Photo: Wikimedia/GabboT
Dynamic pricing may be ‘stuck in the mud somewhere in the swamps of Jersey’
An uproar ensued last week after fans of Bruce Springsteen found some tickets to his first tour in six years fetching prices in the range of $4,000 to $5,000 due to Ticketmaster’s “dynamic pricing” model.
The variable pricing model is designed to devalue secondary ticketing sites like StubHub and SeatGeek by pricing some tickets at “fair value” based on expected demand on resale sites. Instead of scalpers earning the benefit of hyper-demand, the extra money goes to the artist and promoter.
In response to the commotion, Ticketmaster, which merged with promoter Live Nation in 2009, said only 11.2 percent of tickets in the initial tour sale were earmarked for price adjustments based on demand. The rest were sold at fixed prices. The average price of all tickets sold was $262, with 56 percent being sold for under $200 face value.
“Prices and formats are consistent with industry standards for top performers,” Ticketmaster said.
In a statement to The New York Times, Mr. Springsteen’s manager Jon Landau was unapologetic, saying the ticket policy came after surveying “what our peers have been doing.”
“Fans should know exactly what they are getting into before getting involved with an always high stress concert ticket sale,” said U.S. Rep. Bill Pascrell Jr. of New Jersey in a press release. The congressman is sponsoring a bill to bring greater transparency to the ticket industry.
Dynamic pricing is most often associated with airlines, hotels and Uber, but it increasingly supports ticketing of sporting events and concerts. Harry Styles, Taylor Swift and Paul McCartney have been called out for dynamic pricing.
Many retailers employ dynamic pricing online. Although many footwear, streetwear and luxury sellers likewise see their limited-edition collaborations fetch exorbitant prices on resale marketplaces, dynamic pricing in e-commerce appears to lead to minor price changes generally.
Regardless, critics and proponents have called for greater transparency around dynamic pricing. Marco Bertini, a professor of marketing at Esade–Universitat Ramon Llull, in Barcelona, wrote in a recent Harvard Business Review article, “‘Demystifying’ how prices are set or changed can help establish a trusting relationship with customers.”
- Did $5,000 freeze-out: Bruce Springsteen fans feel betrayed by ‘crazed’ concert ticket prices – Los Angeles Times
- The Case of the $5,000 Springsteen Tickets – The New York Times
- Ticketmaster Says Most Bruce Springsteen Tickets Are Under $200, Only 11 percent Are Part of Controversial ‘Dynamic Pricing’ Program – Variety
- Held Up Without a Gun: Pascrell Knocks Ticketmaster for Springsteen Tour Price Surprise – U.S. Rep. Bill Pascrell Jr.
- The dos and don’ts of dynamic pricing in retail – McKinsey
- Talking to Your Customers About Prices – Harvard Business Review
Discussion Questions
DISCUSSION QUESTIONS: What lessons does the fuss over Bruce Springsteen’s ticket pricing offer retailers and brands around the use of dynamic pricing? Do you agree that the more transparency around dynamic pricing, the better?
Poll
Loading …BrainTrust
Michael La Kier
Vice President, Brand Development - IGA, Inc.
Ananda Chakravarty
Vice President, Research at IDC
There are three issues with which to deal when we speak of dynamic pricing in retail. One is the consumer and the issue of transparency. Two is, how much more profit can a retailer make by using dynamic pricing for highly desirable items? Three is the question, like the performers and entertainers – how much of the excess price goes back to the manufacturer and wholesale distributor?
If the industry doesn’t figure out the last one, there are going to be lawsuits and new types of purchase contracts between retailers and their suppliers.
Dynamic pricing is well understood and accepted in the airline industry but retailers, particularly those with a brand value, need to be very careful as they would soon discredit their brand if they are seen to be profiteering through the use of dynamic pricing. If items have a price then the consumer will decide if it is reasonable or not. If it varies wildly they are likely to lose trust — and trust is all important.
I have been watching the Springsteen ticket cost debacle play out on Twitter. He is not the only one charging insane prices for concert tickets, or for that matter, everyday items, as hotel gift shops are embracing dynamic pricing, too. Enjoy your $7 bottle of water.
