By Bennet Hayes
Your football team has won a single bowl game since 1948. Your men’s basketball program has never been to the NCAA Tournament. Now go sell some tickets, university athletic department.
Neither of Northwestern’s major-revenue athletic programs can claim much in the way of postseason history, but that hasn’t stopped its ticket office from finding success.
Northwestern’s athletic department unveiled “Purple Pricing” during the 2012-13 men’s basketball season. The ticketing method, a variable pricing strategy best described as a “modified Dutch auction” system, is now being used as a mechanism to drive ticket revenue for other university athletic departments.
“Northwestern operated with an archaic ticket pricing system,” NU Athletics Director of Communications Paul Kennedy said via email. “Nearly every seat in the venue for every game was sold at the same price point, one that was undervalued for most games and severely undervalued for high-demand events.”
Solving from within
The athletic department stayed within its own university community in attempting to fix the problem. Sandeep Baliga, a professor at Northwestern’s Kellogg School of Management, worked with Jeff Ely, a professor in the NU Economics department, to create an alternative ticket pricing strategy for the athletic department.
Purple Pricing functions by setting an initial ticket price well above face value. Many fans will purchase tickets at this initial offering rate, while others will wait and respond as the price gradually decreases with game day approaching. Demand on the secondary market is the biggest determiner of just how far these prices will fall, or if they do at all, Baliga said.
“They wanted to do something new and we had several proposals for them,” Baliga said. “Northwestern is a research university which is all about innovation, and the ticket office reflected that. They picked the most innovative one.”
The final, most critical piece of Baliga and Ely’s strategy: Fans will be reimbursed the difference between whatever they paid for the ticket and the final price. So if a fan immediately buys the $125 ticket and then watches the final price end up at $90, there will be a $35 rebate headed their way.
“Our solution, from a revenue perspective, works incredibly well for high-demand games,” said Baliga. “High demand, limited supply – that’s where we are going to do really well.”
Northwestern agrees. Purple Pricing proved successful enough during its trial run that the athletic department implemented the strategy at two football games in each of the 2013 and 2014 seasons. They continue to utilize it for select men’s basketball games, as well.
“It has been remarkably successful in all aspects,” Kennedy said. “Ticket revenues are up and dollars that would have previously been spent on the secondary market are now coming to Northwestern, so they can be re-invested in supporting our student-athletes.”
The rise of variable ticket pricing
Northwestern is one of a handful of universities now working with variable pricing strategies, but professional sports franchises have been experimenting with dynamic ticket pricing for some time now.
“Professional teams have more of a revenue-driven focus than what colleges do,” said Jan Eglen, founder of Digonex, which works with professional teams to come up with alternate ticket pricing options. “The colleges depend more on other sources of revenue, such as donations and loyalty programs.”
Rankling fans and donors with an unfamiliar and complex new ticketing system was a point of concern for many universities. But Kennedy said complaints about Purple Pricing from Northwestern fans have been rare.
“We worked very, very hard to make sure to explain Purple Pricing to fans in a clear, concise manner when we introduced the program several years ago,” he said. “There were certainly questions, but those have dwindled each year.”
David Gravenkemper, Washington’s associate athletic director, said there have been similarly low levels of discontent among his school’s fan base since hiring Digonex to manage their ticket pricing in 2012.
“This is really just affecting our single-game buyers,” Gravenkemper said. “We had a few complaints here and there, with big games especially, but I was surprised by how little backlash we had.
“I think it’s two different types of customers and our season-ticket holders – our most loyal customers — aren’t seriously affected.”
The parties who are negatively affected by variable ticketing schemes are secondary market sellers, such as StubHub and Ticketmaster. Baliga said Purple Pricing effectively redistributes a chunk of the secondary market’s profit margin back to athletic departments.
Bright future for Purple Pricing
Baliga and Ely have already taken their model elsewhere in the college athletics world: they assisted Georgia Tech with basketball ticket pricing this season. Their company, Ticker, offers versions of the Purple Pricing model to contractors in a variety of industries.
“We’re just starting to experiment in other places – professional sports, music, theater,” Baliga said. “Anything with a fixed capacity and uncertain demand is our purview.”
Ticker has yet to be proven effective in other markets, but the innovative strategy that fueled Purple Pricing has been a revenue-generating winner for Northwestern.
And for an athletic department unaccustomed to on-field success, a victory in the ticket office is worth celebrating.
“It’s now a normal part of the ticket-buying experience at Northwestern for big events,” Kennedy said. “Purple Pricing has been an effective strategy for us.”