Dynamic Pricing in Ticketing

Are you ready to consider dynamic pricing?

The #1 goal of for-profit businesses is making a profit; in fact, the greatest profit possible, consistent with legal and regulatory requirements and moral considerations. In the ticketing world, a significant piece of the profitability mandate relates to generating revenue from every available seat. So, sooner or later, as part of your overall pricing management strategy, you’ll want to consider whether dynamic pricing can help you achieve your profit maximization goal.

In ecommerce, Forrester Research estimates price optimization software improves gross margins by 10 percent; whereas, on average, dynamic pricing boosts profits by 25 percent1. Is it fair to equate a significant positive profitability impact in ecommerce with ticketing? Probably not—at least not entirely. But, with an increasing number of sophisticated, ticket-focused businesses (think the major U.S. sports franchises, like those in the NFL and MLB) adopting dynamic pricing, it’s safe to assume that dynamic pricing has a similar effect in the ticketing world—even if those that are deploying it don’t choose to publicize the results.

This article will help you determine if the time’s right for you to explore dynamic pricing as part of your overall pricing management strategy for your ticketing organization.

What Is Dynamic Pricing?

In ticketing, dynamic pricing is the intentional change in the price charged for a seat (e.g., on an airplane, in a theater or at a stadium) to optimize the price per ticket with the goal of maximizing overall profit. Dynamic pricing employs the most powerful of the marketing mix’s four “Ps”—pricing—to balance supply and demand based on variables, such as a team’s opponent or weather conditions, to reflect the fair market value of the ticket.2

Dynamic pricing is the practice of altering prices for goods or services in real time without altering the goods or services (i.e., `just changing the price'). Different users, or possibly even the same user at different times, will see different prices for the same goods or services.3

Most of us first encountered dynamic pricing when purchasing tickets from airlines, which change pricing as often as hourly. But, today, dynamic pricing (also known as surge or variable pricing) is everywhere: Amazon, Uber, Airbnb, Hertz and Avis—to name just a few corporate practitioners—along with others in retail, transportation (including bridges and public transit agencies) and hospitality. The Scientific Revue blog even claims: “The idea of a ‘fixed price’ that is stable and available to all buyers is the exception, not the norm in commerce.”4

Because airlines introduced most of us to dynamic pricing (a discovery seared in our memory when we postponed booking a flight only to find the price of the same seat had risen steeply or learned that our in-flight row mates paid significantly less for their seats than we did), we’re strongly conditioned to equate dynamic pricing with higher prices. But the fact is, dynamic pricing isn’t just about increasing prices; it’s also about decreasing them—like when you’re behind your timeline expectations to fill the venue and it’s in your interest to fill those seats, even at a lower price point, than to have them empty, generating no revenue. So, dynamic pricing isn’t about getting the highest price per seat, it’s about—collectively—driving the greatest profitability.

Until relatively recently, most businesses could apply dynamic pricing only crudely—manually or using rudimentary programs. Today, however, available software—including artificial intelligence-based software—along with improved communications and digitization of the ticketing experience have redefined dynamic pricing, enabling ticket sellers to alter the prices of unsold seats in real-time or nearly instantaneously in response to their choice of custom variables.

Dynamic pricing software can incorporate numerous variables specific to your ticketing business and needs. Examples of these variables include5:

  • Sales trends
  • Inventory levels
  • Competitive pricing and data
  • Customer purchasing patterns
  • Product demand
  • Market conditions
  • Weather
  • Page views and cart abandonment
  • League/team standings

The Good

Let’s explore the benefits of implementing dynamic pricing for your ticketing organization:

  • Boost sales and fill seats: Improve margins and maximize overall revenue by moving towards 100 percent capacity based on ticket price optimization and total revenue generation.
  • Increase incremental revenue: Capture incremental ancillary revenue from add-on sales—like food, drinks and merchandise—from additional ticketholders.
  • Increase customer loyalty: Reward savvy ticket purchasers to build loyalty and repeat purchasing.
  • Encourage advantageous buyer behavior: Use dynamic pricing to encourage early purchasing, for example, to support effective event planning and establish benchmarks for pricing subsequent ticket sales.
  • Synchronize pricing with demand: Achieve ticket price optimization by balancing supply and demand.
  • Address competitor pricing and pricing trends: Build your competitive strategy into your dynamic pricing and react quickly to changes in market conditions and competition.

The Challenges

Clearly, there are significant benefits to be gained by incorporating dynamic pricing into your overall pricing management strategy but, like with everything good, there are potential tradeoffs, too. And, anticipating those tradeoffs must be part of your consideration regarding whether dynamic pricing will work for your ticketing organization. Here are some challenges you’ll want to think about as you make your decision:

  • Customer alienation: Dynamic pricing can generate bad reviews and customer complaints, especially when price hikes aren’t transparent.
  • Customer service headaches: Be prepared to explain to customers why they paid more for a seat than the person sitting next to them.
  • Loss of sales: The above two points can lead to a loss of loyalty and reduced sales if customers aren’t handled sensitively.
  • Increased competition: If you’re in a competitive ticketing environment, your competitors can use your price increases to target your customers with lower pricing.
  • Reduced ability to collect relevant consumer data: If customers recognize you raise prices based on their web browsing history on your site, they may resort to browsing privately, depriving you of valuable customer data that reduces the effectiveness of your dynamic pricing initiative.

Your Decision

You know the benefits and challenges of dynamic pricing, so now it’s up to you to decide if the time is right to explore dynamic pricing for your ticketing organization.

You might not be inclined to jump on the dynamic pricing bandwagon if your business has one or more of these defining characteristics:

  • You’re selling out, particularly if you’re selling out early
  • Your profitability surpasses your industry’s norms
  • You’ve hit the saturation point for higher pricing
  • Competition holds your pricing in check

On the other hand, you might want to make dynamic pricing a priority for 2019 if:

  • You’re not operating at full capacity or near full capacity
  • Customers are waiting until the last minute to book, causing planning problems
  • Your profit margins are below your industry’s norms
  • Your revenues are static or declining

If you recognize your organization in the above points, it’s time to move to the next step and ask yourself some hard questions, like: Are you willing to invest in the software to enable dynamic pricing? Have you seriously considered the challenges of dynamic pricing (and how to proactively address them) as well as the benefits? And, are you able to train your customer-facing staff to handle dynamic pricing-related questions with confidence and in a way that contributes to customer satisfaction?

Because ticketing is a specialty at Softjourn, we’ve consulted extensively with clients as they’ve worked through the same decision you may be contemplating right now.