Cost for entertainment is out of control. Even simple pleasures, like a summer outing to a baseball game, is priced out of reach for a typical family of four. Bruce Springsteen recently sold his entire catalog to Sony for $500 million, placing him among the few who can afford to see his own show.
Dynamic pricing challenges a basic sales question every consumer asks: “Am I getting a fair deal?” We’ve come to terms with it for airplane tickets and hotels. However for most retail sales, consumers appreciate dynamic pricing in the form of “last minute discounting” and feel insulted when facing capricious price increases. Regarding Ticketmaster specifically, they have such a broad reputation for unsupportable fees and upcharges that there is little possibility of them getting favorable press.
Market manipulation to drive up pricing and, subsequently, their cut of the gate, is Ticketmaster’s business model. At the end of the day they can charge whatever the market will bear. There’s been a number of stories recently about how everyday fans really never have a chance to buy a ticket to a big show, the brokers hold blocks of tickets for auction sites, etc. The market is manipulated to drive up prices. Personally, if I’m interested in an event and I find out Ticketmaster is handling the tickets, I’ll pass. Too many times I’ve seen “service fees” that were more than the face value of the ticket. For the Boss, however, I think he needs to be honest and let people know that his “everyday man” persona is a thing of the past now. I think the term we used back in the day was “sellout.”
Outside of hotels and airlines, dynamic pricing has always run into issues with consumer perceptions of unfairness. Raise drink prices when it’s hot? Nope. Increase the price of cold medicine during winter or a pandemic? Nope. The truth is, however, that dynamic pricing exists in many markets. The key is to not change things so substantially as to drive the perception of price gouging. And the more transparent the better.
“Dynamic pricing” doesn’t pass the sniff test for most consumers. Your grandmother would consider it a scam, and a despicable one at that. No wonder the Springsteen story persists in the news.
Is dynamic pricing the Runaway American Dream? I think it is simply the evolution of pricing. Historically, there have been only two basic forms of pricing. Haggling: No price tags. The vendor starts ridiculously high, the shopper threatens to walk away, they meet somewhere in between. Price tags: A “retail” price is marked down to approximate haggling. In online subscriptions, just cancel and watch the email drip campaign offer lower and lower prices for what you were overpaying for already. Same idea.
In retail, we started this game with company pricing, moved to division pricing, leveraged zone pricing (by advertising zone) and store pricing. Customer pricing is the new frontier. What will I pay the Boss? What we’re all headed for is actually personalized pricing. All the algorithms you’ve been feeding data into since the first iPhone came out will essentially read your mind and determine the maximum amount you’ll be willing to pay and still think you’ve gotten a good deal. Okay, this is not the future. It’s now. As a retailer, you just need to find the right technology at the right price to do it. See, there’s that pricing thing again!
The logic behind dynamic pricing is totally logical. Hotels and airlines have been giving us a lesson for years. It’s a great tool for dealing with any mismatch between supply and demand. And it’s not surprising that the artist and promoter would try to capture dollars that would otherwise go to scalpers. Having said that, I like what I just read about Billy Joel concerts. They don’t sell the expensive front row seats. They leave them open and fill them with fans from up in the distant bleachers. That’s fan/customer appreciation!
While a $5,000 ticket (even for Springsteen) sounds absurd, there are doubtless fans willing to pay that price and to brag about it. If the market will bear the price hike, the seller and buyer are free to do the deal or to take a pass. Is this really different from surge pricing for an Uber ride, or a Super Bowl ticket, or a high-demand flight?
There is plenty of evidence of surge pricing in everyday life — the ice cream vendor selling Choco Tacos in Brooklyn last weekend for $10, for example, because somebody was willing to pay for it. The ethics of dynamic pricing are a conversation for another day.
There is a fine line (or maybe no line at all) between “dynamic pricing” and “price gouging” in the minds of the consumer. Surge pricing by Uber causes the same reaction when the surge is caused by a storm, criminal event, etc. It depends on how much you care about consumer goodwill. In the case of ticket sales, I suspect they don’t care at all.
