Dynamic ticket pricing in sport: an agenda for research and practice.
Drayer, Joris ; Shapiro, Stephen L. ; Lee, Seoki 等
Introduction
Throughout much of the 20th century, the vast majority of sport
managers employed one of two pricing strategies for their tickets: (1)
the "one-size-fits-all" approach where prices for every ticket
and every game are exactly the same and (2) a seat location-based
approach where prices are mostly correlated to proximity to the field of
play but do not vary from game to game. However, continually increasing
revenue needs and evolving technology are slowly changing these
organizational approaches to pricing. Indeed, as player salaries and
other operational expenses continue to increase, sport organizations
have been forced to aggressively pursue other sources of income. The
growth of sport sponsorship and stadium naming rights deals are examples
of previously untapped revenue streams that have helped offset some of
these increasing costs (Howard & Crompton, 2005). However, stadiums
can only have one name, and sponsorship categories and sponsorship
inventory are not limitless, so organizations wishing to maximize their
revenue have begun to reconsider their ticket pricing strategies.
Concurrently, the standardization and legitimization of online
transactions have led to the growth of the secondary ticket market. In
this market, ticket prices fluctuate regularly based on varying levels
of consumer demand. Subsequently, ticket brokers who contribute little
to the production of the sporting event are capitalizing on pricing
inefficiencies in the primary market (Drayer, Stotlar, & Irwin,
2008; Happel & Jennings, 2002; Rascher, McEvoy, Nagel, & Brown,
2007). However, knowledge of secondary market prices can provide
valuable information to sport organizations in the primary market
regarding demand for sport event tickets (Drayer & Shapiro, 2009).
An understanding of consumer demand can help teams increase attendance
and ancillary revenue for low-demand games and maximize ticket-related
revenue for high-demand games.
By examining their own demand indicators (i.e., attendance) and
studying secondary market transactions, sport organizations in the
primary market now have the ability to understand consumer preferences
in the days and hours leading up to an event. As a result, teams have
started to expand upon the traditional seat location-based approach to
ticketing and are charging different prices for different games based on
anticipated levels of demand. The first of these demand-based
approaches, referred to as variable ticket pricing (VTP), was introduced
by the Colorado Rockies of Major League Baseball (MLB) in 1999. Using
VTP, sport organizations may choose from a variety of factors (most
often day of the week and opponent) on which to differentiate prices.
However, as these prices are set long before the season starts, pricing
inefficiencies may still exist.
Subsequently, in 2009, the San Francisco Giants became the first
professional sports team to experiment with dynamic ticket pricing
(DTP), where ticket prices fluctuate from day to day based on factors
that include situational aspects previously unconsidered in pricing
strategies such as team performance, player performance, and even
weather. In 2010, DTP was used for all San Francisco Giants tickets
throughout the season which resulted in a 7% ticket revenue increase
("Forty under 40: Barry Kahn," 2011). Despite what seems like
an innovative and potentially lucrative approach to pricing, the sport
industry has been slow to adopt this new strategy as there is little
precedent on which to base the anticipated success of this approach.
However, a similar approach has been used for decades in the
tourism and hospitality industries under the label of revenue management
or yield management. Airline and hotel pricing strategies have long been
accepted as an industry standard, and prices for products in both
sectors fluctuate often, mostly based on demand level and product
availability (Cross, 1997; Kimes, 2003). These pricing strategies have
recently extended or been suggested to extend to other fields, such as
restaurants (Heo & Lee, 2011), cruise lines (Maddah,
Moussawi-Haidai, El-Taha, & Rida, 2010), golf courses (Kimes &
Schruben, 2002), spas (Kimes & Singh, 2009), and theme parks (Heo
& Lee, 2009). However, the ticket pricing literature focused on VTP
is limited (Rascher et al., 2007) and research involving DTP in sport is
even more scarce. By examining the successful implementation of these
strategies in the airline and hotel industries, as well as the existing
literature in pricing and other related fields, the purpose of the
current paper is to examine whether DTP is indeed a viable approach for
sport managers from both a theoretical and practical perspective. In
other words, the current paper provides an agenda for research and
practice regarding the use of demand-based ticket pricing strategies in
sport based on revenue management theory.
