Kevin Trahan
By (@k_trahan)
Feb 15, 2013

by Kevin Trahan (@k_trahan)

At last week’s press conference announcing Northwestern’s partnership with the Chicago Cubs, athletic director Jim Phillips noted the university’s attempt to always be a step ahead. That philosophy has now extended to ticketing, with the announcement of the new Purple Pricing plan, a collaboration between NU’s economics department and its athletic department.

Purple Pricing is a new kind of dynamic pricing, which matches ticket prices to demand, but with a wrinkle different from typical dynamic pricing systems: the price of tickets will only go down. Northwestern released the plan — a type of Dutch Auction — earlier this week for the home games coming up against Ohio State and Penn State. Here’s the plan in a nutshell, according the the release.

This price may decline as the game date approaches, it will never increase.

You are protected if the price is reduced after you purchase because you will be refunded the difference. If you bought a 200 level seat we will refund you the difference between the final 200 level seat price and the price you paid. (Similarly, if you bought a 300 level seat we will refund you the difference between the final 300 level seat price and the price you paid.) That’s the Purple Pledge.

So you have nothing to lose by securing your seats right away because the final price you pay will be the best price you could have paid by waiting.

It’s a revolutionary concept that should help fans get the fairest possible price for tickets, and it’s yet another way for NU to stand out in the crowd.

“I think sports business is very much a copycat type of industry,” Shawn Sullivan, Northwestern’s Director of Marketing, said. “As far as we know, this has never been done before, pro or college sports.”

Building the Model

While Purple Pricing is a joint project between the athletic department and the economics department, the idea for this program first came from Jeff Ely, an economics professor at Northwestern, and Sandeep Baliga, an economist at the Kellogg School.

“We had the initial idea to do something related to pricing,” Ely said. “Research was our initial motivation. It’s nice to have on campus and athletic department, which for kind of selfish research reasons, we can think of as a laboratory for the study we wanted to do. But of course we also saw that it would benefit them. That kind of synergy is what makes things happen; it probably wouldn’t have happened otherwise.”

For the athletic department, it was an opportunity to work with some of the smart, innovative minds that a world-class campus has to offer.

“We wanted to be able to use the intelligence and the expertise of people here on our campus,” Sullivan said. “I don’t think there’s enough of that going around in college sports. There are many outstanding academic institutions; are they really tapping into the resources they have available for them?”

Once NU found those resources — in the form of Ely and Baliga — the two parties started piecing together a model.

Dynamic pricing models are already popular in professional sports, and they help to maximize profits for sports teams, and even other industries like airlines. However, in dynamic pricing, prices can fluctuate up and down. For baseball games, prices fluctuate based on pitching matchups, while airline ticket prices can also rise and fall depending on when tickets are bought. That gives the buyer an incentive to risk waiting to see if prices fall.

Purple Pricing is unique in that prices will only fall with demand, so customers can either buy tickets at the original price if they’re comfortable with it, or wait until prices fall to a price they’re willing to pay. This way, there is no incentive to wait.

“When you know the price will only go down and any price reduction will be refunded to you, it means that the decision to purchase a ticket is extremely simple for you,” Ely said. “You look at the current price, you know it might not be the final price, but you just ask yourself, ‘Am I willing to pay that price?’ And if the answer is yes, then you should buy right now and then reap the benefits of any price decreases that might come later on.

“So the main innovation in this pricing system is to remove that strategic consideration out of the buyer’s mind.”

Purple Pricing in Action

Since this model is still experimental, Northwestern wanted to select two games with very different demand but similar variables. It settled on Ohio State on Feb. 28 and Penn State on March 7. Ohio State is expected to have a lot more demand than Penn State, but the games are similar in that they’re just a week apart and both are at 6 p.m. on a Thursday.

“We knew from the get-go, based on a number of factors, that Penn State isn’t going to have the same demand as Ohio State,” Sullivan said. “So we wanted to see, how does this experiment work with a game that maybe has less demand, and then how it work with a game that typically has a lot of demand?”

NU expects the Ohio State game to sell out, so it’s seeing how much it can potentially charge in order to get to a sellout. Originally, tickets for that game were going for $35, even though the school could have made far more than that off that game to begin with.

At the start of Purple Pricing, Ely and Baliga set 200-level seat for the Ohio State game at $70 and 300-level seats at $50. By Friday, prices fell to $52 for 200-level seats and $45 for 300-level seats.

“For Ohio State, what we’re really interested in knowing is, would (it be a sellout) if the price was $40?  Would it sell out if the price was $45?” Ely said. “So our mechanism is basically going to find the highest price at which the game will sell out.”

For Penn State — a game with far less demand — the goal is different.

“It would be a miracle if Penn State sold out,” Ely said. “Of course, we could make Penn State sell out by setting a price of zero. And we could make Penn State sell out by allowing the price to fall as low as it takes to sell it out, but we have constraints.”

One of the constraints is that NU won’t compromise the price of a season ticket. Basketball season tickets cost $260 a piece, with Big Ten tickets worth $15, non-conference tickets worth $12 and the exhibition game worth $5. So for the Penn State game, $15 would be the “absolute basement,” according to Sullivan. Penn State tickets started at $28 and were at $26.75 as of Friday. NU still likely won’t sell out at $15, but a sellout may not even be worth it below that point.

