A Quick Note: Dynamic Pricing and the Reds

The Reds are one of several organizations that have made the news this summer due to their use of dynamic pricing.  This article suggests the Red’s experience with dynamic pricing seems to be a success.  We did, however, note couple of interesting passages from the article.

“A lot of changes start about two weeks before a game, when officials have a handle on what demand is like.”

This one is interesting because it highlights one of the challenges of dynamic pricing that is a particular issue in sports.  The issue is information quality.  In order to implement effective dynamic pricing, the organization needs an accurate demand forecast.  A problem that occurs when organizations switch to dynamic pricing from a fixed pricing regime is that previous demand data is of limited use as it was generated when prices were fixed.  In other words it is tough to understand the relationship between price and demand when prices have previously been fixed.  As the Reds gain more experience they will likely begin to customize prices more quickly.

“The Reds didn’t comment and don’t seem eager to talk about dynamic pricing.”

This is an interesting observation that indicates the Reds are concerned about how dynamic pricing will impact their customer relationships.  Whenever dynamic pricing is implemented, some consumers will pay higher prices than other consumers.  A key element of dynamic pricing implementation is therefore how to create a structure that minimizes feelings of “unfairness.”  We will have more discussion of customer relationships and the fairness of dynamic pricing in future entries.