Today I’m angry. When I got to work and I opened my emails, the first email I saw was this.
I have just received a special offer to attend StartCon, Australia’s biggest start-up conference. There is a start-studded line-up of speakers headed by Malcolm Turnbull. Instead of paying the standard price of $195, I only have to pay $1. So you might ask, why am I angry?
Because I have already bought my ticket. And I paid $395.
After I calmed down from my initial moment of rage, I asked myself a question: As one of Australia’s leading advocates of Dynamic Pricing, why am I upset when a business reduces its price to fill spare capacity? It doesn’t bother me when the person sitting next to me on a plane has paid less than me. Therefore, why am I so angry now?
Let’s consider the mistakes that StartCon has made. These are important lessons for any business which decides to implement Dynamic Pricing.
Firstly – the magnitude of the change in prices is significant. They are now selling tickets for a quarter of one per cent of what I paid. $1 versus $395. This is very different to an aeroplane where someone might pay 20% or 30% less than me. I would have had no issue if they reduced their prices slightly. But $1? This feels really unfair. So lesson 1 is: limit the amount by which you change your prices.
Secondly – What they have done is completely unexpected. When I book a flight or hotel, I know that prices will fluctuate. When I pay a weekend surcharge at a restaurant, I know that people dining on a weekday will pay less for the same meal. When I buy clothes, I know that the store will clear excess stock in their post Christmas sales. However, in this case, its come as a complete surprise to me. So lesson 2 is: Manage expectations of your customers.
Thirdly, they promoted this $1 offer through the same channel as they promoted the original $395 tickets, being a mass email. This is always dangerous because your customers who have already bought are more likely to find out about the new offer. They would have been better off making this an exclusive offer to certain groups, for example members of Tank Stream labs, or customers of Amazon Web Services. Or perhaps they could have offered a package of 10 tickets for a $1,000. So lesson 3 is: If you are going to make a special offer, change the package or the channel. Or both.
If Startcon had properly used Dynamic Pricing then they would never have gotten to this point of having to desperately flood the market with cheap tickets. They would have sold more tickets earlier at a price somewhere below $195. They would never have sold any tickets at $395 in the first place because their pricing algorithm would have told them that the market wasn’t prepared to pay such a price (with the exception of course of the odd foolish wizard).
Now it’s time look at the implications of StartCon’s approach. Let’s use some game theory to see what will happen next year. Any rational delegate will wait until the last week, hoping to receive the $1 offer. As a result, bookings 2 weeks out from the conference will be even lower next year compared with this year. This will make it hard for StartCon to plan the event. With bookings down and nervous exhibitors, StartCon will be forced to do the $1 offer again. They’ll probably end up with less delegates, because many will already have made other plans by the time the $1 offer comes out. Most delegates will end up paying only $1 instead of $395 or $195. And the exhibitors will be even more angry than me because delegate numbers will be down.
And in 2021? Sadly, the downward spiral will continue.
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