pricing to help separate the business traveler (less price sensitive) from the average traveler (more price sensitive). Those weekend stay and non-refundable ticket requirements effectively place fences up so that business customers can’t take advantage of the same prices offered to the average traveler. Additionally, most travelers book their travel days (even weeks) in advance and thus have time to ‘shop around’ for the best fare.
Unfortunately, if you were a New Years Eve reveler and looking for a ride back to your home or hotel at 2:00 am, you probably didn’t have a lot of choice; both in terms of flexibility of travel time or in the ability to shop around for a better fare. You were stuck and the folks at Uber knew it.
Paying $27 for a one-mile taxi fare and then being charged over four times as much for the same trip hours later is a bit much; so much that it makes even the worst airline pricing models look a bit tame – American Airlines are your listening?
While the numerical algorithms that power dynamic pricing are certainly cutting edge, by far the biggest challenge for its adoption into more mainstream business settings will be in changing the negative consumer attitudes that typically accompany this type of pricing model. And while the model may calculate that the demand-driven price for a one-mile taxi fare is $137, it takes some basic common sense to understand that charging this price would come under the heading of “penny wise and pound foolish.” Let’s hope that common sense prevails going forward.
Here's the takeaway: Dynamic pricing is here to stay, but the difference between success and failure will be in implementation. Putting a human touch and knowing when, and to what extent you can raise prices (no matter what the "model" says) will separate the winners from the losers.
Why is this camera priced at $6995? Because it’s a Leica.
In the evolving digital photography industry where premium brands like Nikon and Canon have been forced to discount their high-end cameras in order to survive, Leica stands out. The Leica M9’s $6995 price—and that’s for just the body—is multiples higher than comparable products from both Nikon and Canon.
The product description (taken from a real Leica ad) is revealing in that it only highlights a few features; camera type, resolution, CCD size, LCD size, shutter description and color availability. Similar offerings from Nikon and Canon include a feature list 2-3 times as long. All that doesn’t matter. I suspect that the Leica offering could eliminate every feature from their ad and it would be just as compelling. In this case, it’s all about the Leica brand.
While I’m not a camera expert, I have to believe that while the Leica M9 is a tremendous camera, it probably doesn’t warrant a price multiple of 2-3 times that of other (similar featured) cameras. So why can Leica charge so much? Because they know that in many cases, price drives value (at least in the perception of its target buying audience).
Looking at the Leica brand I’d actually go one step further and speculate that the price-demand curve for Leica is such that if they decided to raise prices even further, demand would stay constant (or even rise). This flat to upward slopping demand curve (as price increases, demand stays constant or even increases) is a testament of the incredible power of the Leica brand. And just about the worst thing Leica could do would be to lower prices in search for demand.
Here’s the takeaway: Respect the power of the brand. It allows you to use price to drive value - giving you pricing advantages that can't be replicated by your competitors.
Verizon’s botched $2 “convenience fee” price hike for customers who pay cellphone bills over the phone or on the Internet should serve as the poster child for bad execution of a price hike strategy.
Last Thursday’s announcement by Verizon Wireless regarding its intent to charge the fee starting January 15th was immediately lambasted by customers and consumer groups alike. Even the Federal Communications Commission (FCC) took notice and issued a statement that, "On behalf of American consumers, we're concerned about Verizon's actions and are looking into the matter."
Barely 24 hours after the initial announcement, Verizon reversed its position and announced that it was cancelling its plan to impose the new fee. Talk about an execution debacle and public relations nightmare. And while I'm sure that Verizon is going though its own post-mortem, here are three lessons that I think can to be learned from last week’s fiasco.
- Focus on the value – Verizon tried to frame the price hike as a convenience fee (supposedly to justify the value that customers derive from paying their bill over the phone or internet) but when pressed by critics, the response focused solely on Verizon’s internal costs and not the value associated with the service. According to Verizon, the fee was implemented to “help allow us [Verizon] to continue to support these single bill payment options in these channels and is designed to address costs incurred by us for only those customers who choose to make single bill payments in alternate payment channels (online, mobile, telephone).” Not one mention of any value that customers derive from paying bills over the phone or the Internet. And without any association of value with the new fee, Verizon didn’t stand a chance.
