7 lessons on dynamic pricing (courtesy of Bruce Springsteen)

Some fans were outraged when man of the people Bruce Springsteen charged more than $5,000 per seat for his upcoming gig. The high prices were the result of a dynamic pricing system, in which prices are adjusted upwards in response to high demand. This controversy illustrates seven lessons for managers to keep in mind when adjusting prices, including the need for clear communications, the expectation of long-time customers that they deserve a discount, and the fact that high prices raise expectations for quality and service.

Bruce Springsteen recently sparked an uproar by using dynamic pricing for tickets to his 2023 US concert tour. Dynamic pricing is the strategy of constantly adjusting prices in response to demand, a practice consumers are accustomed to when purchasing airline tickets and booking hotels. In recent years, sports teams have started using this technique and Ticketmaster now offers musical artists the option of using it for concert tickets as well. As a result of Springsteen’s decision to allow Ticketmaster to use dynamic pricing, tickets for some of his shows have reportedly soared to over $5,000.

Fans were upset that Springsteen — a longtime working-class advocate — was charging such high prices. Some have accused him of fraud. The controversy surrounding Springsteen’s new pricing strategy has several lessons for companies beyond the music industry. Here are seven:

1. Customers don’t want to be surprised by prices.

Prior to the on-sale date, no indication had been given of the extent of the use of dynamic pricing or how high the prices would be. It was unexpected and caused outrage.

The lesson here is clear: companies need to clearly explain a new pricing strategy to customers before it is implemented. After the initial outcry, Ticketmaster reported that only 11.2% of tickets were dynamically priced and the rest were sold at fixed prices, with the average price below $300. Only 1.3% of tickets sold exceeded $1,000. It’s not obvious: if Springsteen and his team had been so inclined, each concert ticket could have been dynamically priced. But the failure to communicate this strategy ahead of time has left fans confused and upset.

2. Don’t be afraid to challenge pricing myths.

I regularly hear a variety of unsubstantiated sayings from managers about why their prices can’t be changed, such as “we can’t raise our prices above a certain competitor”.

Instead of following these types of missives by heart, it’s crucial to push back and ask: is this really true? In this case, the dominant myth could be: if you are considered a friend of the working class, you must set equal prices. But is it really true? Other socially progressive luminaries did not feel it. Prices for Michelle Obama’s 2019 book tour reached $4,200 and fourth-row seats for the “An Evening with the Clintons” event in Seattle were $829. Interest in Springsteen’s upcoming concert was so high that a Philadelphia promoter claimed it was “encountering the greatest demand for tickets in Philadelphia music history.” Is the Boss required to set prices considerably lower than what the market will pay for all seats, even the best ones? I do not think so.

And remember, for each concert, a significant number of tickets are bought by resellers as well as fans who buy “extras” to resell them for a profit; When artists raise their prices, the economic rationale is that much of the profit they make would otherwise go to dealers, not fans. A survey of attendees at a Springsteen concert in October 2002 found that 28.1% of tickets had been resold, with an average markup of 240%. It may therefore make sense to challenge these myths, if properly implemented.

3. You don’t have to give low prices to loyal customers.

One of Springsteen’s pricing complaints is that he was exploiting longtime fans, who have been paying to watch his shows since the 1970s. It’s natural to be grateful to longtime customers. Remember that they bought out of self-interest, not charity, and they don’t necessarily get a lifetime discount. On previous tours, fans got a fantastic deal because for some reason Springsteen preferred to price all tickets below market price. In my experience — I’ve seen Springsteen in concert about 40 times, and yes, I’ve purchased tickets to his 2023 shows — his energetic performances have yielded the greatest dollar-for-dollar value in concert history. .

However, for companies that set prices for goods or services purchased more frequently than concert tickets, when implementing a large price increase, I recommend slowly transitioning to existing customers when that is possible. Instead of raising prices immediately, let them know that as a VIP, the boost will be phased in over a longer period of time. This prevents sticker shock and conveys appreciation.

4. Low prices can devalue a product.

Springsteen’s history of charging below-market prices has conditioned fans to expect them. This illustrates the dangers of extending discounts.

Startups often ask me if they should give deep discounts to initial customers, because as a startup these companies tend to be happy just to have a few initial customers. I urge them to proceed with caution. Failing to defend the value of your product by discounting to get early sales can be problematic when it comes to focusing on profit.

5. Be aware of the expectations that come with a high price.

Springsteen did a show on Broadway in 2017 and raised similar hullabaloo by charging $850 for the most desirable seats. The show received critical acclaim (including winning a Tony Award) which justified the price tag. That said, with a $5,000 prize money associated with the upcoming tour, expectations will be high. Springsteen’s habit of starting tours playing a significant amount of new material can be off-putting to fans who have come for his 70s and 80s hits – and if they’re unhappy, they’re likely to stream their dissatisfaction on social networks. Even if the buzz surrounding the gigs is low, the beauty of the price and value is that it’s simple to change both.

There are already rumors that Springsteen’s 2023 debut dates will be followed by a stadium tour starting next August. If the spring tour doesn’t meet fan expectations, Springsteen could drop prices and focus on his “greatest hits” for stadium dates.

6. The stated willingness to pay is probably not accurate.

In order to determine an optimal price, market research techniques such as a Van Westendorp analysis ask participants questions about their willingness to pay. I know several people who have paid over $1,000 for a ticket to upcoming Springsteen dates. Since this amount was so out of their expected norm, they would never have stated it in a survey. At least for these diehard customers, their answers to these types of pricing questions would underestimate their true willingness to pay. This is an example of how market research does not always reflect reality.

7. Your profit is not your customers’ concern.

Some have argued that since Springsteen recently sold his catalog for around $550 million, he’s rich and shouldn’t charge high prices. Similarly, many of my B2B clients are afraid to charge prices that capture the value of their products because increased profits will be reflected in their annual revenue report. They fear that this will upset their customers and cause them to ask for discounts. That’s when you need to confidently say, “if you can find better value, take it.” Even if you are a publicly traded company and your profit is known, customers will buy as long as the price of a product is commensurate with its value.

Rising prices are rarely a frictionless event where customers easily agree. It is inevitable that some will complain and perhaps not buy. In such cases, the most important thing producers need to focus on is making sure the price is backed by value. Whether or not Springsteen’s pricing strategy is considered a success will depend on his “it was worth the price” concert performance. Given his track record of innovation and dedication to perfection, my bet is on Bruce.

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