Episode #0106 - Dynamic pricing in ticket pricing for concerts

Pricing College Podcast

Aug 26 2022 • 18 mins

In today's episode, we want to talk about the pricing story that has made the news I guess, the mainstream news media, which is not that common in the world of pricing, and that is related to dynamic pricing for concert tickets. More specifically Bruce Springsteen tickets on a US national tour and the concept that pricing for those tickets has a dynamic element.

Dynamic pricing has some controversy around it because people don't like that there is a range of prices and they don't like that the price is not fixed. People feel a lack of transparency when there's more than one price and more than one price in one segment and more than one price for one product. So we thought this particular story is quite interesting not only because of the controversy around dynamic pricing as a methodology in pricing but also that how it's being introduced formally within the music industry. When there's a lot of people out there that that go, they're thinking of the music, the art form, they think about their favourite artists and they think that there's gonna be some kind of transparency reflected in the price point because they go in there for the love of the music, and now they're finding the artist has very little say around it. It's very commercialised. It's a business enterprise. There's no sort of you don't get rewarded for being a fan. Now you're getting penalised by paying higher prices for being a fan.

I think music and certainly pop stars and rock stars and the staff like that there is a fan surely the fan element that's how they get to where they are. Bruce Springsteen in the beginning started probably touring small halls. I'm again assuming this, he built up a fan base and those are loyal followers, etc. Admittedly they probably got in there and bought their tickets early, I'm guessing. But some of the points we'd like to make on this dynamic pricing, it's not as if dynamic pricing has not always applied to tickets. The second-hand market, ticket tote, and scalpers fundamentally have operated the infinite, ultimate dynamic pricing model with a standard try that concert hall and try to shift tickets, leftover tickets, or to anybody willing to pay and they will fundamentally charge that price. So that has probably what Ticketmaster here is doing, who is the agency selling the tickets? He's internalising that and giving them to use that willingness to pay. I suppose the old flat pricing model left all that extra profit on the table, the coracoid, the artist and the promoters who are putting cash behind the enterprise, and it was going to ticket tote basically who were who are filling that gap. There are people the day before or the week before who will pay significantly more for these tickets. Whether rich people, whether their superfans, whether even the sort of people in casinos when Elvis used to play in Vegas and you'd have high rollers would get free tickets to those big events and big sports games, etc. So it's nothing new under the sun. Probably to some extent, it's a smart move. I think you're internalising it, as long as you're segmenting it, it's not all tickets. And I think some of the stats we saw or at least because Ticketmaster was forced into defending themselves to some extent. And some of the stats that they did give were that 88% of tickets were sold at set prices below $400 before taxes and fees. So let's be honest, like that still is a hell of a lot of money. 400 American dollars, with the average price paid for the tickets of $200. So that left roughly 12% of tickets the in the market for dynamic pricing.

I think the controversy is more around how there are almost holding seats and tickets for profitability simply for profit. It's not just a little bit of profit quite a huge amount. If you go from a fixed price of say $200 per ticket to something like $5000 that's that's a huge leap in the price relativity price point. So that's number one and that's all being pocketed through the ticket agencies and the artists. I think fans have a right to ask, where is that money going? Is that fair? I think this interests me because generally dynamic pricing is explained by businesses as something to utilise and balance, supply and stock. But here we can see quite simply that stock and the seats are being kept back to push huge amounts of profits for the artists and the industry. So I find that that's an interesting point. Generally speaking, businesses don't really discuss willingness to pay again. And another interesting point that's been introduced with the concept of dynamic pricing, as I said before, you generally it's capacity utilisation that's pushed, not willing to pay. So here we're seeing how you're putting two concepts, pricing concepts together, dynamic pricing and willingness to pay now you can't get confused. They are very different concepts. And you got to be careful how you use them. Because if you start putting them together, you start thinking “okay, dynamic pricing is going to exploit our willingness to pay”. And, why are we willing to pay for our tickets?  Because we highly value the artists, we risk, fear of not seeing them if we can't get to see them. So we're being exploited here and to some degree through loss aversion theory, and that's pushing up the ticket prices and our willingness to pay. Then on top of that, we're hearing that the businesses are making huge amounts of profit consciously doing so. So this is why it is in the media, and it really should be explained because if you see a price point of $200, and then $5,000, you kind of know want to know where your money's going.

