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Viewpoint: The good and the bad of dynamic pricing

Dynamic pricing in ticketing boasts many advantages for a company looking to maximise overall profit, though it comes with its own challenges, notes chief technology officer at Softjourn, Jeff Kreuser.

In ticketing, dynamic pricing is the intentional change in the price charged for a seat, such as on an airplane, in a theatre or at a stadium, to optimise the price per ticket with the goal of maximising overall profit.

In ecommerce, Forrester Research estimates price optimisation software improves gross margins by 10 per cent; whereas, on average, dynamic pricing boosts profits by 25 per cent.

Kreuser notes that this significant positive profitability impact in ecommerce may not entirely translate to ticketing, the increasing number of sophisticated, ticket-focused businesses (think the major U.S. sports franchises, like those in the NFL and MLB) adopting dynamic pricing, it’s “safe to assume that dynamic pricing has a similar effect in the ticketing world—even if those that are deploying it don’t choose to publicise the results,” he said.

So let’s take a look at dynamic pricing from both sides:

The Good

  • Boost sales and fill seats: Improve margins and maximise overall revenue by moving towards 100 per cent capacity based on ticket price optimisation and total revenue generation.
  • Increase incremental revenue: Capture incremental ancillary revenue from add-on sales—like food, drinks and merchandise—from additional ticketholders.
  • Increase customer loyalty: Reward savvy ticket purchasers to build loyalty and repeat purchasing.
  • Encourage advantageous buyer behaviour: Use dynamic pricing to encourage early purchasing, for example, to support effective event planning and establish benchmarks for pricing subsequent ticket sales.
  • Synchronise pricing with demand: Achieve ticket price optimisation by balancing supply and demand.
  • Address competitor pricing and pricing trends: Build your competitive strategy into your dynamic pricing and react quickly to changes in market conditions and competition.

The Challenges

Kreuser says: “Clearly, there are significant benefits to be gained by incorporating dynamic pricing into your overall pricing management strategy but, like with everything good, there are potential tradeoffs, too.

“And, anticipating those tradeoffs must be part of your consideration regarding whether dynamic pricing will work for your ticketing organisation.”

Here are some challenges to think about to help make the decision:

  • Customer alienation: Dynamic pricing can generate bad reviews and customer complaints, especially when price hikes aren’t transparent.
  • Customer service headaches: Be prepared to explain to customers why they paid more for a seat than the person sitting next to them.
  • Loss of sales: The above two points can lead to a loss of loyalty and reduced sales if customers aren’t handled sensitively.
  • Increased competition: If you’re in a competitive ticketing environment, your competitors can use your price increases to target your customers with lower pricing.
  • Reduced ability to collect relevant consumer data: If customers recognise you raise prices based on their web browsing history on your site, they may resort to browsing privately, depriving you of valuable customer data that reduces the effectiveness of your dynamic pricing initiative

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