By Jim McCarthy May 21, 2012 0 comments

Two Types of Dynamic Pricing (And I’ll Tell You Which is My Favorite)

As I have foretold for years, dynamic pricing is not just coming but has arrived in the live entertainment biz.  It’s most widely adopted in sports, but has made inroads in the arts and concerts as well.

Every now and then, I find it useful to stop and give people a little reminder about dynamic pricing, and in particular, remind them of the difference between dynamic and variable pricing.  The best way may be to watch this short video I did a couple years ago, but if you don’t even have time for that, here’s the super express version of it:

Dynamic prices are those that CHANGE over time;  variable prices are prices that are different from the start.  For example, a Tuesday night field level seat is in less demand than a Saturday night seat in the same place (all other things being equal), and the organization should start out with a different price for those seats.  That’s variable pricing.  If the ticket was originally listed as $100, but demand has been strong, it may now be on sale for $120.  Or $80.  That’s the dynamic part.  “Dynamic” means changing or changeable.

Got it?

And let me add that without a good variable pricing policy, dynamic pricing is premature.  You need to understand the core demand differences for nights, sections, etc., and do variable pricing correctly and then lay dynamic pricing on top of THAT, not the other way around.  In fact, variable pricing, as a rule, has more potential uplift on sales than dynamic pricing, but together, it’s optimal.

Finally, if you’d like some help with your dynamic pricing, I know people who can help you.  Smart ones.  Ping me and I’ll connect you.

BUT, I have something to add to this discussion.  There are a couple of ways different flavors of dynamic pricing, and really, it comes down to what part of the purchase is dynamic.  (Remember, ‘dynamic’ means ‘changing’.)

Is the PRICE dynamic or is the LOCATION dynamic?

Here’s what happens when the price is dynamic: a customer is interested in Section 204 (or whatever) and thinks about buying two tickets.  The price listed is $100 each.  The customer gets distracted by a co-worker and doesn’t end up buying.  A few days later, demand has been strong for that game and section, and the customer goes back to buy those tickets, but now Section 204 tickets cost $115  each.  The customer buys those tickets and arrives at the venue, where they are  seated in Section 204, as expected.

Here’s what happens when the location is dynamic: a customer is interested in going to see an event and notices that several prices are available: P1, P2, P3, etc., but it’s hard to tell (or not even shown) where the seats corresponding to those prices are.  P3 tickets are $100 which is about what they’d like to spend, so they buy the tickets.  Sales are strong for the event, and so P3 has grown from just the mezzanine to include the front balcony also.  The person who bought the P3 tickets is seated in the front balcony, even though typically P3 would not include the front balcony (which are thought of as “worse” seats than the mezzanine.)

Of these two types of dynamic pricing, to me it is very clearly superior to make the price be dynamic.

Here’s why:

First, making the location be dynamic makes it impossible for the consumer to be exactly what they want.  Since they don’t know what a price level entails, they can’t make a rational decision about how much they want to pay (unless they’re shown their seats on a seating map before purchase, in which case this is really just dynamic pricing without the mathematical discipline).

Second, it’s done primarily for the convenience of the venue, not the benefit of the customer.  It’s easier to “downgrade” a buyer who’s got a semi-opaque view into their purchases than it is to price the house correctly, given demand.

Third, the venue is taking a huge risk that people will not get what they expect and therefore become disappointed with their purchase, especially if they’ve bought from the venue before and have expectations about what a given price level “is”.

So if you’re going to make the location be dynamic, well, don’t do it, but if you must, you have to present it to the buyer not as a “price level” but as a given seat at a given price that they clearly know at the time of purchase. Which essentially is like making the price dynamic, without (typically) doing the work to make the price actually dynamic.

Bottom line: it’s perfectly fine to change prices on people, and they will accept it, but do everything you can to make it clear what they’re getting.

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