Monday, December 15, 2008

Giant Effort for Micro-Gains:
Airline Pricing for the Cheap Seats at {Insert Telecommunications Company Name Here} Park  

Innovation in Baseball and Beyond are constrained by the same gravitational fields. Two are particularly important.

As anthropologist H.G. Barnett documented, most successful innovations that have significant impact takes methods from one endeavor and apply them to another field. So, for example, new ways of strengthening Indian baskets were borrowed by potters to strengthen pots; internal combustion, developed for decorative fountain applications, was borrowed by automobile manufacturers as a basis for a vehicle engine.

If you want to come up with a functional innovation, borrow something from another field. (This is not, btw, the most common form of innovation. The most common form is one of the weakest -- intensification, or doing what you did before but harder). Note, though, I didn't use the word "clone" or "copy" in the section header -- you grab it, and in almost every case, you need to mutate the process or practice to make it fit your new application for it.

Here's what I mean: If you're selling liquid dish soap and have a 20% market share in an arena where the big competitors have 20-30%, adding a new variety with a different commonly-used scent could earn you a 23-24% share, but isn't likely to change the playing field. A scent like Roasted Garlic or New Car or "Acqua Di Gio By Giorgio Armani," combined with a 64 oz. dispenser that works like a fire extinguisher might earn you a vast uptick that could change your entire competitive position because you're remaking the consumer sense of what dish soap is all about, or it might leave you the Laughing Stock-Master of Infinite Edselism (even if you can sign up Austin Kearns as your celebrity soapsperson).

that we'll get to see how the San Francisco Giants' ticket scheme of the year plays out. According to a recent story in the San Jose Mercury News:

The Giants and QCue, a start-up based in Austin, will team up on a variable-pricing strategy that will use reams of data to determine how much they should charge for 2,000 tickets at AT&T Park, adjusting the prices in 25- or 50-cent increments daily leading up to a particular game.

"As more information becomes available and you get closer to the game, you can really fine-tune what that ticket price should be," said Russ Stanley, the Giants' vice president of ticket services. "In reality, ticket brokers have been doing this for 100 years."

The basic model is common among commercial airlines. Relative prices might be very cheap or expensive four months in advance based on what the seller projects demand to be, but over time, the price might sag if fewer-than-expected buyers have taken the plunge relative to expectations for that many days ahead of the flight. In the handful of days remaining before the flight, the price for remaining tickets can be volatile (though usually expensive).

QCue, the brainchild of two Ph.D.s at the University of Texas, uses an algorithm that goes way deeper. It looks at the specific day, opponent, weather forecast, advance sales 30 or 60 days out, and any other factors that could come up. (For instance: Next year is one for experimentation. Got to believe they're going to track the effect of Tim Lincecum starts.)

The result is a new way to move 1,500 view reserved seats that normally cost from $20 to $32, as well as 500 bleacher seats that go for $18 to $33.

Although the computer will analyze the data, the Giants will set the price. "We're giving them a lot of oversight," QCue's Barry Kahn said. (Russ Stanley, the Giants' vice president of ticket services) said the Giants want to "protect" season-ticket holders and group-ticket purchasers who paid face value for their seats. So the discounts are likely to be a few dollars per seat at the most, even if the computer sees thousands of unsold seats and might be inclined to suggest a fire sale.

I don't know if this can be made to work or not. If it's just a way to squeeze marginal fans for a few extra bucks for some marginal tickets (the seats involved are among the least passionately-chased already), it'll probably work out decently and acquire the team some extra revenue, but probably enough to pay a rookie utility infielder major league minimum pay, if even that. 

If they use it to fill seats with discounted (even only slightly, even if only by low-ballers who would respond to $2 or $3 off) prices it should work better, because it's likely they'll come out ahead on concessions (which usually mean more than the $2 or $3 net).

Still, they're starting with a smallish pilot effort, a better idea that either rejecting the concept out of hand or committing a lot of credibility and resources to it.

My gut tells me that this is being driven, though, more by the technology than the concept -- what I call Tellerism that if you have a technology, you have to use it for something and ignore whether that something is worthwhile or positive. That is, if the program exists, you might as well use it.

And the Giants' ticket services vee-pee notes the program's suggestions won't really be implemented -- because, unlike airline tickets, there are season-ticket and group-purchase customers who would be offended if they saw some small fry walk up on the day of game and get better prices than what they (higher value to the team through certainty and bulk) paid.

It's a great idea on the surface, but needs to be bent and tweaked enough for the Baseball context that it probably won't work to change things very much. I suspect that premium-pricing itself will take most franchises a few years to "sell", that is, for average buyers to see without feeling gouged a little. A broad swath of teams are deploying premium pricing for special days of the week and particular opponents. When they keep it very simple, and for special occasions, I think it's a reasonable idea for up to maybe two games a month. Beyond that, I think it creates more confusion than revenue, and confusion can diminish good will, which is the true stock-in-trade of a major league baseball franchise.

And good will is the idea behind a modest proposal I'm about to make for all the teams that have numbers of unused or unsold tickets they find disturbing. After the first inning, give a few thousand less-desirable seats and a simple kids scorecard away to any child between 7 and 14 who brings a paying adult. The parent gets a two-for-one deal, the team gets concession revenue, the team gets more noise and fewer empty seats, and, best for them, a long-term affiliation like the St. Louis teams used to get from their Knothole Gang ticket giveaways.

That's another kind of innovation I hadn't discussed - re-applying in a modified way a process that worked perfectly well but was discarded for reasons other than function.

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