Ticketmaster, the largest ticket sales and distribution company in the United States, first introduced dynamic pricing in 2011. Dynamic pricing, also known as surge pricing or demand-based pricing, is a pricing strategy that uses data and algorithms to adjust prices in real time based on current market demand.
What is dynamic pricing?
Dynamic pricing refers to a pricing strategy where prices fluctuate over time based on current market demand. With dynamic pricing, prices are not fixed but can change frequently based on factors like:
- The popularity of the event/artist
- Current ticket sales and availability
- Proximity to the event date
- Seasonality and day of week
The goal of dynamic pricing is for companies like Ticketmaster to maximize revenue by charging higher prices when demand is high and lower prices when demand is low. The pricing algorithm takes into account historical sales data, current sales patterns, and expected demand to predict optimal pricing levels.
Airlines and hotels commonly use dynamic pricing models to adjust prices based on fluctuations in demand. Ticketmaster brought the dynamic pricing strategy to the live event ticketing industry starting in 2011.
Why did Ticketmaster adopt dynamic pricing?
There were several key reasons why Ticketmaster first implemented dynamic pricing in 2011:
- Maximize revenue – Dynamic pricing allowed Ticketmaster to capture more value during periods of peak demand.
- Undercut secondary market – Ticket resale sites like StubHub were profiting from high-demand tickets. Dynamic pricing enabled Ticketmaster to recapture some of that lost revenue.
- Consumer demand – Consumers were used to variable pricing from airlines and hotels. Adopting a similar model for events aligned expectations.
- Data capabilities – Ticketmaster had enough sales data, demand analysis, and algorithmic capabilities to implement dynamic pricing models.
Dynamic pricing represented a major shift for the live event ticketing industry. But Ticketmaster saw an opportunity to better align pricing with consumer demand and maximize per-ticket revenue.
How does dynamic pricing work on Ticketmaster?
Ticketmaster utilizes a demand-based pricing algorithm that dynamically adjusts prices in real time based on multiple demand signals. Here is an overview of how it works:
- Forecast demand – Ticketmaster analyzes historical sales data, search traffic, and other demand factors to forecast demand and set initial pricing.
- Adjust for market response – As tickets go on sale, Ticketmaster monitors sales velocities and updates pricing based on market response.
- Leverage external factors – As the event nears, Ticketmaster incorporates external factors like weather and competitor pricing to optimize prices.
- Account for time variability – Ticket prices will adjust not just based on overall demand but also the buyer’s proximity to the event date.
- Set price floors and ceilings – Ticketmaster sets pricing floors and ceilings so prices don’t fall below costs or rise above perceived value.
Ticketmaster developed proprietary machine learning algorithms that factor in all of these variables in real time to dynamically adjust pricing on their platform. The company manages pricing on behalf of the events, sports teams, and venues they service.
When did Ticketmaster first roll out dynamic pricing?
In early 2011, Ticketmaster announced the initial rollout of dynamic pricing to select concert venues and events. Some of the first events to use dynamic pricing included:
Performer | Venue | Date |
---|---|---|
Miranda Lambert | Mohegan Sun Arena | February 17, 2011 |
Straight No Chaser | Meyerhoff Symphony Hall | December 23, 2011 |
Tim McGraw | Toyota Center | July 15, 2011 |
The Avett Brothers | Hard Rock Live Orlando | October 2, 2011 |
The initial rollout was relatively small and focused on a select group of partners. But it marked the first introduction of demand-based pricing in the live entertainment industry by Ticketmaster.
How did fans respond to dynamic pricing by Ticketmaster?
The response to dynamic pricing by fans was mixed:
- Anger over high prices – Some fans expressed outrage over skyrocketing prices during periods of peak demand.
- Distrust over motives – Critics argued it was a money grab by Ticketmaster driven by greed rather than necessity.
- Confusing fluctuations – Fans were confused by rapidly shifting prices for the same tickets.
- Support for fairness – Some appreciated that dynamic pricing made high-demand tickets accessible to whoever was willing to pay the market price.
- Used to the model – Over time, many fans accepted dynamic pricing as standard practice, much like airline tickets.
While there was some initial pushback, dynamic pricing quickly became an accepted norm in the live entertainment space, for both fans and artists.
How did dynamic pricing impact the secondary ticket market?
The adoption of dynamic pricing by Ticketmaster had major implications for the secondary ticketing market as well:
- Reduced secondary market profits – By raising prices in response to demand, Ticketmaster captured revenue that otherwise would have gone to resellers.
- Narrowed gap between primary and secondary markets – Dynamic pricing narrowed the pricing gap between the official Ticketmaster site and resale sites.
- Secondary sites adopted dynamic pricing – StubHub, VividSeats and other secondary marketplaces soon adopted their own dynamic pricing models.
- Secondary market still active – Despite dynamic pricing, ticket resale remains big business as brokers still leverage scarcity.
While Ticketmaster dynamic pricing cut into some secondary market profits initially, secondary ticketing remained a multi-billion dollar industry.
