Business Monday

What Elton John and Fleetwood Mac can teach you about pricing

SNITZER
SNITZER

Elton John and Fleetwood Mac are rock-and-roll superstars. Five decades into his career, Elton John just finished a packed concert at Miami’s American Airlines Arena. Fleetwood Mac is coming to town on March 21st.

Together, they’ve sold more than 400 million albums, with dozens of recordings going “Gold” and “Platinum.”

That financial success has been good for them, their record companies, their concert venues, their branded merchandise sellers and also for ticket scalpers, who have marked-up Elton John and Fleetwood Mac ticket prices for decades. And the Miami performances will have been no exception.

In the final week before Elton John’s performance, ticket scalpers (or brokers as they are now called) were asking nearly $7,000 per ticket for seats right in front of the stage. The arena box office and the event’s official online ticket-seller, Ticketmaster, were sold out of these seats. But ticket brokers were still holding hundreds of great seats and were asking up to 20 times the tickets’ face value.

Prices for front and center seats to see Fleetwood Mac were headed in the same direction. With three weeks to go, ticket brokers were already asking up to $3,800 per seat.

Ticket scalping in the United States has been going on for more than a hundred years. The term is derived from a gruesome wartime practice among certain tribes of Native Americans. Ticket scalping got its start in the market for railway tickets and has since moved into ticket sales for theater, music and sporting events.

Over the past century, ticket scalping has had unsavory connotations. Scalpers’ prices have traditionally been viewed as “unauthorized.” Scalpers’ profits have been viewed as opportunistic, unfair and downright illegal. Laws against scalping go back at least to the 1920s when New York State passed a law limiting markups to no more than 50 cents above a ticket’s face value.

Years ago, when Elton John and Fleetwood Mac began performing in large venues, ticket scalpers lurked in the shadows, quietly hawking their wares on street corners close to concert venues. Transactions were strictly cash. Tickets were sometimes counterfeit; buyers beware.

But then came the Internet and ticket scalping (I mean “brokering”) went legit. First, companies like Ticketmaster created an efficient online marketplace for buying tickets via computer. Then, companies like StubHub!, which is owned by eBay, created a similarly safe and efficient online marketplace for “re-selling” tickets.

Now, it’s possible for resourceful ticket brokers to gamble by quickly amassing tickets for certain performance events and then potentially re-selling those tickets for a profit – all online.

Companies like Ticketmaster and StubHub! are somewhat pitted against each other. Ticketmaster has implemented techniques to thwart automated ticket purchases by computer programs, such as forcing buyers to decipher jumbled words. StubHub!, on the other hand, doesn’t endorse ticket scalping per se, but is committed to maintaining what they call a “fan-to-fan” marketplace - even if those fans are asking $6,925.25 for an Elton John ticket.

From a pricing and revenue management perspective, ticket brokers have a few lessons to teach. First, they show us that the spectrum of consumers’ “willingness-to-pay” is extraordinarily wide and that there’s often remaining demand at high prices when inventory is sold out. They also show that willingness-to-pay can be differentiated at a very fine level of detail. For example, the face value of tickets for an entire section at American Airlines Arena is typically set the same. But the brokers on StubHub! know – for example -- that the front row of section 108 is more valuable than seats 20 rows back and were recently asking $140 more per ticket.

So, there are two lessons learned from Elton John and Fleetwood Mac re-sale pricing. One: If you want to see rock-and-roll superstars up-close, buy a pair of high-powered binoculars. Two: If you have a popular product that’s hard to keep in stock, ask a higher price.

Adam Snitzer is a revenue strategy expert and president of Peak Revenue Performance, a consulting firm that specializes in designing and executing innovative pricing strategies. He can be reached at adam@peakrevenueperformance.com, or via the company’s website at PeakRevenuePerformance.com.

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