Revenue Management
Revenue management systems involve "determining prices
according to predicted demand levels so that price-sensitive customers
who are willing to purchase at off-peak times can do so at favorable
prices, while price-insensitive customers who want to purchase at peak
times will be able to do so" (Kimes, Chase, Choi, Lee, &
Ngonzi, 1998, p. 33). It was the airline industry that originally
developed the dynamic pricing concept based on forecasted demand and
inventory availability, and they called it 'yield management'
(Cross, 1997). Later, the hotel industry and others adopted the yield
management model and changed the name to revenue management because
'yield' is an airline term (Cross, 1997). Some view yield
management as dynamic pricing heavily focusing on inventory control
specifically in an airline context (Hayes & Miller, 2011).
Therefore, we use the term 'revenue management' (RM,
hereafter) throughout this study.
In 1989, Kimes published the seminal article outlining the process
of implementing a RM system in the hotel industry. She identified the
following six prerequisite circumstances for this pricing strategy to
work most effectively:
1. The ability to segment markets--By separating consumers into
different groups, managers can have different marketing strategies and
varying prices across groups.
2. Perishable inventory--This is a common issue faced by several
facets of the tourism and hospitality industries (hotels/motels,
airlines, and car rental agencies) that prevents managers from ever
being able to sell unused inventory.
3. Product sold in advance--This issue deals specifically with time
and uncertainty of sales. The ability to make effective pricing
decisions over time helps overcome some of these concerns.
4. Low marginal sales costs--In circumstances where servicing
additional customers will not cost the firm a large amount of money,
changing prices to entice new guests may be appropriate.
5. High marginal production costs--This criterion suggests RM is
most appropriate when it is difficult for a manager to create additional
inventory. It is practically impossible for a hotel to quickly add rooms
or an airplane to quickly add seats. Therefore, as inventory runs low,
managers may have the opportunity to increase prices.
6. Fluctuating demand--The ability of a RM system to adjust price
based on fluctuating levels of demand is perhaps its greatest advantage.
The hotel industry, in particular, experiences frequent fluctuations
according to season and day of the week. RM systems rely on
managers' ability to effectively identify when these peaks and
valleys occur.
In 1998, Kimes et al. added an additional criterion:
7. Predictable demand--This is related to the previous factor.
Fluctuating demand makes it appropriate to charge different prices,
while predictable demand makes it easier to identify when these
fluctuations occur.
Kimes' theories on RM have been widely accepted in both
academic and practitioner circles; however, they were written for the
tourism and hospitality industries. The following sections will examine
the applicability of these factors within a mainstream spectator sport
context.
DTP and Sport Tickets: A Good Fit?
Using the criteria set forth by Kimes (1989) and Kimes et al.
(1998), it appears that the sport industry may be an appropriate
platform in which to implement an RM system.
1. The ability to segment markets--There have been many studies
within the sport management literature which have suggested that market
segmentation can be done across a variety of different characteristics
such as gender (James & Ridinger, 2002), education level (Zhang,
Pease, Hui, & Michaud, 1995), and season ticket status (Lee, Trail,
& Anderson, 2009).
2. Perishable inventory--One of the primary attributes of the sport
product is its perishability. Any unsold ticket cannot be sold once the
game is over. In their study of the secondary market, Drayer and Shapiro
(2009) illuminated the significance of time in the price consumers are
willing to pay for tickets.
3. Product sold in advance--While tickets are sold in the days and
hours leading up to many sporting events, the initial on-sale date for
most sporting event tickets is months before the season starts, meaning
that fans have a large window of opportunity for buying tickets.
4. Low marginal sales costs--Given that most professional sporting
events already attract crowds in the tens of thousands, servicing of
additional patrons does not require a large shift of day-of-game
operations. As this additional cost is relatively small, sport
organizations do have the opportunity to profit from additional fans
who, despite the fact that they may be charged a cheaper price for a
ticket, often spend significant amounts of money on concessions,
parking, and merchandise.
5. High marginal production costs--Similar to adding seats to an
airplane or rooms to a hotel, creating additional stadium seating is
often an unrealistic proposition for sport organizations.
6. Fluctuating demand--Given the large window of opportunity for
fans to buy tickets, demand may shift significantly from the initial
on-sale date to the actual day of the event. Factors such as team and
player performance change regularly, causing changes in consumer demand
(Drayer & Shapiro, 2009). Further, the implementation of VTP by many
professional sports franchises represents their acknowledgement that
demand may fluctuate from one game to the next.
7. Predictable demand--Given the statistical orientation of many
professional sports and the ease of access to other quantifiable demand
factors, estimating demand in this setting is a manageable task. Within
academic literature, several researchers have conducted studies on the
subject of demand for sporting events. They have explained variance in
demand for professional sport tickets considering factors such as home
field advantage (Boyd & Boyd, 1998), outcome uncertainty (Falter
& Perignon, 2000; Forrest & Simmons, 2002; Rascher, 1999), and
labor strikes (Matheson, 2006). More recently, Drayer and Shapiro (2009)
and Drayer, Rascher, and McEvoy (2012) examined more traditional
game-related variables, such as team and player performance, to
successfully explain fluctuations in consumer preferences for sport
event tickets.
