The Nuts And Bolts Of Variable And Dynamic Pricing

With fewer than three months until Opening Day, major league teams are revving up their ticket-sales operations. For nearly all teams, that means working to attract new season-ticket holders, as well as single-game and mini-plan ticket buyers. Only the Giants, Red Sox and Cubs have waiting lists to become season-ticket holders. Even the Phillies — which saw a 257-game home sell-out streak end last August — are selling partial season-ticket plans on their website.

Teams use a variety of marketing tools and incentives to attract ticket buyers. There are bobble-head giveaways, fireworks nights and bring-your-dog-to-the-park days. There are food coupons and discounts at the team merchandise store. But I want to focus on the basics: the day and time of game, the opponent and the ticket price. Teams use these factors in a variety of ways to drive ticket sales and maximize ticket revenue.

We’ve heard the terms “variable pricing” and “dynamic pricing.” Occasionally, they’ve been used interchangeably, although they apply to different pricing strategies.

With variable pricing (sometimes called tiered pricing), teams set different prices for the same ballpark seat, depending on the day and the time of the game and the popularity of the opponent. Variable prices are set before the season begins. The goal is to drive demand for certain games with low prices and maximize ticket revenue for high-demand games with high ticket prices.

For example, the Mariners divide their home games into four levels: Single, Double, Triple and Home Run. Games designated “Single” are Tuesday and Wednesday evenings against teams that don’t draw big crowds (Astros, A’s, Tigers and Royals). Tickets for these games are the least expensive ones available all season. “Home Run” games include Opening Day, and series against the Yankees, Red Sox and Cubs. Those are the most expensive. “Double” and “Triple” game ticket prices fall somewhere in between.

Most teams use variable pricing of some sort, particularly with mini-plans. Weekend game mini-plans are more expensive than weekday game mini-plans, for the same number of games, and for the same seats. The same may very well be true for single-game tickets, although that’s difficult to verify because many teams haven’t listed prices for single-game tickets or put single-game tickets on sale for the coming season.

But some teams use variable pricing even for full-time season-ticket holders — the fans who purchase season tickets to all 81 home games. The Mariners are one such team, and they say so explicitly on their website. Same with the Twins, Braves and Mets. But for other teams, that information isn’t as readily available. I’m a Giants season-ticket holder, so I know San Francisco uses variable pricing for season tickets, even though that information is not available on the team website. Season-ticket holders for the Cubs provided me with a chart that shows variable pricing tiers for a full season of tickets at Wrigley Field. Rays, Phillies and Cardinals fans reported variable pricing for their full season-tickets, as well.

Dynamic pricing uses algorithms to measure demand and price sensitivity to a particular game on a real-time basis. Many factors are considered, including the weather, a winning or hitting streak, the debut of a hot prospect and the price tickets are selling for on the secondary market, like StubHub. Pricing consultants crunch the numbers and then the teams to decide whether to raise or lower the ticket price for a particular game and by how much.

The Giants were the first to adopt dynamic pricing for single-game tickets. In 2009, the team used dynamic pricing on 2,000 seats in the upper deck and bleachers at AT&T Park. They sold an estimated 25,000 additional tickets, for an additional $500,000 in revenue. In 2010, the Giants expanded the program to all ballpark seats and it’s been quite successful in the past three seasons. The Giants think the dynamic pricing model helped the team’s sellout streak, which now is at more than 155 games.

After the Giants’ success, the A’s and Cardinals adopted dynamic pricing for single-game tickets. Then the Padres and Braves joined the bandwagon. By the 2012 season, 17 out of 30 MLB teams used dynamic pricing in some fashion, according to TicketNews. In addition to these fives teams, I was able to confirm that the Blue Jays, Twins, Rangers, Phillies, Pirates, Cubs, Brewers, Diamondbacks and Rockies also use some form of dynamic pricing. I do not know the three other teams that used dynamic pricing in 2012.

Major League Baseball, through MLB Advanced Media, maintains a common platform for ticket sales, but each team makes its own ticket-price decisions, whether it be variable pricing, dynamic pricing, mini-plans or flex plans. According to Mark Plutzer, Vice President for Ticketing, MLBAM helps teams interested in dynamic pricing by vetting the pricing consultants but, ultimately, the decision on whether to use dynamic pricing and with which vendor is the team’s to make. Plutzer identified four pricing consultants currently used by MLB teams: Qcue, Digonex, Stratbridge, and Ticketmaster.

Plutzer wasn’t in a position to identify which teams will use dynamic pricing in 2013 but there’s no doubt it’s a growing trend. In fact, dynamic pricing is one of several tools teams can use to capture ticket sales lost to StubHub, MLB’s official secondary-market ticket partner. By monitoring ticket prices on StubHub, and incorporating that information in their dynamic pricing algorithm, teams can adjust their ticket prices to better reflect real-time supply and demand. In other words, when the secondary market has tickets available for $5 for a Tuesday night game in August, a team with hundreds or thousands of tickets available can compete by lowering its ticket prices and offering other benefits, like food coupons or vouchers for future game tickets.

Gone are the days of one-price-fits-all for major league games. Teams have a variety of tools available to more precisely meet the demand for tickets at the right price. With league-wide attendance somewhat stagnant in 2012 (putting aside the bump from the opening of the Marlins’ new ballpark), teams will continue to look for creative, cost-effective, and revenue-maximizing ways to get more fans out to the ballpark. Most teams, anyway. The Yankees, so far, have resisted a move toward dynamic pricing, despite having the loudest complaints about MLB’s contract with StubHub. Indeed, the Yankees opted-out of the latest MLB-StubHub arrangement and will work with Ticketmaster on the secondary-ticket market instead. (The Angels and Cubs opted-out, as well.) It will be interesting to see whether the Ticketmaster arrangement will stabilize the Yankees’ single-game ticket sales.

And the fans? No one likes paying more for the same product. But StubHub and other secondary-market ticket sellers already put fans in similar seats at the same game at different ticket prices, and fans flock to that service. Teams just want their share of the real-time demand for their product.