I Love Going to See The Who Live in Concert…at a Discount of Course!
One of my primary messages is that your price should be set to capture the value of your product or service. What’s interesting about your product’s value is that it fluctuates wildly and it may come as a surprise that you don’t have as much control over your product’s value as you might think.
My mother was kind enough to read early drafts of my book. One evening, with a hint of exasperation, she called with a question that many of you probably share: “Rafi, you keep talking about value. I get it! But how do I actually determine my product’s value?” Well, in chapter 5 of The Art of Pricing as well as the Pricing Tool section of this site, I offer a Value Decoder tool to help you determine your product’s value.
When someone offers me something “new,” I tend to get nervous. I worry whether the thinking is complete or if all of the bugs have been worked out. You may be wondering the same about the Value Decoder. Rest assured, you can trust the Value Decoder as it is based entirely on a fundamental concept of microeconomics, the demand curve. Check out any microeconomics textbook and you’ll see that the key elements of a demand curve (substitutes, income, complimentary goods – which I call “price changes of related products,” and exogenous variables – which I call “market environment changes”) are exactly the same elements the make up the Value Decoder. So use the Value Decoder in confidence, it’s simply a managerially friendly adaptation of the demand curve.
I’m fortunate to live a 15 minute walk away from the TD Banknorth Garden (the corporate name for the Boston Garden). As an avid rock music fan, I try to catch most of the major acts that play there. My strategy for getting tickets is rather unorthodox. Instead of lining up to purchase the minute shows go on sale, I always show up to concerts without tickets and bargain with scalpers or people selling extra tickets. To further complicate the process, my goal is to pay less than half the retail ticket price. And to even further complicate my life, I will only sit in rows 5 through 15 of four key sections (13, 14, 21, 22) of the Garden – which are arguably the best seats in the house. As a sidebar, I’ve been pondering lately if I am becoming too demanding and put too much pressure on myself…
Some friends claim that part of my enjoyment of attending concerts is this ticket buying experience. I don’t disagree, as I thrive being in the midst of this dynamic pricing environment. The face value (plus assorted extra charges) of a Who concert ticket (with the Pretenders opening up) was $215. You can imagine my happiness when I showed up, 15 minutes before the show was scheduled to start, and found a wealth of available tickets. You may be wondering, who are selling tickets 15 minutes before a show is scheduled to start? There are two primary types of sellers. First, yuppies trying to relive the good old days. These yuppies use every trick in the book to get great seats so their friends can to relive the nostalgia of yesterday. But what inevitably occurs is that some “friends” end up canceling at the last minute. Excuses run the gamut from work, can’t find a baby sitter, or my personal favorite, “I’m tired” (usually defensively accompanied with “you don’t understand the pressure I’m under”). The other seller segment is scalpers. These small businessmen sell left over tickets from their inventory but primarily act as middlemen by purchasing extra tickets from yuppies (who don’t want to deal with the hassle) and reselling them for a profit.
With so many great tickets on the market, the negotiations began in earnest! The game with each seller was similar, demands for “face value” dropped to $150 and then, with a sense of defeat, to $120. Enjoying the moment, I pushed for $100 but everyone demurred…I’d leave each negotiation with the friendly reminder that “I’ll be here.” Ten minutes later, I was stunned…while there were still tickets available, all of the great seats had been sold. I was upset at myself for being so thrifty (ok…cheap). At 7:30, as the Pretenders were coming on stage, a scalper materialized with tickets in section 14. With few buyers around, I pressed my case for $90 each and a few minutes later, he relented! Enjoying the smug feeling of negotiating a great deal, we happily arrived at our seats before the end of the first Pretenders song.
The concert was outstanding! Pete Townsend is still a master of the guitar and his windmill guitar moves remain exciting to watch. Roger Daltry looks great and can still belt out the group’s greatest hits with style (though I wonder if it is really his live blood curdling scream during “We Won’t Get Fooled Again”). The only downer of the night occurred when the guy next to me enquired how much I paid for my seats. Not wanting to hurt his feelings (assuming he had paid full price or even a premium), I humbly replied “$90 each.” To which he replied, “oh, I sold them to a scalper outside for $75 each.” Even the guy that wrote the pricing book doesn’t always get the best deal!
When you think about it, this experience illustrates the key principles of the Value Decoder and the fluctuating nature of value. My bet is the day after the concert went on sale (when all of the good seats had been sold), the tickets I purchased for $90 could have been sold for $400 each because of their great location. A day or two before the concert, those tickets could have sold for a small premium. Even at the concert, the value constantly varied depending on: how many other good tickets were available, how much time was left before the show started, who was buying the ticket (an aggressive talking scalper or a fan dressed in jeans and a polo shirt), etc.
This experience also illustrates how little control sellers have over their product’s value. Think about the guy that initially purchased the seats I ended up sitting in – he had little influence over his tickets’ value as they dropped from $400 to $75.
Have a question or comment, please feel free to send them to me!