In addition to these seven criteria, the presence of a vibrant
secondary market would also indicate that a RM approach is appropriate
in a sport context. Boyd and Boyd (1998) suggested that whenever
secondary market sellers can resell tickets for a profit, it indicates
that tickets are not priced optimally. Conversely, other events have
high numbers of unsold seats, indicating that tickets are priced too
high (Howard & Crompton, 2004). Indeed, Rascher et al. (2007) and
Drayer and Shapiro (2009) found that teams could earn millions of
additional dollars through more efficient pricing practices. This
unrealized revenue is currently being captured by sellers in the
secondary market who actively adjust prices based on fluctuations in
demand.
Managerial Considerations of DTP in Sport
Based on the previous section, it appears, in theory, DTP and
mainstream spectator sports are a good fit. However, before implementing
an entirely new pricing strategy, sport managers must consider an array
of issues which may ultimately influence their decision. These factors
are outlined in the following section.
Data Management and Pricing Decisions
The company that administers the Giants' pricing decisions,
QCue, utilizes an algorithm which, according to their website, is based
largely on historical data. While this information will be largely
accurate in predicting demand for future events, the nature of the sport
product is such that it is constantly changing. From one year to the
next, the situational factors surrounding a team, which can be difficult
to quantify, can be substantially different. For example, although team
and player performance is easy to quantify, factoring in fan
expectations of team performance and identifying which player statistics
are most important to consumers may be rather difficult and could
significantly affect demand. Sam Gerace, chief executive for Veritix, a
company working in digital ticketing, highlighted the importance of this
challenge: "Everybody's experimenting to understand the
science and figure out the algorithms, as nobody wants to damage their
pricing models with haphazard processes" ("Ticketing's
changeup," 2010, para. 39). While this process is equally important
in the hotel and airline industries, variables that influence demand in
those two industries may be comparatively fewer or less short-term in
nature compared to the sport industry. For example, typical variables
that affect hotels' future demand are demand generators such as an
event of 'spring graduation' in a college community, demand
drains such as holidays for hotels that mainly serve business travelers,
economic conditions (local, state, and national), the opening or closing
of competitive hotels, and so on (Hayes & Miller, 2011). While some
of these variables (e.g., economic conditions) may be applicable to the
sport industry, it is not difficult to see that certain aforementioned
factors that impact demand in the sport industry seem more peculiar and
challenging to deal with. Other unique variables such as roster changes
throughout the season via trades and signings, team and player
performance, and player injuries create constant shifts in demand that
differ from other industries.
An additional consideration in price setting is the frequency of
price changes. As demand indicators change by the hour and even by the
minute, teams could potentially elect to change prices in real time.
However, the Giants elected to change prices once daily. By only
changing prices daily, sudden changes in weather forecasts, player
injuries, starting lineups, and other factors may not be accounted for.
Of course, more frequent price adjustments may lead to other unforeseen
consequences such as consumer confusion or perceptions of price
unfairness.
Whatever price-setting process an organization chooses, mistakes
are certainly possible, particularly when prices are changing
frequently, and these mistakes may lead to undesired outcomes. Even when
demand is inelastic, increasing ticket prices may result in decreasing
attendance (Welki & Zlatoper, 1994). Conversely, teams and leagues
do not want to give the perception that some games are of lesser quality
than others. Regarding changing prices using VTP, Dean Bonham, a sports
business consultant, stated: "When you try to determine what is a
premium or non-premium game, you're basically trying to decide when
to devalue your product. That's a very dangerous economic
decision" (Kroichick, 2002, para. 18). In the National Basketball
Association (NBA), Commissioner David Stern stated that charging
different prices for different games "raises questions about the
fairness of your pricing and the value of your product" (Lefton
& Lombardo, 2003, para. 17). Stern also claimed "there is no
such thing as a bad NBA game" (Lefton & Lombardo, para. 17).
Additionally, some economists argue sport ticket prices are
purposely set in the inelastic portion of the demand curve (Coates &
Humphrey, 2007; Fort, 2004). This is done to provide opportunities for
ancillary revenue such as parking, concessions and merchandise that
would be limited if tickets are priced too high. To reduce the risk of
these negative consequences, organizations may consider setting price
ceilings and price floors. An in-depth discussion of this decision is
provided later in this paper.