“You could by a $4 ticket, (but) what’s making me go to that game?” Sullivan said. “It’s a little chillier than I thought (and) I only paid $4 for this ticket — do I really need to go?”

Ultimately NU wants to do its best to raise attendance, but the initiative for this model is to find the price point that maximizes revenue with an attendance goal in mind. For games with little demand, a sellout won’t always be the goal if it means compromising revenue.

“The idea is to have a target for revenue and attendance,” Ely said. “We’d like to fill a certain number of seats and we’re also interested in getting a certain amount of revenue conditional on filling that many seats. And to do that, we start prices high and we allow them to fall and monitor demand. And when we hit our attendance target, we stop.”

Taking Back the Secondary Market

One of the main goals for Northwestern — and any ticket department in this day in age — is to take back revenue from the secondary market. Ticket brokers on the secondary market, such as StubHub, have profited considerably off of marquee games that sell out well in advance. However, it’s also starting to make some schools, like NU, rethink their pricing models.

The Ohio State game is a good example of a situation where the secondary market can profit. NU set the price too low for that game, meaning it was expected to sell out very fast. Because of this, sellers on the secondary market could raise the prices of their tickets and take away revenue that NU could have potentially gotten.

With Purple Pricing, NU can start the price of its games higher and lower the prices at a rate that the demand calls for. For example, instead of the athletic department getting $35 per ticket and sellers on the secondary market getting far more after the game is sold out, NU can make, say, $45 per ticket, bringing a considerable amount of revenue off the secondary market and back to the box office. Furthermore, it’s fairer for consumers, who pay a price consistent with demand, rather than an inflated price on the secondary market once the game has sold out.

NU didn’t use Purple Pricing for the Illinois game, but Ely said it could have benefited the athletic department to use the model for that game, since it’s sold out and tickets are going for far over face value one StubHub.

“StubHub prices are starting at $70, they go up to a typical $150, $200, and clearly that means the box office price was too low,” Ely said, “and then they can benefit by raising the price.

“If I knew what I know right now about Illinois, the starting price should be $130. You can imagine starting at $130 and it could stop anywhere from $130 down to $60.”

Even for games that aren’t sold out, Purple Pricing can be beneficial for fans. For games like the Penn State game that aren’t sold out, fans can get tickets on StubHub for as low as $3.

However, as Sullivan said, “the issue with that is you’re probably not going to get the best seat at that price. You may get, perhaps, a lower price, but it’s probably going to be a different seat or a seat higher up.” With Purple Pricing, fans pay the set price for the best available seat.

That increases the incentive to buy early. Since Penn State game likely won’t sell out, fans will likely be comfortable buying a ticket early on at the starting price of $28, ensuring they get a good seat with the knowledge that the price will almost certainly fall.

NU is closely monitoring the secondary market to help set its prices.

“We want to know all the information we can,” Sullivan said. “We started Monday and look at what StubHub is offering at these games (to) see where we’re at.

“We’re trying to figure out and learn as much as we can about how we can price tickets fairly, and how can we effectively keep the revenues so they don’t go to the secondary market as much as possible?”

Possibilities for the Future

Right now, Purple Pricing is only set for the Ohio State and Penn State games. However, it has the potential to be used in the future across other sports if it meets its objectives. Right now, though, technology hasn’t caught up with the Purple Pricing model, which could make it difficult to implement on a larger scale.

NU uses a ticketing partner called Paciolan to sell its tickets, and currently, Paciolan doesn’t have the software to adjust prices based on demand. For these games, NU has to analyze the numbers and adjust prices manually each day.

“There’s a better version of our mechanism, which we’d like to implement if we had the software available,” Ely said. “Within the confines of that system, we’re sort of limited, but if those constraints were removed, then what we would do to deal with (buyer worries over high initial prices) would be to have fans be able to submit conditional bids. So you would look at the price and say, ‘I’m not willing to pay that high price. If it comes down to $100, then I’m willing to pay,’ then you could just submit a bid of $100, and then once the price falls to that level, you could buy at that price.”

There are no conditional bids with the current system. Fans can sign up for alerts for when prices fall, but those emails are set up manually by the athletic department.

From just an inventory standpoint, it may be hard for NU to keep up with Purple Pricing for other basketball games and especially football games. Many tickets were already sold for the Ohio State and Penn State games, so NU isn’t dealing with that much inventory. However, it would be difficult to implement a Purple Pricing system for the entire season. It would be even more difficult for football because of how many more seats there are available.

“Football, obviously we have a lot more inventory than (Welsh-Ryan Arena),” Sullivan said. “It would be a whole new ballgame, and obviously you couldn’t do it manually, so the technology would have to catch up with the concept.”

If the technology does catch up and the system works how NU hopes, there are other possibilities, such as putting season tickets up on a Purple Pricing model, as well. However, that is far off in the future, and outside of the athletic department’s technological implications at this point.

“There isn’t this roadmap with this system, so we would certainly have to do as much as we can research-wise with (Ely and Baliga) to try to figure out where you start,” Sullivan said.

“At the end of the day, it’s an experiment. We want to see how it works.”

© 2013 Inside Northwestern