The dynamic pricing trend keeps accelerating with the recent announcement that the Toronto Maple Leafs will be pursuing a form of dynamic pricing. The Leafs’ policy seems to involve more of quality based pricing than any true dynamics in that the plan involves charging different prices for different tiers of games (based on opponent and game time). Some might quibble that this should be termed variable rather than dynamic pricing, but ultimately this is a form of price discrimination that can adversely affect how fans think about teams.
In our first two entries on dynamic pricing, we have discussed some basic principles of dynamic pricing (revenue management). In this entry, we begin to consider the specific challenges of implementing these practices in sports contexts. Industries that employ dynamic pricing will often make impassioned defenses of the practice. Typically, the industry defense emphasizes that dynamic pricing is “fair” because market forces are dictating prices. What could be more “fair”?
Obviously, many consumers don’t view dynamic pricing as a positive development. Dynamic pricing is something that at best makes consumers nervous, and at worst angry. This is not a surprising reaction, since dynamic pricing is at heart a system of price discrimination and inventory rationing. If we think about the connection that exists between a consumer and a firm as a relationship then these practices are obviously not going to improve the “relationship.” In the previous paragraph, we placed fair in quotes for a specific reason. Fairness is subjective and teams do not get to decide how fans feel.
If consumers accept dynamic pricing in travel industries, why should these techniques be a problem in sports? Let’s consider a couple of key differences between air travel and sporting events. First, in the airline industry, the consumers who typically pay the highest rates do not pay for their own tickets. In the airline industry, the business customer often chooses the travel options while the firm pays the price of the travel. And as a bonus, the employee collects loyalty points. A second, key difference is that air travel is purchased in order to achieve some other goal, whether it is a business meeting or a visit to a resort. In other words, air travel is a product that is purchased so that the buyer can do something else. In contrast, dynamic pricing of tickets affects the focal experience rather than an intermediary transaction cost.
A third issue is that the relationship between a fan and a team is fundamentally different than the relationship between an airline and a traveler. There is a reason why we call consumers of sports “fans” rather than “customers.” In what other categories, do consumers proudly wear the brands they consume on their clothing? For example, Manish’s wardrobe seems to consist of mainly t-shirts emblazoned with team logos and cargo shorts. In the last week I have seen Cubs, Maple Leafs and Redskins t-shirts. I raise the issue of clothing because it highlights that consumers want to have a strong relationship that includes being publically associated with the team. In marketing, we might refer to this as a desire for a “communal” relationship. In contrast, a reliance on strict demand based pricing will tend to reduce the fan-team relationship to a series of cold economic exchanges.
Mike Lewis & Manish Tripathi. Emory University 2013