Whether it is food at a fine dining restaurant, a bespoke suit, or a handmade Swiss watch, deciding what to charge for a premium product is a tricky process. On the one hand, you want to maximize profit for the item in question. On the other, you don’t want to alienate your market by charging an exorbitant mark-up. Understanding how to appear to offer value but not leave money on the table is a matter business professionals strive to master.
College athletic departments, not typically thought to be the bastions of economists, are currently considering this common but challenging issue. As Ohio State A.D. Gene Smith noted last week, his university (and many others around the nation) has been “blessed” with a premium product in the form of college football. Deciding how to best balance ticket prices has been difficult, though. At a finance meeting with the Ohio State board of trustees, Smith observed that $195 for a ticket to the upcoming Ohio State/Michigan game is “significantly underpriced,” claiming “we could right now make a decision and charge that at $250.”
Where this becomes problematic, however, is when supporters begin to cast a wary eye at the university for appearing avaricious. To his credit, Smith is aware of this, rhetorically asking of a price-hike “but we’ve got to be prepared – is our culture ready for that?” This is the delicate balance Smith, and all athletic departments blessed with a desirable product, must maintain. It is essential he get the most out of OSU football each season; the money raised helps fund hundreds of scholarships for student-athletes. What he cannot do, though, is upset the thousands of supporters who fill the seats at Ohio Stadium.
In response to this particular challenge, some schools simply allow the marketplace to balance ticket prices. This “dynamic pricing” model theoretically prevents the school from receiving blame when ardent fans see their ticket prices skyrocket for marquee matchups. Unfortunately, it can also result in lower-than-expected returns if tickets don’t generate interest in the marketplace, leading to a wasted opportunity to maximize income.
Ohio State, in contrast, sets ticket prices, but also takes its opponents into account. For more intriguing games, the cost of tickets are raised (hence the high cost of a game against rival Michigan). By employing this “variable pricing” model, OSU can also claim it is providing value to its fanbase, as tickets to some of the more one-sided tilts are significantly cheaper. Instead of letting a fickle marketplace dictate prices, OSU gets the best of both worlds—the appearance of affordability and the stability of setting its own ticket price.
Regardless of the method a school employs, it is essential it both serves its fanbase but also takes advantage of its best-selling athletic product. Smith is especially attuned to this as a tremendous amount rides on his understanding of both what OSU football is worth, but also what his fanbase will accept. While he claims certain tickets are currently underpriced, don’t expect them to remain so, regardless of potential sticker-shock. It is too important that OSU gets the most out of a valuable commodity.
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