I have no problems with dynamic pricing for entertainment, when attendance is a choice. However I have lots of problems with dynamic (and especially unexpected) pricing when a customer has no alternate choice – which is more of a price gouging scenario. I don’t think businesses owe an explanation to customers on dynamic pricing, and if they do it should probably be “someone was willing to pay for it.”
Lesson One: there is demand for The Boss. Dynamic pricing plays a part all over retail. Companies like Amazon and others use dynamic pricing in their day-to-day. Sites like eBay have been using dynamic pricing almost since their inception. The process for dynamic pricing should be transparent, but prices will change and if there is fluctuation based on standard demand and scarcity of product, that can only mean increased competition and lower consumer price points overall. Just as there are tools to enable dynamic pricing, there will be tools to find the lowest prices – in real time. Expect more dynamic pricing to permeate markets beyond just airlines and tickets.
Retailers should be wary of how consumers will see this practice. Retailers may see it as dynamic pricing, consumers may see it as price gouging.
So much to say here.
Having visited Asbury Park often enough as a kid, not knowing Springsteen existed and that he was probably at the Stone Pony on the nights I was in town, I have been “around” for the rise of his career.
What he was then and what he is now, is a complete 180. He’s all about the money now–if not always really, but his shtick (that earned him his career!) was singing about the working man. Milking nickels is no surprise from an entertainer, BUT this was the guy that fought ticket scalping in the late ’70s early ’80s because he wanted his fans to have affordable access to his concerts. My how the worm has turned.
As a moral sellout, teaming with Ticketmaster to grub every dollar and do so via dynamic pricing only makes sense for Springsteen. Ticketmaster can get away with just about anything because they’ve acquisitioned and who-knows-what’ed themselves to a near monopoly, so dynamic pricing is a mild technique for them. But they are no poster child for dynamic pricing, since most businesses don’t have their market grip.
In the end, it’s just business and he and Ticketmaster can go down this path, but for all businesses that choose dynamic pricing, it’s a double-edged sword that as the economy contracts, will leave either unsold product or extreme negative demand surge-driven fire sale prices.
And no, I wouldn’t even go to a free Springsteen concert anymore.
The premise here seems to be if people “understand” something, they’ll like it. I think that’s true only to the extent that “because we can” isn’t the primary reason.
Of course a(n asked) price is only meaningful if people are willing to pay it: $6000 for a ticket doesn’t strike me as rational behavior … even for The Boss.
Pricing strategy needs to be true to the brand and the comment by Springsteen’s manager was unfortunate. Surveying tickets for the show here (in Atlanta) next February, there is NO way that < 2% of the tickets were priced above $1,000 each. That did change and perhaps that’s dynamic pricing at work: there was no way that they were going to sell the show out at that price. These artist management companies and the ticket sellers should pay more attention to the yield management that’s been well proven by airlines as well as understanding who their audience was — and is now.
First of all, I love the headline for this discussion.
But I think our discussion so far has not addressed how the resale (“scalping”) business has stretched the upper boundaries of ticket prices over the years. Springsteen famously spoke out against ticket scalpers circa 2002, but that did nothing to stop the profiteering. Many big rock and pop acts stood by (in awe?) as entrepreneurial scalpers and ticket agencies gobbled up desirable seats and made 10X or more profit.
No wonder that Ticketmaster glommed on to the deal, or that Springsteen’s team felt justified in charging what the market would bear.
But in doing so, I think the music industry is violating a prime directive of dynamic pricing: protect your price image. I’d argue that the cost to Springsteen’s brand of negative publicity about the $5000 ticket incident is greater than the incremental profit he will earn.
The root of the problem, I think, is that Ticketmaster has implemented pure dynamic pricing without defined boundaries. The top prices are visible and shocking, but the justification for those prices is opaque to the fan base. This damages trust in the artists by fans who feel betrayed.
Somehow, I don’t think Ticketmaster cares much how fans feel.