Dynamic Pricing in Sports: Maximizing Ticket Revenue
Competitiveness – the word that probably sums up the whole sports industry. However, over the years, the competitive spirit has become present both on and off the sports fields. Hence, it comes as no surprise that dynamic pricing in sports has become a new big deal in this industry.
What dynamic pricing in sports means? How did it start? How you can implement it?
Since every player needs a good assist, we’re here to help you answer all those questions!
What is dynamic pricing in the sports industry?
Dynamic pricing is also often referred to as time-based pricing. When setting the right price, this pricing strategy is focused on the changes in market conditions and consumer needs. In order to maximize revenue, businesses need to react fast, or in other words, their prices need to be dynamic enough.
You know how they say – the devil is in the details. That goes for pricing as well.
You need to find the right balance – not to overdo it, but also not to have prices insensitive to the market changes.
To apply this pricing model in sports, one must first understand the industry. What we call consumer demand, in the sports industry is better explained as fan interest. While there are other factors that can influence dynamic pricing in sports as well, fan attendance is probably the most important one.
Regardless of the sport type, there are some points that traditionally affect the ticket price:
- Visitor preferences
- Sports object capacity
- Quality of viewing
- Match characteristics
- Macroeconomic/Global factors (e.g. financial crisis, pandemic, etc.)
Over the years, the usual approach has been to offer seasonal tickets, or at least to set the price for matchday tickets a couple of months ahead. That would leave almost no room for adjustments over the season.
On the contrary, dynamic pricing in sports tackless that issue. This strategy relies on fluctuating aspects and therefore is more consumer-oriented. It takes into consideration the visitors’ motives for attendance. Who they are? What’s their age and occupation? Are they looking for discounts, or buying last-minute tickets?
All these personal aspects lead to a more efficient pricing strategy resulting in more revenue.
Since it sounds so promising, this strategy was certainly welcomed with open arms, right?
Well, not so much…
Not every beginning is successful
Dynamic pricing is not some groundbreaking concept. It’s been present in the travel-related industry for many years now. But, nevertheless, its beginnings in the sports industry were rocky.
It actually took some time to fully embrace this concept.
If success was already evident in other industries, why was dynamic pricing in sports not so welcome?
As it’s usually the case, everything that’s new and not so ordinary arouses doubt. The most important barriers to overcome were technical and emotional ones.
Historically, the pricing categories in the sports industry were defined through setting arrangements. While this approach offers stability, it’s up for debate whether it can answer the individual visitors’ needs. Fans have different reasons for visiting a sports event, therefore, the pricing scheme must be tailored accordingly. For example, families with children certainly don’t have the same motivation and expectations as organized fan groups.
But, when you have a system that works by selling tickets 9 months in advance (and keeping the prices static) it’s not so easy to embrace the rule by which the tickets price can flex right up until the match. Fans find this concept unfamiliar.
Consequently, clubs must invest heavily in marketing. Dynamic pricing in sports does not necessarily mean higher prices, and that needs to be communicated with the fans. Fans can actually benefit from this system and get a better deal for themselves. Moreover, the fans would be more proactive if they understood the concept of dynamic pricing. But, clubs need to be very careful about their most loyal fans – season ticket holders. It’s crucial to avoid any interception between them and the individual buyers. That can be achieved by investigating what is the approximate price range for an individual ticket buyer.
Once clubs have put themselves in their fans’ shoes, it’s time to implement the dynamic pricing strategy.
The main question – how?
Implementing a dynamic pricing system
The first barrier – understanding the fans – has been overcome. Now you have to understand how to implement and use all that data. As you can already tell, this means educating everyone – from fans to club management.
Beginnings were not so successful mostly due to technical reasons. Believe it or not, it takes a couple of days to make a single change in the pricing section! If you multiply that by the number of changes needed in every section and in every game during the season, you can probably understand the core of the problem. There needs to be an algorithmic way to solve it.
It would be impossible to do all this manually, but thankfully, clubs can nowadays perform these changes with a few clicks. Changing thousands of prices in a glance, what a revolution!