Most ticket operations are now conducted primarily online. With
this change in distribution has come a new type of consumer with new
responses to price, which illuminates the continued importance of
careful price-setting strategies. The Internet allows customers to
easily search for the product of their choice within their desired price
range while allowing businesses to experiment with various pricing
strategies and establish various market segments (Kung, Monroe, &
Cox, 2002). As companies such as QCue and Digonex are illuminating,
prices online are easily changed when the market indicates a necessary
price shift. However, research in other web-based industries has
indicated that consumers will respond negatively to paying different
prices for the same product (Kung et al., 2002) as the Internet has
increased consumers' sensitivity to price and changes in price
(Kotler, 2003).
However, within the sport industry, the unique nature of the
product may result in lower levels of price sensitivity. Nagle and
Holden (2001) identified several factors that are associated with lower
price sensitivity, including a distinctive product, a low awareness of
substitutes, an expenditure that is a small part of consumer's
income; an expenditure that is a small part of the total cost of the end
product; a product that is assumed to have more quality, prestige, or
exclusiveness; and a product that cannot be stored. Tickets to a
professional sporting event satisfy most, if not all of these criteria.
The notable exception to that is the expenditure's being a small
part of the consumer's income. Professional sports draws from a
diverse pool of consumers from very low income to very high income.
However, while some fans feel that they can no longer afford to attend
games, the economic theory on price sensitivity would seem to suggest
that these consumers are not as price sensitive as expected (Howard
& Crompton, 2004). Ultimately, price-setting has historically been
deemphasized as a result of primarily cost-based approaches utilized by
professional sport organizations (Drayer, Stotlar, & Irwin, 2008;
Reese & Middlestaedt, 2001). A potential shift to DTP will highlight
the importance of this facet of the marketing mix, and the consequences
of this strategy must be carefully considered and examined by both
practitioners as well as academics.
Revenue Maximization vs. Attendance Maximization
The hotel industry's implementation of revenue management has
typically focused on maximizing revenue from room reservations without
consideration for ancillary revenue streams from restaurants, gift
shops, or others (Kimes, 1989). This issue, called the 'multiplier
effect,' has challenged hotel revenue managers, and they currently
revenue management more as a tool for enhancing the profitability of the
entire property including not only the rooms, but other revenue
generating departments as well (Kimes, 2010a). The sport industry, on
the other hand, has traditionally maintained a focus on attendance
maximization without consideration for the maximization of ticket
revenue. Courty (2003) suggested that sport organizations are motivated
to underprice tickets in an effort to maximize attendance. He argued
that a full stadium or arena brings substantial benefits to a team in
the form of ancillary revenue from parking, concessions, and merchandise
and also provides an enhanced fan experience. As mentioned previously,
this is supported by empirical evidence that sport event tickets are
priced in the inelastic portion of the demand curve (Coates &
Humphrey, 2007; Fort, 2004; Pan, Zhu, Gabert, & Brown, 1999;
Siegfried & Eisenberg, 1980). The National Football League (NFL) is
further incentivized to underprice as failing to sell out results in
television blackouts in the local market. DTP takes a more aggressive
approach and attempts to simultaneously maximize revenue and attendance.
In theory, high-demand games have higher prices which increase ticket
revenue without compromising attendance, and low-demand games have lower
prices which can potentially draw more fans, albeit at a lower price,
which can lead to ancillary revenue streams and an enhanced environment
for fans. However, any time price is increased, organizations run the
risk of decreasing attendance. Therefore, despite a more aggressive
approach with a heightened emphasis on revenue generation, sport
organizations are still primarily incentivized to underprice tickets in
order to maximize attendance, even if those prices change regularly.
Secondary Market Sponsorships
Part of the rationale for VTP and DTP in sport is the idea that
secondary market sellers were profiting from an event to which they
contributed nothing. Sal Galatioto, Founder and Chairman of Galatioto
Sports Partners, stated:
We've done work with both the Jets and Giants,
and you'd be amazed how many of those longtime
ticket-holders go to a few games and then sell their
other games for an enormous profit. That money
belongs to the team owners, doesn't it? The transfer
of that wealth away from the people creating it
to the middlemen who do nothing is huge. ("How
goes sports?," 2008, p. 20)
By charging higher prices for high-demand events, owners are
essentially trying to recapture some of that lost revenue.