- Use the carrot, not the stick – While some may feel that this is one more example of ‘big corporation gouging small consumer’, the real reason for the hike was to shape customer behavior. What Verizon wanted (more than the $2 revenue gain) was for more of its customers to switch over to its automated bill paying option because it guarantees Verizon a steady (and more predictable) revenue stream. Payments using the automated bill paying option help Verizon better manage its cash flow – far more valuable than the added fee. But rather than charge the fee to shape customer behavior (the stick), Verizon should have offered a financial incentive (the carrot) to encourage customers to make the switch on their own. Rather than announcing an unpopular price hike, the announcement could have been framed as a discount (perhaps a one-time or even short-term discount to their bill)...and that would have saved Verizon from having egg on its face last week.
- Don’t underestimate the power of social media – This is a great example of how social media has become a powerful tool for consumers and activist groups alike. Change.org—the same group responsible for helping rollback Bank of America’s recently proposed $5 monthly debit card fee—was able to leverage social media to quickly gather more than 37,000 signatures of those opposed to the hike; and similar petitions were organized by other consumer groups. Facebook pages in opposition to the hike were also quickly created – adding fuel to the consumer fire that was already burning. And even Twitter was abuzz with opposition. This immediate and powerful opposition to the price hike would have been impossible prior to the advent of these social media vehicles. And it was this strong public outcry (fostered for the most part by social media) that convinced Verizon to reverse its decision.
Here’s the takeaway: Price hikes are difficult enough to successfully implement even if the execution is mistake-free. Think before you act. Make sure your planning is thorough. And don’t forget these three lessons when it’s your turn to execute a price hike strategy.
The Fall 2011 edition of SpruanceQuarterly has finally hit the press (in the nick of time since winter just arrived). Three articles pertaining to pricing, innovation and leadership.
And to our of our loyal readers, we wish you a joyous holiday season and a healthy and prosperous 2012!
Pat Lefler & The Spruance Group
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Price wars are an unwinnable gamble
In 1992, American Airline initiated one of the most destructive price wars of all time. Price cuts led to more retaliatory price cuts by industry players. In a short three-month span, US airline companies collectively lost over $1.5 Billion. Think price wars are winnable? Think again. Read more...
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The simplicity of innovation
Peter Drucker believed that for innovation to be effective it had to simple; it was usually not the result of brilliant ideas. For all the hoopla about “brilliant strokes of genius” being the primary driver of innovation, the reality is just the opposite. Most successful innovative ventures are actually quite simple. Read more...
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The importance of effective feedback
Effective feedback is the cornerstone for improvement. And never was the value of feedback so critical for needed improvement than in the aftermath of the battle of Tarawa—a bloody battle fought almost seven decades earlier between American and Japanese forces that put the entire Central Pacific war strategy at risk. Read more...
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Peter Drucker said something very similar. “Don’t confuse novelty with innovation.” And what he meant was that innovation is much more than just change. It’s all about new products or new markets for existing products, or even new ways to sell existing products in existing markets.
It’s not so much about doing something different, as it is about doing something that increases profitability. And it’s usually not all that complex; it doesn't require anything close to being a "stroke of genius." In short, innovation is what differentiates you from the competition; it’s what gives you a competitive advantage that can’t be easily copied by your competitors; and it’s what affects bottom-line results.
In an essay titled “The New Venture,” Peter Drucker recounts a wonderful story of just such an occurrence - it’s a story I’ve highlighted before but I think it’s useful to cite again:
Shortly after World War II, a small Indian engineering firm bought the license to produce a European-designed bicycle with an auxiliary light engine. It looked like the ideal product for India, yet it never did well. The owner of this small firm noticed, however, that substantial orders came in for the engines alone. At first, he wanted to turn down these orders; what could anyone possibly do with such a small engine? It was curiosity alone that made him go to the actual areas that the orders came from. There he found farmers who were taking the engines off the bicycles and using them to power irrigation pumps that hitherto had been hand-operated. This manufacturer is now the world’s larger maker of small irrigation pumps, selling them by the millions. His pumps have revolutionized farming all over Southeast Asia.
