Pricing generally reflects supply and demand. When there's less of an item, experience, or service than would be required to meet demand, prices tend to rise.
That's a reality that pretty much every business leverages. Walt Disney (DIS), for example, charges more for theme-park admission during busier times of the year, like school vacations and the holiday season.
Royal Caribbean International (RCL), Carnival Cruise Lines (CCL), Norwegian Cruise Line (NCLH), and Disney's own cruise line do the same thing in real time.
Disney, at its theme parks, has a set range of ticket prices it applies based on the time of the year. That's actually the company thinking about customer experience because it could get more if it used the no-limit, uncapped system that Live Nation's (LYV) Ticketmaster used for some of the tickets for Bruce Springsteen's upcoming tour.
Ticketmaster, which has a well-deserved reputation for not being customer friendly, has actually done something that most Americans do when given the opportunity.
David Roark/Disney Parks via Getty Images
Dynamic Pricing Matches Supply to Demand
It's easy to get angry at Ticketmaster, a company famous for adding on inexplicable fees to every ticket you buy. It's also fair to get angry at Springsteen, who's not exactly living up to his working-class-hero image by getting as much as he can for every ticket.
The reality, however, is that Springsteen has established himself as a massive draw who's nearing the end of his touring days. Any E-Street Band tour could be the last one. So neither Ticketmaster nor The Boss really needs to think about pricing in a way that also encourages return visits, as Disney and the cruise lines do.
When a young band with decades of touring ahead of it prices tickets, the next tour must be factored in. For legacy acts, a limited ticket supply becomes more valuable simply because there literally may be no next time.
Dynamic Pricing Sets a Real Value
When you sell your house, you generally sell it to the highest bidder. You may factor in how quickly the buyer may be able to close or their chances of getting a mortgage, but when you sell your asset, you want to maximize how much money you get for it.
Dynamic pricing may seem a little evil, but it's actually how pretty much anyone or any business prices anything that's available only in limited quantities.
It's also something that can work in your favor. A hotel or a cruise line prices (broadly) based on demand. You may need to travel in a certain window, but if prices are low due to lack of demand, you benefit.
Disney, Royal Caribbean, Carnival, Norwegian, and so many other companies leave money on the table because they don't want to look like Ticketmaster, gouging every last dollar from fans. They also want people to come back, so while prices go up and down based on demand, it's not fully dynamic with no cap.
Dynamic pricing maximizes revenue. That's what a business should be doing while also factoring in longer-range goals and customer experience.
When there's a true scarcity (as with Springsteen tickets in some markets), selling to the highest bidder is right for the company and, arguably, fair to the consumer.
Nobody asks you to sell your house, your old collectibles, or anything else at a "fair" price, so why should businesses? Supply and demand, balanced with the need for longer-term customer relationships, sets prices. That means that some people will be priced out.
Not everyone can afford Springsteen tickets, a cruise, or a Disney visit. That may not be nice to hear, but it's economic reality.