But, that wouldn’t be possible without price monitoring tools. They showed up as game-changers and turned the whole industry upside down.
Price monitoring tools are mostly based on the dynamic pricing concept and can help with automating the whole process. You’ll know when there is room for price changes, whether drops or increases and also be aware of your competitors’ actions.
The first company to offer these services was Qcue. Their first big client was the San Francisco Giants, and since the collaboration was a total success, other clients just kept coming. Of course, that also resulted in a more competitive environment, and more DPT (dynamic pricing tickets) companies emerged. Their way of doing business differs – some have developed fixed pricing fees, while others charge by a percentage. For example, StubHub, an online secondary market for ticket sales, takes a 25 percent commission after the sale occurs.
However, dynamic pricing in sports can be used in many different ways, and not only for clubs and tickets. Many brands and retailers who are dealing with sports equipment have witnessed many benefits from this concept.
Moreover, dynamic pricing in sports needs to come as an addition to the current financial tactics. Every club/brand/retailer already has its own strategy, so this needs to be in alignment. Price monitoring tools are helping with that as well since you can easily track how the changes are reflected in your current strategy. Accordingly, the user can decide what would be the best approach in his case.
Okay, we believe you now understand what were the initial struggles of dynamic pricing in sports.
Let’s check how the sports franchises have reacted to this change.
Sports franchises embracing the change
The first sport willing to try out this new pricing strategy was baseball. Or to be more precise, San Francisco Giants in the season 2009. Experts in the field claim that baseball presents the best opportunity for implementing dynamic pricing. Compared to, for example, NBA or NHL league, baseball venues have much bigger sizes, and the percentage of the seasonal ticket holders is smaller compared to basketball or hockey.
Once this strategy turned out to be a winning one for San Francisco Giants, the NHL team, Dallas Stars, started using it too. Following their example, many other NHL teams took the same road, and today almost everyone in the league is using this approach.
Implementing dynamic pricing in sports, and especially in the NHL requires a bit more praise.
Why?
Even if you’re not a sports fan, you’ve almost certainly watched the SuperBowl finals, or at least checked out a few clips online. That’s because more than half of the NFL’s revenue comes from broadcast rights and commercials during the finals. It’s one of the world’s most important and most broadcasted events. Just for the sake of comparison, this years’ SuperBowl was a record-breaking one as an average fan has spent around $167.37. The previous record was set in 2016, so this new one represents 14% higher results! Legends, a hospitality firm, generated more than $18 million through its activities, and NBC rose its viewing figures by around 16%.
By comparison, NHL revenues are almost four times lower than the NFL ones. Therefore, NHL is highly dependent on the game-day revenues. SuperBowl is an event in itself and would generate huge profits regardless of who’s playing in the finals, but the things in NFL are different. If a team plays well, or the opponents become more interesting, that’s reflecting the actual ticket demand. Hence, it’s crucial to set a good dynamic pricing strategy.
The next big thing – Dynamic pricing in college sports
Once the approach of dynamic pricing in sports has been accepted, the logical question is what next?
As it turns out, the next big thing in the industry is embracing dynamic pricing in college sports. One of the first universities that decided to test the waters was the University of South Florida. They managed to achieve their goal – find the optimal ticket price to match as many fans with the best possible seats. That resulted in increasing the number of people attending their games.
This trend however was not so welcome in the beginning either. The first and foremost argument was that audience will be paying more. In theory, that’s true, but in practice not so much.
The tickets for big games will be pricier, but that’s nothing new. Schools sell these tickets extremely quickly, and if you’re not a seasonal ticket holder the market has already priced you out. Therefore, that aspect won’t change much due to dynamic pricing. But, what does change is the fact that now universities will be the ones to receive the added income and not the secondary ticket sellers.
Conclusion
As you can see, dynamic pricing in sports can be a very complex thing. At the same time, this shows all the diversity of the use of this pricing strategy. Whether you belong to a sports or other industry, it is important that you put your trust in someone reliable when establishing a dynamic pricing strategy.
What are your thoughts about this topic? We would like to read more about it!