In this case, it was an unchanged product that found a new market - certainly nothing that fits in the category of “novelty” or even “novel.” Rather, it was all focused about finding (and certainly, it appears, this was unplanned) a new market for an existing product. But the result of this innovation was that it catapulted this small Indian company into becoming the market leader.
Geoffrey Moore says it best in his highly influential book Dealing with Darwin by explaining innovation this way:
“Focusing on our chosen innovation...[so that] we will so outperform our competitors that prospective customers and partners will cease to entertain them as legitimate alternatives.”
Again, it’s easy to confuse change (or novelty) with innovation. But only innovation creates a unique outcome that, despite the superior financial returns resulting from the action, competitors are either unwilling or unable to match.
Here's the takeaway: It's quite simple - don't confuse change (or even progress) with innovation. Only innovation gives you superior bottom-line results.
Just when you thought that the airline industry had finally learned its lesson, it was announced late month that a price war erupted down in New Zealand with airlines offering cut-rate flights priced less than the standard cab fare it took to get you to the airport in the first place.
According to the country’s largest newspaper, The New Zealand Herald, both Jetstar and Emirates Airlines have been slashing fares on the Auckland to Sydney (Australia) route with some flights priced as low as $89 one-way. Additionally, Pacific Blue airlines began advertising bargain fares to some of the nearby Pacific Islands--a popular holiday destination for many New Zealanders.
Travel industry experts said yesterday airlines were trying to encourage bookings to fill flights during quiet periods.
Some said sales had been picking up as New Zealanders recovered from the recession, and discounts were a good way to get those who had not travelled during the economic crisis to plan a trip.
I’ve said it before and I’ll say it again here; Price wars are a fool’s game. No matter what the original rationale may be and no matter how different the circumstances may appear to be this time around, price wars are un-winnable.
During the heated airline price wars that began in the late 1980s and extended into the mid-90s, airline loses were estimated to exceed $10 Billion with tens of thousands of jobs lost. Carriers large and small--including Continental, TWA, and America West--filed for bankruptcy protection. And the industry saw historic names such as Pan AM and Eastern Airlines end up being liquidated for good.
Much has been written about how to survive price wars, and I’ll add my two cents here. The best way to survive is to avoid them at all cost. Don’t fall prey to convention wisdom that it’s easy to extract yourself from a war after either initiating or responding; it’s not. It’s easy to lower prices, much tougher to raise them back to pre-existing levels. Don’t fall for the bait.
Here’s the takeaway: Price wars are a fool’s game...‘nuff said!
This past weekend, a New York Times story written by Patrick Healy described how Broadway is adopting the newest trend in pricing models - dynamic pricing. The article--Broadway Hits Make Most of Premium Pricing--highlighted the recent success of performances like “Hugh Jackman; Back on Broadway” in leveraging dynamic pricing.
The producers of Hugh Jackman’s song-and-dance-and-bump-and-grind show on Broadway were so bullish about his popularity that, even before the first performance last month, they raised prices from $155 to $175 on dozens of orchestra seats for the 10-week run. The bet is now paying off handsomely, so much so that the producers are increasing premium prices for the best seats in the house: what were $250 tickets are now going for $275, $325 or even $350, depending on the demand at particular performances.
All four shows are making huge sums because of dynamic pricing, a supply-and-demand strategy that is a primary reason why Broadway has weathered the economic downturn unusually well.
The strategy involves increasing or decreasing prices for certain seats based on week-to-week, or even day-to-day sales trends. A staple of airline booking and the concert industry, dynamic pricing is still relatively new to Broadway, where prices have rarely fluctuated except on holidays.
And it’s not just Broadway that has fallen in love with dynamic pricing.
The practice has spread to other performing arts as well. American Ballet Theater began the practice during its spring season at the Metropolitan Opera this year and will continue it at performances this season at City Center and the Brooklyn Academy of Music, where the company is presenting a run of “The Nutcracker.”