However, the growth and increased legitimacy of the secondary
market has also led teams and leagues to partner with secondary market
websites (Drayer & Martin, 2010). These deals often mirror the
structure of standard sponsorship deals in which the sport property
receives a flat fee and the secondary market website receives the right
to be called "The Official Secondary Ticket Marketplace,"
signage, and other exploitable commercial assets. These deals are often
worth millions of dollars annually (Fisher, 2005). If DTP is indeed
successful in decreasing the profitability of the secondary market,
fewer people, possibly including those long-time ticket holders
referenced above, would engage in the practice. This would ultimately
drive down the value of these sponsorships as secondary market websites
earn money by taking a percentage of each transaction. Of course, an
incremental decrease in sponsorship revenue in this category is
potentially offset by the increased revenue provided by the DTP
approach.
Time
A team's season ticket base is often considered among its most
valuable assets. Not only are these individuals the most dedicated fans,
but they typically pay a majority of their costs before the season
starts. This fixed revenue source is a significant benefit when the
sport product is often very uncertain. Even among single game ticket
holders, teams would likely prefer to have the majority of their tickets
sold well in advance in order to effectively staff each event. Courty
(2003) suggested that these "diehard fans" are more price
sensitive and therefore purchase tickets ahead of time in order to get
the best deal. On the other hand, Courty identified another consumer
segment which he called "busy professionals." This group is
less price sensitive and is willing to pay a higher amount in exchange
for the convenience of being able to make decisions at the last minute.
However, according to Drayer and Shapiro (2009), time works against
prices for tickets. They found that as the event got closer, secondary
market prices decreased. Should fans ever get truly organized, they
could collectively wait to buy tickets as prices would fall over time.
While a sport event ticket "flash mob" may not be a realistic
scenario, sport managers must understand the increasing importance of
time in price-setting. While DTP can control for a variety of other
variables, it may never be able to account for time as a variable.
In a hotel setting, although it is typical that room rates increase
as the stay night approaches, some heavy discounting may occur at the
very last minute. However, Kimes (2010b) does not recommend it because
such heavy discounting will likely damage customers' value
perceptions about the hotel's product. According to the study, it
is very difficult and takes a long time for hotels to recover from
heavily discounted room rates to normal rates. Moreover, hotel guests
may become dissatisfied when they have to purchase a room for a normal
rate after they experienced heavy discounting for the same room before.
Dissatisfied customers are less likely to be repeat purchasers and often
spread negative words about the business, which can cause significant
harm to the business. Therefore, it is recommended that hotels set
floors (the floor concept will be discussed further in a following
section) for their room rates and do not sell rooms for prices below
them even when there are empty rooms at the end of the day. This
practice may seem to reduce hotels' room revenues in the short run,
but long-term rewards should be greater than costs.
The same practice may be applicable to the sport DTP setting. Teams
may change the ticket price as days pass just like the hotel industry;
the ticket price generally increases as the event day approaches.
However, for the last day or minutes, to prevent a heavy discounting
from happening, teams may establish floors for their ticket prices and
refuse to sell tickets for prices below such floors even when there are
still empty seats. This practice will help sport fans form their value
perceptions about tickets at an appropriate level which, in the long
term, will aid not only ticket sales, but also fans' satisfaction
levels.
Season Ticket Holders
As stated above, an organization's season ticket base (both
full and partial season ticket holders) is often among its most valuable
assets. As such, the impact of DTP on their experience is critical.
Sport organizations must carefully craft policies in order to
incentivize consumers to purchase season ticket packages rather than
have them monitor the market throughout the season and buy when they see
a good value. The most obvious scenario is that in which a game has bad
weather and two underperforming teams. Of course, the DTP algorithm
would respond to these variables (or other similar demand-lowering
factors) by lowering the price of tickets. This scenario raises the
possibility that a season ticket holder might end up sitting next to
another individual who actually paid a lower price for his/her ticket.
John Walker, the senior vice president of business development for the
Phoenix Suns, said: "Our season-ticket holders are paying an
inordinate amount of money and I don't really want to piss them off
by lowering prices" (Muret, 2010, para. 16). Sport organizations
must carefully consider how to handle such a scenario. One possibility
that exists is providing a price guarantee and crediting a season ticket
holder's account once the price drops below their per-game cost.
The money in this account could be used towards future ticket purchases
or even day-of-game purchases such as concessions and merchandise.
Additional value-added benefits provided specifically to season ticket
holders, such as parking benefits or invitations to visit with players
and coaches, may also continue to incentivize potential consumers to buy
full or partial ticket plans. So while solutions do exist, sport
managers must be aware of the need to monitor such circumstances and
provide equitable solutions.
