Yield management, revenue management, dynamic pricing. However you phrase it, it is clear that businesses from Disney, to ski resorts, water parks, golf courses and more continue to embrace more sophisticated pricing models to drive greater pre-sale volume and ultimately, more revenue. These terms may take on different meanings to different people, and pricing execution varies depending on the business and its unique goals. While everybody uses similar words, I wanted to share some definitions of terms as well as Liftopia’s philosophy on implementing these strategies across various ticketing businesses. Hopefully after reading this article you will gain a sense of whether dynamic pricing is right for your business, and/or what “flavor” of dynamic pricing is best suited for your goals.

Varying definitions of “dynamic pricing” represent tactics used in yield management in various forms across industries, from profit maximization for airlines (fun “Dad I have a question” episode talking about how airline prices work) to systems utilization improvements like cities’ congestion pricing (e.g. New York first US city to deploy congestion pricing to reduce gridlock).

According to every college professors’ favorite citable reference, Wikipedia, Yield Management is defined as “a specific, inventory-focused branch of revenue management, {and} involves strategic control of inventory to sell the right product to the right customer at the right time for the right price.”  I personally like to simplify the definition to: “Using goals, data and tools to improve the efficiency of systems”. Yield management is just another form of continuous improvement to systems, in this case for pricing vs. say, customer service (e.g. Goal: improved service. Data: customer satisfaction rating. Tools: People/training/process/etc.) 

Before I discuss the strategies and tactics that impact pricing for ticketing businesses (e.g. parks and attractions, tours, activities, etc.), I want to clarify that my discussion is focused specifically on pre-selling product given the consumer trends and business interests in shifting from offline to online sales. 

A few broad assumptions I am making:

  • Your business sells some form of activity/thing to do
  • Attendance is not consistent day to day (you have demand variability)
  • You want to sell more of your “activity/thing” on the internet, and generate more revenue overall (you want to run a stronger business)
  • You care about marketing efficiency and customer service (you know it is important to make as much as you can for however much you spend)

Before implementing a strategy, it is important to consider how your ticketing business compares to others. After all, a water park is not an airline is not a hotel is not a ski area is not a soccer game is not Hamilton tickets is not a haunted house – the list goes on. 

Here are a few key attributes to consider:

  • How constrained is my inventory/how often does that inventory have sell-out risk? (e.g. a golf tee time is more likely to sell out than a day at a ski area).
  • How long is my consumption period? (e.g. a vacation rental is long while a go-cart session is short)
  • Is what I sell more of an activity or an event? (e.g. skiing is an activity, a soccer game is an event)

The answer to these questions can help you figure out the type of pricing strategy (variable vs. dynamic) that makes more sense for your business and whether you should be more focused on building behavior pattern in your customer base or on narrow revenue maximization.

Inventory Constraints + Pricing Strategy

The likelihood that a business “sells out” can have a meaningful impact on how scientific a pricing strategy needs to be to drive consumer behavior, and the flavor of yield management execution that will drive the most substantial result.

These attributes can help determine which category of pricing makes the most sense to focus on for any given business.

Typically, the more constrained an inventory set, the more likely a variable pricing strategy will yield the greatest results:

Golf tee times – variable pricing time-slot to time-slot

Eg. Golf – Due to the limited set of inventory for any given tee time, there is more of an opportunity to maximize the pricing power of say, an 8am tee time vs. a 10am tee time and a Tuesday vs. a Saturday vs. highly dynamic pricing within each of the 4 units at a tee time.

The less constrained your inventory set the more dynamic/progressive approach is needed to drive the same (pre-sale) consumer behavior:

E.g. a water park has a revenue opportunity both with day to day price variability, and moving a price for a date up/across a range of prices over time (creating inventory management at the price point level manufactures a constraint at a price instead of relying on natural constraints/sell-out risk to further drive consumer behavior).

Behind the scenes – current price of October 7th at waterpark X
What the customer sees – current price of October 7th at waterpark “X”

Events Pricing Strategy vs. Activities Pricing Strategy

There is also an important difference in pricing strategy if a business looks more like an “event” as opposed to an “activity”. Another way to think about it is how frequently something occurs as an opportunity for the customer (eg. skiing occurs every day of the winter and a concert occurs on a specific day once) and whether something is “the same thing” from instance to instance of access (eg. a soccer game occurs many times in season, but each game is a distinct opportunity given the mix of teams).

Whether what you are selling looks more like an event or an activity (and to some extent how frequently customers can replicate the experience) can determine the level of risk, if any, in “reactive” pricing tactics. Responding to negative or positive demand response, “reactive” pricing tactics can come in the form of last minute price drops (in the case of poor performance) or surge pricing (in the case of strong performance). Businesses that sell activities with frequent consumption run the risk of eroding long term consumer confidence by utilizing these strategies, whereas they can be quite effective with one-time events or activities.

The more a product looks like an event (single instance of consumption), the more opportunity there is for narrow revenue maximization and the lower risk there is in deflating future consumer confidence:

E.g. The value of a ticket to a football game is heavily tied to the teams playing such as SC Freiburg vs. Bayern Muenchen (funny example but real as I was there when Freiburg was in the 1st Bundesliga and actually saw it). This means that “reactive” pricing adjustments, both upwards in price because of demand and downwards in price because of demand are unlikely to yield a negative impact on long term consumer confidence in what you are selling.

Stuttgart vs. M. Gladbach Prices
Stuttgart vs. Wolfsburg Prices

The more your product looks like an activity (many possible instances of consumption), the more careful you have to be with narrow/reactive yield management, as your short-term profit may not be worth the erosion of future consumer confidence, impacting both customer service and conversion rates. In the long term low levels of consumer confidence encourage shopping around and lead to elevated marketing costs (because of lower conversion rates).

E.g. When the hotel industry started dropping rates last minute due to low occupancy rates, customer reaction was positive in the short term, but decreased customers confidence in buying in the future. This created downward pricing spirals, compressed booking windows and ultimately (along with price parity issues) decreased consumer confidence and paved the way for Sidestep, Kayak, and Hoteltonight to emerge as confidence boosters or last-minute channels.

I know this has been a long article, and hopefully you’ve made it this far. By now, I’ve discussed how different ticketing businesses might apply different flavors of revenue management, but wanted to leave you with a few key pieces of advice for your own implementation:

  1. Don’t use feelings, use data.
  2. Consider whether actions are impacting long term consumer confidence and therefore marketing cost structure.
  3. The more 3rd party distribution you have where you don’t control sell rates, the less opportunity you have to yield manage.
  4. If you have a large secondary market (concert tickets, event tickets, sports tickets), it is more likely that yield management will benefit the reseller, but if you get better you can remove some of that margin loss.
  5. Consider your goals, technology, data and team.
  6. You can only do so much!

Post Author: liftopia

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