No longer content to have just one premium-ticket price, theater owners and producers are using the variable-pricing model to set multiple prices for premium and regular seats. They then change those prices — or put more seats on sale at higher prices — on a weekly basis.
In an earlier SpruanceQuarterly essay, we talked about dynamic pricing and the dangers of extrapolating its success in the airline industry to other sectors - most notably the sports and entertainment industries.
Supporters of dynamic pricing always point to another (relatively) successful pricing model as their guide – airline pricing. This comparison may be valid, but there is one important distinction between baseball [and entertainment in general] and air travel that they need to always be aware of. People, for the most part, put up with the complexity of airline pricing because flying is a means to get somewhere; you’re not getting on that airliner because you enjoy flying. With baseball, it’s different. You go to the game because you want to, not because it’s a conveyance to a more important goal (like getting to your destination). If fans end up hating the dynamic pricing model for baseball as much as they hate the airline model that it’s patterned after, they will stop going to games long before they stop flying.
Remember, people fly because they have to; people attend sports events, concerts and other live performances because they want to. The difference is important when it comes to the effectiveness of dynamic pricing.
Here’s the takeaway: While dynamic pricing seems to work for airlines—at least from a business perspective--it doesn’t automatically mean that the same results can be replicated in other sectors. As entertainment executives look for ways to increase revenue, the distinction between airline customers and their audience needs to be completely understood.
In a recent Wall Street Journal article titled To Pay or Not to Pay..., author Sumathi Reddy highlighted the newest pricing model de jour: pay-what-you-want. The concept itself is not new; I can remember going to NYC’s Museum of Natural History a few years back with my kids and seeing the admission price listed as something like “Suggested Donation: $10.” As I was getting the $50 out of my wallet, a local standing next to me remarked, “Don’t worry about the sign, it applies only to tourists, not local New Yorkers.” Despite the advice, I paid the full ‘donation’.
What’s unique about this trend is that it is now crossing over from non-profit institutions to for-profit businesses--in this case, the restaurant business. According to the author:
One World Café in Salt Lake City opened in 2003 as a pay-what-you-want café. Several years later, founder Denise Cerreta created a nonprofit that has helped launch more than a dozen similar operations, including one in Red Bank, N.J., opened last month by rocker Jon Bon Jovi.
And Panera (yes, that Panera) created a nonprofit that now has three pay-what-you-want locations, in Detroit, Portland and St. Louis.
Ron Shaich, founder of Panera, gushed about the experiment in a recent interview and said there are plans to open more. The nonprofit carries the same menu and includes suggested prices, but customers pay in a donation box rather than a cash register. He said the average person leaves about 80% of the retail price.
As much as he favors the concept, he stresses that for a for-profit business it is more difficult "because it introduces a third question into the discussion...'What's the profit?'"
Exactly, what is the profit? While we may be much more forthcoming with our dollars when it comes to helping museums meet their operating costs, that generosity becomes slightly more stingy when it comes to lining some owner’s pocket. Not a personal opinion, just an observation regarding human nature.
So what exactly is Paula Dourales, owner of the Santorini Grill, thinking?
Well, she says her restaurant isn't doing so great. It's a neighborhood place with a core clientele, but business is fickle. So she figured, why not? She'll do it for a month and see how she fares. If it works, she may continue.
Sounds like your preverbal “Hail Mary” tactic to me. Restaurant doing poorly? We’ll try anything. What I’d like to see is a thriving restaurant with healthy profit margins successfully make the switch. Once that happens, then it gets interesting.
Here’s the takeaway: Consumer behavior to “pay what you feel like” pricing differs greatly depending on perceptions of where the money ends up. If it covers operating costs for non-profits, we all seem to be generous in opening our wallets (with the exception, of course, for local New Yorkers who frequent the museums). On the other hand, if it covers that vacation house in the Hamptons for the owner, our wallets don’t seem to open as wide. A valuable lesson to all for-profits thinking of adopting this new pricing model.