Moreover, when considering the importance of loyalty that season
ticket holders have for their teams in a long-term perspective, a
careful DTP strategy should be developed and implemented. A negative
long-term impact from losing loyal fans (typically, season ticket
holders) due to ill-managed DTP may be tremendous. According to the
hospitality RM literature, Lindenmeier and Tscheulim (2008) suggested
that customers' negative perceptions of RM practices with a
short-term perspective may cause customers' satisfaction to
decrease, and consequently damage the business in the long term, while
Cross et al. (2009) recently argued that the future revenue management
should evolve from the long-standing 'inventory-centric'
approach to 'customer-centric' approach in that the long-term
customer relationship development is emphasized.
Price Ceilings and Price Floors
Another solution that exists for the aforementioned scenario where
a single game patron is paying less than a season ticket holder is to
create a price floor. Besides potentially upsetting season ticket
holders, pricing inventory too low has the potential to devalue your
product in the eyes of consumers (Zeithaml, 1988). Subsequently, sport
organizations could decide to set a price for each section in their
facility that a ticket would never drop below. Of course, this pricing
structure would not be completely dynamic. In a truly dynamic approach,
if there is an empty seat once a game starts, tickets should essentially
be given away in order to capitalize on the potential to earn ancillary
revenues. Of course, most sport organizations are unlikely to give away
tickets in such a circumstance.
Conversely, for truly high-demand events, teams may want to keep
prices within a reasonable range and create artificial price ceilings.
Giving consumers in the low and middle household income brackets an
opportunity to attend the truly "premium" events is an
important part of building a passionate and loyal fan base. Additionally
and as mentioned previously, the risk of overpricing and subsequently
decreasing attendance is a chance that few sport franchises are willing
to take, particularly in the NFL where media blackouts loom as a
significant consequence.
From a theoretical standpoint, if price floors and ceilings are
implemented, price fluctuations based on demand would be restricted. DTP
with these stipulations could provide a more optimal pricing strategy
for sport organizations compared to standard differential pricing, which
only considers proximity to the field, or VTP which cannot take into
consideration factors that change throughout the season. However, for
high-demand events, these prices would still be lower than secondary
market prices which are completely based on demand without restriction.
In this case, DTP could essentially close the pricing inefficiency gap
between traditional pricing in the primary market and the secondary
market while providing additional ticket revenue to the sport
organization. However, by setting artificial price floors, teams may
push consumers to buy tickets to very low-demand events from secondary
market sellers, thereby denying themselves of that ticket revenue. In
the end, sport properties considering the implementation of DTP must
decide whether this structure is going to be truly dynamic and consider
all price points or if the strategy is dynamic only within a preset
range of prices. Although the Giants have not indicated whether or not
they have introduced artificial price restrictions, the Nashville
Predators of the National Hockey League, who were using DTP on a trial
basis for the 2011 postseason, indicated they were implementing a price
floor in order to protect season ticket holders (Muret, 2011).
Price Transparency
Sport managers also face key decisions with regards to informing
the public about changing a pricing structure that has gone largely
unchanged for over a century. For example, if an organization elects to
place price ceilings and floors on their tickets, a manager must decide
whether to provide that information to their consumer base. However,
perhaps more important is the decision on whether or not to inform the
public about the factors that are causing prices to change. Consumers
feel entitled to pricing consistent with previous transactions, and if
those "rules" are violated, they may conclude that the new
price is unfair which may ultimately lead them to walk away from the
transaction (Bolton, Warlop, & Alba, 2003; Kahneman, Knetsch, &
Thaler, 1986). Obviously, this outcome is undesirable for sport
properties. However, within the hospitality literature, Wirtz and Kimes
(2007) claimed that perceptions of unfairness decline over time.
According to Kimes' (1994; 2003) studies, customers'
familiarity with dynamic pricing practices positively influences their
negative perceptions about the practices. In 1994, Kimes compared
customers' fairness perceptions about the RM practices between
airline and hotel industries when airlines widely practiced RM practices
while hotels were at their inception of practicing the RM. She revealed
that customers perceived airlines' RM practices to be fairer than
hotels'. About a decade later, Kimes repeated the same study, and
found no difference in customers' fairness perception between the
two industries, concluding that customers tend to accept the practice
more willingly and are more likely to perceive the practice fair when
they become more familiar with the practice (Kimes, 2003). This exact
phenomenon may occur in the sport industry, that is, at the initial
stage of practicing DTP, sport fans may resist the new practice, but
such resistance may be reduced as fans become more familiar with the
practice.
