March 17th, 2014 by Sarah Sluis

As a consumer, I’m pretty used to airlines and hotels charging different prices based on availability, demand, and time before the event. It’s a bit paradoxical, but it actually feels fairer to me to have dynamic pricing. People who want to plan carefully can try to “game” the system in order to snag the best price, while people who don’t have as much flexibility understand they’re paying more for returning during a high demand period like the end of a holiday weekend. Now, that same system is being used for another perishable good: Broadway tickets.

For the past few years, The Lion King has been using dynamic pricing to manage ticket prices for its long-running show, which has had some hard times in its decade-long run. According to an interview with Disney executives conducted by the New York Times, they did it not by raising the prices of its most premium tickets, but by charging just $10 to $20 more for most of their tickets during more desirous times. While other Broadway shows charge $300 to nearly $500 per ticket in peak times (like The Book of Mormon, Kinky Boots, Wicked, etc.), they cap their maximum at $227 per ticket, to make tickets “relatively affordable for large groups and families; [lessen] the chance of buyer’s remorse leading to bad word of mouth; and [offer]room to raise prices over the long term,” according to producers analyzing the situation. As a consumer, that sounds palatable to me, because I also believe the inverse is true: I can be charged less for off-peak times, while not getting gouged during times of high demand.

Where businesses have run into trouble is when they try to charge different prices for non-perishable goods. It was a lesson Amazon learned early on, in 2000, when it charged consumers different prices for books based on information about then. It ended up refunding money to people. As a resident of New York City, I’m used to brick-and-mortar retailers charging more for their product; rents are higher in the city, and they can’t ship in new products on semis. But when news broke that Walgreens charged different prices at drugstores just blocks away in New York City, I felt cheated and exhausted by the amount of effort it would take to be a price-savvy customer.  But the logic was not unfamiliar: a slice of pizza costs more in Times Square, so why wouldn’t Band-Aids and shampoo cost more too.

How can businesses make dynamic pricing fair for consumers? One prominent example comes from the London Olympics, which the Harvard Business Review wrote up as an example of “shared value” pricing. Previous Olympics dealt with charges of exorbitant pricing, empty seats, and comped tickets to VIPs. The London Olympics officials offered discounted pricing for seniors and students, as well as more expensive tickets, making pricing transparent to citizens. While they could have auctioned off tickets to the highest bidder, they opted for a lottery. The blog’s authors, Marco Bertini and John T. Gourville, predict “customers will have dwindling patience for antagonistic pricing” that consumers view as unfair. Any “firm that is not evaluating its pricing through a shared-value lens should ask whether it can afford not to,” they advise.

Maintaining a high level of consumer trust while adopting a dynamic pricing strategy may be difficult, but given the rewards, it’s going to get even more popular. The Lion King was the highest-grossing show on Broadway in 2013, and other shows are already following Disney’s lead.

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