UCFB programme leader for BA (Hons) Football Business and Finance Ian Tomlinson gives his insight into dynamic pricing in football.
Read what he says below…
At the time of writing, England had just reached the final of the Euros and it is clear that fans will pay just about anything to get there and be part of the occasion.
Tickets for the final were reported to be in excess of £2,500 each, with the cost of flights to Berlin increasing by 450 per cent.
However, there are many factors that fans will take into consideration when deciding whether to pay for a ticket and how much they are willing to pay. It is this data that is used in the strategy of Dynamic Pricing.
Dynamic Pricing may appear to be a new strategic model and option. However, in reality, it is in fact the oldest form of pricing. Prior to the price tag, which was invented in the 1870s, prices were dynamic (ever-changing) and determined through haggling to find a price that both parties were happy to exchange at. Both parties would use their own set of variables in the calculation of their price parameter.
It was due to the time-consuming and complexity of its nature that Dynamic Pricing was eventually replaced with the price tag. However, the upsurge of technology (the internet making its entry into the commercial world in the 1990s and the emergence of e-commerce by 2000), together with its ability to handle large volumes of data, led to Dynamic Pricing being re-birthed.
American baseball was one of the first to trial the pricing strategy when San Francisco tested the concept on 2,000 of its 41,500 seats, using variables within its data to align the price. The result was an increase in revenue of a reported half a million dollars, an increase of 20 per cent on the 2,000 seats at the end of 17 games.
As for football, Derby County FC was the first club to adopt Dynamic Pricing in 2012. A study published in the European Sport Management Quarterly showcased dynamic pricing within the club (Fig.1).
The ticket prices, and their movement throughout the days prior to kick off in the 2013/14 season, show how Derby County FC implemented Dynamic Pricing to maximise their revenue.
Dynamic Pricing in football was highlighted once again when in 2012-13, Derby County FC signed a deal with pricing technology firm Digonex, which led the club into using their Sports and Entertainment Analytical Ticketing system, appropriately known as “SEATS”.
Changing the ticket price depending on a set of matrices, including elements such as opponent, league position and performance as well as time, day and even the weather forecast, led to the ability to ensure maximised revenue with a fixed supply of tickets/seats, thus enabling the club’s business aim to ensure profit maximisation.
There have been many academic and non-academic discussions around the argument as to whether football clubs are, or are not, a business.
However, when it comes to pricing, there clearly needs to be a balance between the business desire for maximum profit generation and the need for football to look after its working class fans and its cultural significance, especially where demand consistently exceeds supply.
Football clubs need to focus on obtaining the balance between short term (economy and finance) and long term (relationship and community). If they manage to get there, only time will tell.
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