Price Like a Scalper

Scalping tickets in the US is a $3 billion industry. Seen another way, the original sellers of tickets -- ballclubs, concert promoters, theater impresarios -- are so inefficient at pricing that they lose billions in potential business to resellers.

Scalpers, at least the good ones, have a keen intuition about what things are worth on the open market. While the Rolling Stones might price tickets to their shows for an average, say, of $220, scalpers will know that in their local market those tickets are worth much more, and price accordingly. They will also know when to lower prices, and by how much, to stoke flagging demand.

Which brings us to Rafi Mohammed, a pricing strategy consultant, interviewed recently on an HBR.org podcast about what retail price setters can learn from scalpers. It's a very interesting discussion, one worth your time if you are a sales strategist.

Here are three key takeaways:

1. Price dynamically. Scalpers are masters of dynamic pricing, changing prices based on current demand and other conditions, even weather conditions! This is a much different approach than how most event pricing works, which tends to start at one price and never change. Mohammed encourages these sellers to vary prices -- increasing them if initial demand is high, for example. Advertising an upcoming "day of" sale can also produce incremental sales.
2. Test, and test again. The Web is a brilliant vehicle for classic A/B or other kinds of testing that provides immediate feedback about what products are selling and for how much. A warning: Don't sell the same product to different customers at different prices; this just makes shoppers extremely unhappy when they find out, which they will.
3. Poll your foot soldiers. Keep in touch with your sales people, who can tell you about what customers are saying about your prices. "I would have paid much more for this ticket" is a very valuable comment when it's coming from numerous buyers. "The front line has a lot of market research they can share to help people set the right price," says Mohammed.

He also offers a tip for getting the best price from scalpers -- but you'll have to listen to the podcast to get that wisdom.

Some ticket sellers have already taken Mohammed's advice to heart. Earlier this year, Ticketmaster started a dynamic pricing scheme, after taking a beating the previous year on acts such as Britany Spears who priced tickets way too high for a recession.

Are you a price setter? How do you arrive at the final number? Do you adjust as you go along?

Related Reading

• The Unforgiving World of Retail Pricing
• Raise Your Prices!
• Placebo Pricing: Why We (Might) Pay More For Less

(Photo by Flickr user colros, CC 2.0)