The latest version of dynamic pricing is Northwestern’s purple pricing. We pointed out a while back that this program seemed primarily designed as a means for extracting revenue from visiting fans. This video explains in more detail how the system works and how it contains advantages for fans. From a consumer behavior perspective, the purple pricing system contains a significant benefit. The system starts with a high price and prices decrease until the section is sold out. Customers are protected as the price eventually paid is the LOWEST price at which tickets are sold.
So how does purple pricing compare to other dynamic pricing efforts? Perhaps the biggest difference is that the price structure is largely dictated by the school rather than the market. In NU’s program the school sets the initial price and from there the prices can only come down. This means that NU can potentially be leaving revenues on the table. The second and more subtle factor is related to how the system impacts consumer’s decision making process. The system pushes consumers to buy quickly at higher prices in order to avoid being left out. The system compensates by providing the safety net of all consumers paying the lowest price. The system works for Northwestern if the fear of being left out leads consumers to pay a bit more than they would like. If enough consumers feel this pressure then the low price guarantee is irrelevant. In this way, purple pricing transfers risk to consumers. Of course, while this transfer of “pricing” risk might have negative implications for customer relationship management, the Northwestern program seems much more targeted to extracting revenues from Michigan and Ohio State fans.