Further evidence from the hospitality industry suggests that
providing more information on prices and pricing policies will
immediately increase perceptions of fairness. In a study by Tanford,
Erdem, and Baloglu (2011), price was the most important factor in choice
of vacation packages; however, providing detailed information about the
price of each component of the package (as opposed to a single price for
the entire package) increased perceptions of fairness and value. Choi
and Mattila (2005) also examined the effect of the level of information
(of reservation factors that impact room rates) provided to customers on
their fairness perceptions, and found that customers perceive revenue
management practices as fair when more information is given.
Beyond the philosophical decision regarding how much information to
provide to consumers, sport managers must also prioritize staff training
in order to reduce incidences of customer confusion. The sales
department and other staff will have the challenge of explaining this
system, which is markedly more complex than traditional pricing
strategies, to inquiring consumers without emphasizing the fact that
this is primarily a strategy designed to increase organizational
revenue. In addition to clearly understanding the DTP system, the staff
should also completely buy into the system. It is possible that some
staff may not perceive the DTP practice as fair and in such case it will
be difficult for them to educate customers and convince them of the
benefits of the system.
Face Value
As prices have the potential to change day to day or even minute to
minute, the need for a printed face value comes into question. Removing
face value may minimize the scenario where two patrons in adjacent seats
are able to compare prices, which may lead to one side feeling slighted.
However, removing the face value from a ticket is not a simple decision.
Besides the fact that some states have laws that require event promoters
to print the price on every ticket, the printed price also influences
consumers' perception of the value of that ticket (Drayer &
Shapiro, 2011). In some cases, the printed price may actually increase
what a consumer considers the ticket to be worth. A consumer's
perception of the value of the ticket in relation to the actual price is
a primary determinant of the consumer's evaluation of price
fairness (Drayer & Shapiro, 2011). Of course, sport properties would
like to capitalize on any opportunity to increase perceived value of
their inventory. Considering the hotel industry's practice of using
'rack rate'--that is, the highest possible room rate for each
room type--the sport industry may adopt this same practice to its face
value, setting face value as the highest possible price for each ticket
type. Such practice may allow the sport industry to have more
flexibility to give out various levels of discounts without damaging
consumers' perceived value of the ticket.
Conclusion and Suggestions for Future Research
Renowned pricing expert Philip Kotler (2003) identified the common
mistakes made by companies:
Pricing is too cost-oriented; price is not revised
often enough to capitalize on market changes;
price is set independent of the rest of the marketing
mix rather than as an intrinsic element of market-positioning
strategy; and price is not varied
enough for different product items, market segments,
distribution channels, and purchase occasions.
(p. 471)
DTP is the sport industry's solution to this common pricing
problem. Despite a variety of critical decisions for sport managers
considering the implementation of this strategy, it appears that, both
in theory and in practice, this approach to pricing has the potential to
ultimately benefit sport organizations. However, future research is
critical in understanding the impact of each of the aforementioned
managerial considerations. The following paragraphs will present ideas
for future research to be conducted by both practitioners as well as
academics.
The first criterion set forth by Kimes (1989) for the
implementation of revenue management was the ability to segment markets.
While there have been a variety of studies which have identified viable
market segments within the sport industry, new research is needed to
understand how consumers may be broken down into smaller segments based
on their purchase habits. For example, the hotel and airline industries
traditionally consider consumers based on their price sensitivity.
Leisure travelers are price sensitive and thus tend to purchase the
hotel or airline service in advance to take advantage of discounted
rates, while business travelers are price insensitive and thus tend to
purchase the service close to the event day (Kimes, 1989). This approach
to segmentation may also apply to the sport industry; those fans (i.e.,
full and partial season ticket holders and corporate clients) who
purchase tickets in advance of the season tend to receive some forms of
discounting, while those who purchase tickets close to game days may be
willing to pay some forms of premiums as Courty (2003) suggested.
However, the research by Drayer and Shapiro (2009) suggested that prices
actually decreased as the event drew nearer. So it may be that there are
also "bargain hunters" who prefer to wait until the very end
in attempting to find the best available deal. This group of people may
be considered as a distinguishable market segment that researchers need
to explore further in order to discover the segment's unique
characteristics and potential practices to lure and satisfy these fans
without significantly hurting ticket value. Further, this group is much
more informed about the specific event characteristics and may base
their purchase decision on vastly different factors than a consumer who
purchases months in advance. From a different perspective, as discussed
in the 'Time' section, teams may establish floors for their
ticket prices so that fans' perceived value for tickets is not
damaged from such heavy discounting, and moreover, this practice may
have positive implications on fans' satisfaction levels, especially
in the long term. In the end, future research is certainly necessarily
to further illuminate the relationship between time and price
sensitivity.
