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By Patrick Lefler
In 2008, when other Major League Baseball teams were freezing or even lowering ticket prices due to the poor economy, the San Francisco Giants looked in a different direction in their attempt to grow (and not simply protect) ticket sales. They introduced the concept of dynamic pricing—an algorithm-based pricing model where the face value of every ticket rises or falls based on real-time changes in demand. This demand is the result of myriad factors besides who the opposing team happens to be on any given day; everything from the time and day of the game, expected weather, pitching match-ups and even special promotions factor into the fluctuating prices of individual tickets. If this sounds familiar, it is – just look at the way most airlines price their tickets. It’s the same concept.
The Giants started the model in 2009 with a pilot program for 2,000 outfield and upper-deck seats at its home stadium of AT&T Park – usually the last to sell. The end result was an estimated 25,000 additional tickets sold, resulting in $500,000 of added revenue.
In 2010, the Giants implemented dynamic pricing for the entire stadium. And while it made sense from a business perspective, the challenge was to convince fans that they weren’t being preyed upon in the team’s quest for higher revenues. Luckily, the Giants ended the 2010 season with their first World Series title since 1954 – and regular season revenues increased significantly.
In 2011, both the Oakland Athletics and the St. Louis Cardinals jumped on the dynamic pricing bandwagon by utilizing the pricing model for some of their games. And if you think this will be limited to baseball or even sporting events in general, think again. In August of this year, the Los Angeles Times reported that the City of Los Angeles is set to begin testing a dynamic pricing model for parking spaces in its high-traffic downtown area. According to the Times report, the price of a parking space will be adjusted dynamically based on driver demand, time of day and the length that motorists stay in the space.
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 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.
Just because dynamic pricing seems to work for airlines—at least from a business perspective--doesn’t automatically mean that the same results can be replicated in other businesses. As baseball executives look for ways to increase revenue, the distinction between airline customers and baseball fans needs to be completely understood.
||Patrick Lefler is the founder of The Spruance Group; a management consulting firm that helps growing companies grow dramatically faster. He is a former Marine Corps officer and a graduate of both Annapolis and The Wharton School. The Spruance Group acts as a trusted partner by offering unbiased advice and providing unique solutions to help clients solve their most pressing strategy needs. For more information, visit www.spruancegroup.com or contact Patrick at: firstname.lastname@example.org