How widespread is dynamic pricing in ticketing today?
Since its inception at Ticketmaster in 2011, dynamic pricing has now become a standard practice across the global live entertainment industry. Its adoption has spread through:
- Expansion across Ticketmaster – Now used across the majority of Ticketmaster’s events and partners.
- Adoption by other primary ticket sellers – Rival ticket companies like AXS and eBay Tickets also use dynamic pricing.
- Use across live entertainment – Dynamic pricing now commonplace for concerts, sports, theater, and other live events.
- Global expansion – International markets like the UK, Europe, Australia also now utilize demand-based pricing.
While fans may still complain about the practice, dynamic pricing is now well-established and widely-used for the majority of high-profile live entertainment events.
What technology powers dynamic pricing in ticketing?
Implementing dynamic pricing requires sophisticated technology and algorithms. Here are some of the key technologies that enable dynamic pricing:
- Predictive analytics – Forecasting models that analyze past demand across millions of tickets to predict future demand.
- Machine learning – Adaptive algorithms that optimize pricing strategies based on learned data patterns.
- Automated pricing software – Platforms that rapidly adjust pricing across massive ticket inventories.
- Elastic cloud infrastructure – Cloud servers that handle real-time pricing calculations at massive scale.
- Data integration – APIs and services that import external data like weather into pricing models.
Without modern data science and cloud computing capabilities, it would be impossible for Ticketing platforms to implement dynamic pricing at their current scale. The technology behind dynamic pricing has advanced considerably since 2011.
What are the benefits of dynamic pricing in ticketing?
Here are some of the major benefits that dynamic pricing offers to various ticketing stakeholders:
- For ticket sellers – Maximize per-ticket revenue, sell more of total ticket inventory, respond instantly to market demand shifts.
- For venues/performers – Get fair market value for high-demand events, avoid underpricing and lost revenue.
- For fans – fairer system for high-demand tickets instead of first-come-first-serve model.
Dynamic pricing leads to a more economically-efficient ticketing market that better matches supply, demand, and perceived value.
What are the downsides of demand-based ticket pricing?
While dynamic pricing has its benefits, there are also criticisms of the practice by consumer groups:
- Unpredictable, volatile prices frustrate fans.
- Unethical price gouging during peak demand periods.
- Pricing out fans unwilling/unable to pay constantly fluctuating prices.
- Determining fair market value is subjective and controlled by the seller.
Given these concerns, there are calls for greater transparency and tighter pricing regulations on ticket marketplaces by policymakers.
Does dynamic pricing increase or decrease prices on average?
Research indicates that on average, dynamic pricing has led to a net increase in overall ticket prices:
- Average NFL ticket prices rose 12% faster since dynamic pricing was adopted in 2012.
- Average MLB ticket prices are up 70% faster since demand-based pricing was introduced.
- Average concert ticket prices were $26 higher in 2017 compared to 2011 when dynamic pricing started.
While prices drop during low-demand periods, the ability to raise prices far above face value during peak periods leads to higher prices overall.
Are there any protections against extreme price spikes?
In response to concerns over predatory pricing, some protections have been put in place:
- Artist-mandated price ceilings – Some performers place limits on how high tickets can be priced.
- Face value caps – Tickets are not allowed to exceed a certain threshold over base face value.
- Service fees capped – Some ticket fees are capped at a fixed amount per ticket.
- Disclosure requirements – Pricing policies and fees have to be disclosed upfront.
However, most regulation remains voluntary or inconsistently enforced. There is still risk of extreme price spikes driven by unfettered algorithms.
Does dynamic pricing increase limited or worst-seat ticket availability?
In theory, dynamic pricing should optimize the price of specific seats and increase availability of both the best and worst inventory. However, critics argue:
- Fewer seats held back for public on-sales, more reserved for pre-sales.
- Cheap seats still snapped up instantly by brokers using bots.
- Cheapest prices only available right before selling out.
Dynamic pricing hasn’t necessarily resolved complaints about lack of access to affordable tickets due to broader industry practices.
Could personalized pricing ever replace dynamic pricing?
While not yet commonplace, personalized pricing is an emerging concept in ticketing:
- Prices customized to individual consumer willingness to pay.
- Factors like consumer location, purchase history, and browsing behavior.
- Enabled by deep consumer data profiling and segmentation.
- Airlines and e-commerce sites use forms of personalized pricing.
Personalized pricing faces consumer opposition due to privacy concerns. But could gain traction long-term with advances in consumer data.
Conclusion
The introduction of demand-based dynamic pricing by Ticketmaster in 2011 marked a pivotal change in the live event ticketing landscape. While initially controversial, dynamic pricing has now become a standard practice across the industry based on its revenue maximization benefits. But concerns still persist around equitable access, price caps, and consumer protections given dynamic pricing’s impact of increasing average ticket prices. The future may see even more advanced pricing models like personalized pricing emerge. But for now, dynamic pricing based on market demand factors remains the industry norm for high-profile live entertainment events.