For San Francisco Giants, Dynamic Pricing Software Hits a Home Run

The project :: Become the first pro sports team to use dynamic pricing software, syncing ticket prices with demand at the San Francisco Giants’ AT&T Field.

The business case :: Numerous factors affect demand for baseball tickets: the time and day of the game, who is pitching, special promotions. “A Monday Pirates game is not going to be the same as a Dodger Sunday, so pricing them the same way doesn’t make a whole lot of sense,” says Russ Stanley, the Giants’ managing vice president of ticket services and client relations.

“We had debated the merits of dynamic pricing for years, but there were numerous hurdles,” says Giants CIO Bill Schlough, such as protecting season-ticket holders and choosing the right variables for the pricing model.

In 2007, Stanley discovered Qcue, a software-as-a-service application that analyzes dozens of factors to provide price recommendations, similar to the way airlines price seats. Stanley was skeptical, until his phone lit up one August afternoon. Barry Bonds was poised to hit his record-breaking 756th home run that night. “Some tickets for that game were priced at $10,” says Stanley, “but if that ticket was $100, people would have bought it.”

By 2009, other major-league teams—concerned about the economy’s effect on attendance—were reducing or freezing ticket prices. The Giants deployed Qcue instead.

First steps ::  With Schlough’s blessing, Stanley recruited Jerry Drobny, vice president of strategic revenue services and the club’s former IT director, to help with the rollout. They piloted Qcue on 2,000 outfield and upper-deck seats—usually the last to sell. The team sold an additional 25,000 tickets, earning an extra $500,000.

The team and Qcue fine-tuned the pricing algorithm, turning up the value of factors such as Friday fireworks and the rock-star-like draw of pitcher Tim Lincecum. They implemented the system park-wide in 2010. The software spits out pricing recommendations daily, which Stanley or Drobny review. Revenues increased $7 million last season, which ended in the Giants’ first World Series win since 1954.

“Without this interface, we would be wallowing around in data,” Stanley says. Whether to raise prices “would be based on gut feels.” It will be another year or two, however, before the team is comfortable allowing the Qcue system to set prices automatically.

What to watch out for ::  Selling the system to the owners was easy. Making the case to ticket buyers was another matter. “The message was that this is right for the Giants’ business, but it can also benefit them,” Drobny says. In fact, last year the face value of a ticket actually declined for 75 percent of available seats.

And the team let the most loyal fans influence its new pricing philosophy, which is to start low and let demand push prices up. “We don’t want season-ticket holders to feel like they made a bad investment,” Stanley says.

Despite the extra revenue, quantifying the impact of dynamic pricing can be tough. It’s easy to know how much more money you’ve made when you raise ticket prices for a hot game. But it’s harder to know what to charge when demand for tickets is low. “Dynamic pricing enables us to capture a larger share of consumer surplus, but how much larger?” asks Schlough. “There is no easy answer.”