I think the music industry is the demographic certainly the United States and most of the world are changing. When a lot of these acts started, it was a concert where kids would go to concerts. Fundamentally, it was teenagers or young adults will go to concerts, and then they use that to buy records and the records were where the money came from. Obviously, with the complete change in the industry. It's almost like music has given us a premium through Spotify or streaming or whatever it is, and very few people buy records. And then the real money comes from the concert. And to a large extent, these acts that we're talking about are to some extent the baby boom act to have very wealthy older people following them. I don't know, again, this could be just pre-judging or whatever, but I assume a large amount of the population going to Bruce Springsteen will be older. I think Joanna touched on the concept of gouging, is this gouging? It's a grey area. Some of the articles we read suggested that Springsteen's getting old, and the band The E Street band or getting old. And so some people think this could be the last hurrah. This could be the last opportunity to see this band. Maybe some people have it on their bucket list or a dream to see Bruce Springsteen. The last two, three years have been very, you know, people feel also they've been excluded or kept away from entertainment and stuff like that. So there's probably pent-up demand also for people. So it can't be gouging because nobody needs to see a concert. Let's be honest about this. It's not like selling, a bottle of water or something to someone in a famine or food to somebody on a farm and it's not to that extent. But it is a grey area whereby to some extent is pushing into the area of, will people have a bad taste in their mouths? At the end of this, they look back and go Why would your view on that? And realistically, the view will not be on Ticketmaster the view will be on Bruce Springsteen. I would argue and maybe a concert even in general, there could be a negative, which I always think the definition of gouging is when after the experience you're committed never to deal with that seller ever again. And I would argue in pop music and rock music where there is you need affinity you need loyalty you need. It's not something in some cases, it is love, but you need a real affinity towards the act. It's not just about the music, it's about the lifestyle, the culture, the movement, and almost what it represents to you. If you're an artist and you're selling, you need to make sure you're segmenting that market because if you burn your base, if you burn your core, you know, your career is not gonna last too long.

I think another interesting point here is how pricing is being used to influence and direct behaviours here you've got quite a clear price cycle. They've kept the tickets low at the beginning of this price cycle to entice people to go to the concert to drive traffic to the concert. Fairly, you know, as I said, it's not a low price point. It's still $400 but it's a manageable price point. So that supposes the fans can go. So [A]  you learn all right at the beginning of the price cycle for ticket pricing, get your tickets early, because you really will be paying so much more towards the end, maybe two weeks after the first launch of the first price tickets. And then obviously, they're sort of they're almost training people to do that like by quickly and also they're training people to accept extremely high prices for being late in the cycle. So you didn't get your tickets early. So it's your accountability for that. So, therefore, you have to pay more, and not just two times more, three, four or five times more for the price and I'm we can change that and you can't ask questions is kind of the conversation that's going on here. So the onus is completely on us. And what is interesting is how a price point can influence huge amounts of people all at once to do so just one or two things, and how the industry in itself can change by a price point. The music industry is changing pretty much because Spotify has changed the dynamics of that industry. But now it's all going Yeah, through two gigs, live music, but it's that price point that is changing how people buy which I find interesting and ticket tech is experimenting has been like for quite a few years now. Some interesting approaches, and now I do see them bringing that dynamic pricing and willingness to pay to the forefront before it was behind the scenes and now they're trying to push that one.

