Discussion of Dynamic Pricing in MLB May 2014
History of Ticketing 500 B. C. : In Turkey and Greece, clay, bone or metal pieces were used as tokens to admit customers to theater events 100 A. D. : Roman Coliseum used clay shards as admission tickets 1754: Benjamin Franklin printed tickets for a theater in Philadelphia 1994: Bar code ticketing introduced (Cleveland Indians) 1996: Internet sales introduced (Seattle Mariners) 2000: Print-at-home tickets introduced 2007: Paperless / mobile tickets introduced 2009: Dynamic pricing introduced (SF Giants) 2
Demand Drivers in Sports Tune the channel: - Economic factors - Game by game factors - Marketing and pricing tactics Change the channel: Team Performance 3
Season Tickets Demand 4
Dynamic Pricing in MLB Dynamic pricing means that once a ticket goes on-sale its price is subject to change • Market conditions • American lifestyle changes (time and convenience) • Buyer power (knowledge and access) • Technology • Ticketing system advancements • Data and analytics capabilities 5
How is Dynamic Pricing used? Strategy 3 Common Approaches: 1) “Buy Early and Save” 2) Match supply and demand 3) Price flatten Algorithm Inputs (proxy for elasticity): 1) Team performance (expectations) 2) Day of week / time of year 3) Opponent 4) Economic factors 5) Secondary market data 6) Promotions / special events Algorithm Price Change Methods: 1) Daily, weekly vs a few times per year 2) Game day premium 3) Sales channels 4) Manual vs automated Execution 6
Purchase Behaviors 50% of Indians single game ticket revenue comes from transactions within 4 days of the game and 34% comes from transactions on game day 7
Pricing Strategy 1 3 2 8
Learnings from Dynamic Pricing Dynamic pricing is still relatively new in MLB and teams are still learning, but teams generally have found around a 10% increase in revenue Business Impact Fan Impact • Higher demand games have generally been underpriced and lower demand games are generally overpriced (larger pricing fluctuations over time) • 70% of incremental revenue in top 10 games per year • 70 -80% of games are lower priced on average • Capitalize on unforecasted demand (e. g. , milestone game or postseason run) • Limited impact on number of tickets sold (incremental growth from more efficient pricing) • Drive fans to specific seating locations • Smaller walk-up crowds • More value for season ticket holders – average discount for a season ticket holder increased from 22% to 46% • Most fans understand the practice from other industries (e. g. , airlines, online consumer products) • Some fans can react emotionally and sense a lack of trust with the team 9
Challenges and Next Steps • Understanding elasticity • More customer level data (digital tickets and customer profiles) • Elasticity by customer type and across price categories • Technology • Mobile entry adoption • Link between pricing algorithm and ticketing system • Communication • Fan knowledge and understanding of pricing strategy • Reinforce trust between team and fan • Talent • IT and analytics skill sets 10
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