Why Aren’t There More Industries with ‘Dynamic Pricing’?

on January 25, 2018
Reading Time: 3 minutes

On a recent episode of Recode’s podcast Too Embarrassed to Ask, Kara Swisher and Lauren Goode interviewed Recharge CEO Manny Bamfo about his startup, which lets customers rent hotel rooms by the minute rather than by the night. Bamfo cited that there are many hours in the day when hotel rooms are unoccupied, and a set of users who have different needs than the traditional ‘overnight’ booking. He sees Recharge as “ a living network and in that network, [we] allow people to use living space for as long or short as they like”. But this discussion ended up being about the bigger picture themes of inventory and dynamic pricing. It got me to thinking about how certain other businesses might do what Recharge is doing with hotels.

In the era of AI and big data, it is curious to me why more industries aren’t doing a better job of optimizing their inventory. We all love to complain about the airline industry – but if there’s one thing they’ve done well, it’s fill seats — with passengers paying wildly variable prices. By contrast, think about how many seats go unfilled at movie theaters, baseball stadiums, restaurants, and the like, especially during off-peak times.

Here are some examples of some industries that I believe are ripe for creative ways to leveraging their unfilled inventory.

Movie Theaters. When’s the last time you went to the local multiplex at mid-week? Movie theaters might be busy on weekends and during the opening couple of weeks for popular films, but they’re practically barren at 9pm on a mid-winter weeknight. Given the fact that most of their profit comes from concession sales anyway, it’s surprising that theater chains don’t try harder get bums in seats so they can sell more $8 popcorn. With apps and websites like Fandango, they know who you are, what you like, and how to reach you. Why not send an email or an alert, “see your favorite Oscar-nominated film this Tuesday for $5.”  There are a couple of companies that have tried to get at this issue for the movie business, but they’ve had trouble getting the big theater chains to participate.

Sports Tickets. Especially baseball. Even though baseball attendance is near all-time highs, the average ballpark is only half-filled on many nights. Sure, the well-heeled and corporados will gladly fork over $100 or more for a primo seat at Fenway to watch Sox-Yanks, but what about Rangers-Rays on a sultry August night in Arlington? Most MLB teams have introduced dynamic pricing, and there’s a more ‘regulated’ secondary ticket resale market (StubHub, SeatGeek). But this could go a step further. For example, send an alert when tickets for games against X teams in Y parts of the stadium go below Z prices. Again, baseball stadium cost structure is quite fixed from game-to-game (employees, food & beverage inventory, etc.), so why isn’t there greater desire to fill the stadiums with more people who will likely buy (overpriced) beer, hot dogs, and souvenirs?

Ski Resorts. All but the true destination resorts suffer from highly variable lift ticket sales between weekday and weekend/holiday, and also when ski conditions or weather are sub-par. Yet they’ve still got to make the snow, groom the trails, run the lifts and fill the hot chocolate machines. Pricing in the ski industry has become airline industry-esque over the past several years (purchase in advance, buy an Epic pass), but many resorts make much more money from food, gear, lessons, and the real estate they own. So, again, I’m wondering why resorts don’t more aggressively court skiers during off-peak times, perhaps with some guarantee or alternative (stay in our on-mountain hotel and if conditions suck then you can use our spa for free).

Restaurants. Most cities now have a ‘restaurant week’ a couple of times a year, where participating restaurants offer discounted prix-fixe meals during what are typically slower periods. But in a typical week, a restaurant might have a slower night or two, due to seasonality, weather, competing events, etc. And, this is an industry where margins are notoriously thin  — most nights, they’ve hired the staff and bought the food. So why isn’t there more of a focus on having a consistently filled restaurant? I could see this being a nice feature of OpenTable, with various parameters to configure (type of food, distance from home/work, vacant seats/discount offers, etc.).

An added benefit of this ‘inventory optimization’ model is that it makes certain experiences that have become awfully expensive (going to a ball game, downhill skiing) more affordable to a broader segment of the population.  Additionally, with surging numbers of retirees and aging Boomers, there are going to be more people with time—and some flexibility—on their hands.

In reality, this is Priceline applied to other verticals. Or how MLB Advanced Media started out with MLB.com and the MLB app, but then spun out and now handles TV operations, websites, and streaming for other sports leagues, such as the NHL. The biggest challenge is getting the key players in each industry (i.e. theater chains, sports teams) to use next-generation tools and embrace a less monolithic model.