I suppose the final point I'll make on this, I could be completely wrong, but I think some of it reflects on changes in this society. I think entertainment a lot of things used to be much more egalitarian. Certainly, after World War Two, the whole world was to work towards at least the Western world went to much more of an egalitarian system welfare state. Football was the everyman sport. Pop concerts were affordable, and affordable luxuries were certainly affordable for kids and that sort of thing. They didn't break the bank sort of things. I think we're going back to more of a golden age almost, within the Siak less sort of concept where they're super rich are it's fine, no to discriminate. It's fine. This is for the rich, I'm not making a value judgment I'm just pointing out what I see. And I'm seeing this happening more and more whereby price has been used as a method to discriminate against and exclude people from you can't afford it. When the luxuries are there for the rich, and I think you'll see it and I think conspicuous wealth has been pushed probably more now than then. Certainly, maybe the 80s is famous for conspicuous wealth and you know, the yuppies and the Reagan Thatcher years of course. But I think if you go back to the youth movements, the 60s, the 70s. Like I tell you, if you try to put on a dynamic pricing model at Woodstock, I'm not sure what would happen. So I think a lot of it is the market and the time and the age that we're in accounts for a lot of things. It's not a one-way movement. It goes both ways. And I just think this is we are known this is a discriminatory basis, and it's discrimination on money and wealth and, you know, sophistication or whatever else you want to talk about, but this is I would argue this as a sign of it.

It's an interesting point in itself. I mean, you can see that from the channels to market you've got TikTok, you've got Netflix, YouTube, and Spotify, which are all for the masses. It's cheap, it's accessible. Yeah, you got all the options that you want. However, it's not real life. And really, that's where the low price point is. You're not joining real life, you're watching it vicariously through a screen and all that sort of stuff. However, if you want to experience the real thing, the real deal, then you're in that very small segment now and you have to pay and it's not just it's maybe 800 times the normal exit the price more just to be a part of the real world now. So this is quite a virtual reality versus real-world scenario and the price points that reflect that is a really interesting and mind-bending thought, and it fills you sort of with a mixture of feelings. And I suppose there's quite a lot to up to unpack in and of itself, but I think this particular article, it's brought about new price leadership in a way. It's psychological pricing, and it's the division between business and customers but almost through an alignment of value drivers. Yes as an understanding of value drivers but also how you use that information when you set prices, how you use different channels and how you price those channels. Because if you hit see hear clearly if you see music as through Spotify, and in real life in an arena, then you can see the price point is hugely different. Now, in any other business, if it's done in retail, you'd say is that fair? But hear clearly people are saying it's completely fair. How come it's not fair in other industries?

My final point on this one, I think it is fair. It's just you have to be aware of when you're selling, what it says and what it creates and the atmosphere in the mix. I give the example of Wimbledon, the tennis contest. And look it's probably one of the most segmented markets I'd assume. You've got the royal family you've got the Tom Cruises of his world, etc. in the Royal box. But then you also have the I think it's a queueing system. They operate every day where people queue up and buy tickets because clearly when you could access demand for a product, you either discriminate based on price or you use the Soviet queueing system. But this queueing system gives people the impression that everyone can afford it. That everyone can be part of it that it's not completely outside your realm of you getting it and so you have to consider not just the money but what it means to your base and the longer-term impacts of stuff. But I think that's more psychological and for the later podcast, so I'll leave it there today.

I think my last point on this is that ticket Tech has done this over several years. It's not something we're just bringing upon their customer base there. As I say they're training their customers and I think if you're listening to this podcast from different industries, think about that, how you can understand what your customers value? And then think about your brisk business strategy and see how you can align it because that alignment doesn't occur overnight and even today, we've got 90% return ticket tech, in this instance, 90% of the tickets were at a fixed price and they've only introduced about you know, 9% are being dynamic pricing. So I wouldn't say it's 100% Holy accepted even within the music industry, but let's have a look, is that percentage going to grow in terms of dynamic prices versus fixed pricing in the music industry? I would say it probably is but there'll be a balance. And what we can say is ticket tech is trying to find that balance.

Like I try to keep the spirit of the 60s alive. So I'm just gonna jump dance. I'm not paying anything. Okay, we'll leave it there today.