Understanding consumer response to prices and price changes is of
critical importance when using DTP. A possible outcome of DTP is that
occasionally higher prices and frequent price changes will result in
perceptions of unfairness. Conversely, lowering prices has the potential
to lower the perceived quality of an event. Research must examine
consumer response to these pricing indicators, as any of these outcomes
would significantly reduce the benefits of DTP. Ideally, studies of this
nature would be either longitudinal or experimental in order to
understand the effect of increased consumer knowledge and familiarity on
perceptions of fairness and value. Additionally, these studies should
also consider various demographic and psychographic characteristics such
as household income and fan loyalty. As a whole, experimental research
on consumer response to DTP is critical, as the literature on consumer
demand in sport is well documented at the macro level (see Borland &
McDonald, 2003). Experimental designs allow researchers to understand
human responses (both attitudes and behaviors) to specific marketing
stimuli, an important step in maximizing the benefits of a DTP strategy.
Besides potentially increasing attendance for low-demand games and
ticket revenue for high-demand games, one of the primary benefits of DTP
is its potential effect on ancillary revenue from parking, concessions,
and merchandise sales. The expectation is that by increasing attendance
at low-demand events by decreasing prices, teams should see a
significant increase in these other sources of revenue. However, as fans
attending games with less expensive tickets are apparently more price
sensitive, they may also be more careful with the amount of money that
they spend at an event. Conversely, as these fans had lower ticket
costs, the possibility exists that they have more money to spend on
ancillaries. Research is needed to understand per-capita spending among
all different types of consumers.
Proponents of DTP claim that revenue traditionally captured by
ticket resellers belongs to the sport organization that is putting on
the event and that DTP helps organizations recapture some of that lost
money. As such, DTP would seem to have a significant impact on secondary
market sales. However, the utilization of price ceilings and price
floors would seem to minimize these effects. In theory, it would appear
that DTP as an RM strategy would capture some of the revenue being
funneled to the secondary market through more optimal primary market
pricing. However, price restrictions would still leave a gap between DTP
prices and secondary market prices, which are truly demand based without
restrictions. Research is needed to examine the pricing efficiency of
the DTP strategy, as well as its relationship to secondary market prices
and the number of secondary market transactions, particularly given that
most organizations are likely to create some artificial price
restrictions.
Finally, and perhaps most importantly, research must be conducted
to understand fans' willingness to pay and the variables that
influence such willingness. The results of such research may change from
season to season and from one location to another depending on fan
characteristics; however, only an in-depth understanding of these
variables will mitigate errors in pricing. Further complicating this
process is the challenge of putting a price on previously unquantifiable
variables. For example, how much does a visiting team with a highly
loyal fan base add to the price of a ticket? How does an organization
quantify the popularity of individual players? Belson (2009) stated that
prices are typically higher for tickets to the Giants when their star
pitcher, Tim Lincecum, is scheduled to pitch. Putting a price on his
popularity relative to his performance is a difficult proposition that
requires extensive research. Further, situational factors may also be
difficult to quantify such as breaking a record. For example, Belson
(2009) mentioned the potential missed revenue from Barry Bonds's
various homerun records and the collective popularity of the "Big
3" in Miami. Chris Hutson, co-chief executive for Turnstyles
Ticketing, said: "There are so many variables in [dynamic pricing]
, and I'm not sure we've thought through them all. What
happens, for example, if Lincecum doesn't pitch in a particular
game after somebody's paid an accelerated price to see that
game?" ("Ticketing's changeup," 2010). Understanding
how these factors influence the value that large and diverse fan bases
put on tickets is undoubtedly challenging; however, this research is
critical to the successful implementation of DTP.
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Joris Drayer, PhD, is an assistant professor in Sport &
Recreation Management at Temple University. His research interests
include ticketing and pricing strategies in both primary and secondary
ticket markets, as well as consumer behavior.
Stephen L. Shapiro, PhD, is an assistant professor of sport
management at Old Dominion University. His research focuses on financial
management in college athletics, ticket pricing in college and
professional sport, and consumer behavior.
Seoki Lee, PhD, is an associate professor in the School of
Hospitality Management at Pennsylvania State University. His research
interests focus on financial and strategic management issues mainly in
the hospitality industry, and revenue management and pricing issues in
the service industry.