Rafi Mohammed | Harvard Business Review
Earlier this month the Rolling Stones kicked off a brief 2013 tour
celebrating their 50th anniversary. The Stones have always been
aggressive in setting ticket prices, and it appears they’ve pushed too
hard this time. With arena seats reaching $600 and general admission
packages in the “Tongue Pit” (close to stage) topping out at $2,000,
ticket sales are reportedly tepid. As a result, tour promoters are on
the verge of a “19th Nervous Breakdown.”
I have a particular interest in this topic, because I attend concerts
frequently. (Over the last thirty years, I’ve seen Jimmy Buffett nearly
120 times.) I also have a professional interest because concert tickets
are a great way to understand pricing — whether it’s the role of
scalpers, the use of dynamic pricing, or concerns about whether high
prices hurt a musician’s brand. In fact, I wrote my PhD dissertation on
rock concert ticket prices.
The situation faced by the Rolling Stones — sagging sales due to high prices
— is one that all companies are susceptible to. Quite simply, sometimes
you overshoot. When this occurs, the challenge for a premium company is
how to discount in a manner that doesn’t damage their brand nor anger
customers who paid full price. Here are some tips to help front man Mick
Jagger, as well as managers in the same situation, profitably navigate
out of this mess.
Add Value. The most common remedy to this malady is
to maintain price but add value, so customers feel they’re getting more
for their money. Guitarist Keith Richards could casually drop in an
interview that this may very well likely be the band’s last tour (the
“hedge” in the wording is intentional). Or, as the band did at its opening gig in L.A.,
they could bring in special guests such as Gwen Stefani and Keith
Urban. These additions make the experience more memorable, so customers
value it more.
Lower Value to Justify a Lower Price. At every tour
stop, the Rolling Stones made available a limited number of “for the
fans” $85 tickets that instantly sold out. The catch to these discounted
tickets is you don’t know where you will be sitting until show time —
you could be in the “Tongue Pit” or row ZZZZ. This hurdle was designed
to identify price sensitive customers. Fans who are willing to pay more
(those entertaining clients, for instance) are less likely to purchase
these tickets due to the chance of ending up in nosebleed seats. Now, as
seats remain unsold, promoters can release more of these $85 seats,
explaining that additional seats opened up due to production issues. This could be true or, of course, an excuse to make available more discounted tickets.
Manufacturers and retailers play similar games to lower costs without
creating a perception that the product is less valuable. For instances,
high-end appliance manufacturers can deliberately inflict cosmetic
blemishes on excess inventory to then discount at a “scratch and dent”
sale. While this tactic sounds strange, it can make sense by preserving
the value of the brand while finding a justifiable reason to lower
Sell Via a Different Distribution Outlet. Why not use scalpers to sell excess inventory? To avoid tarnishing their brand, bands often sell the best seats via scalpers
(so that fans blame scalpers, not the bands themselves, for inflating
prices). In a different twist, the Stones could offer bulk discounts to
scalpers — who would then sell at low prices — thus shielding the band
from looking weak. Analogously, this is why premium brands often sell
discounted merchandise at outlet stores.
Tell a White Lie. Within each ticket price category,
say the $600 one, there are thousands of tickets that vary in quality.
The remaining tickets in each category (thus, the less desirable ones)
can be discounted under the guise of “newly released seats.” Similarly,
salespeople can tell clients that they have been “authorized” to offer
loyalty discounts to their best customers.
Tell the Truth. As long as there is an explanation,
it’s possible for premium companies to discount without damaging their
brands. The Ritz Carlton in the Cayman Islands, for instance,
drastically lowers room prices during the summer because of hurricane
season. This rationale doesn’t damage the Ritz’s brand, and it allows
the company to charge hefty premiums in-season. The Rolling Stones
should simply admit: “We blew it.” Following this admission, prices can
be cut for less desirable shows held on Sunday to Thursday evenings.
This discount could lure in aging boomers who had refrained from
purchasing due to the pressure of working the next day.
Offer Mixed Bundles and Volume Discounts. Customers
expect discounts if they buy a mixed bundle (a lower price for buying 2
or more products: a McDonald’s Value Meal, for instance) or in large
quantities. Discounts can be offered for buying, say, a Rolling
Stones/Paul McCartney bundle or a Family Pack (buy 3 tickets, get the
fourth for free). In this case, the rationale for employing these
tactics is to provide an explanation for the price drop.
The funk that the Rolling Stones are in the midst of is yet another
reminder of why pricing is such an important strategy for companies.
Aside from being a key driver of profits, a misfire can have serious
ramifications. The Rolling Stones invested 50 years of hard work to be
crowned the “greatest rock and roll band.” It’s a shame that due to poor
pricing decisions, the Rolling Stones are closing out their career
amidst allegations of greed, headlines reporting on poor sales, and the
taint of desperation from employing tacky discounting methods.