Ken Nelson at The New York Times wrote a great article about pricing innovation from the San Francisco Giants baseball team. The article is titled Baseball Tickets Too Much? Check Back Tomorrow. Here is a bit of what Ken says:
Setting ticket prices to sports events requires that one hope for the best but prepare for the worst. Teams want prices high enough to cash in if they play well, but need them to be low enough to draw fans if they falter.
But because teams set their prices months before opening day and resist changing them later, they have trouble reacting to the unexpected, like the weather, winning and losing teams or, this year, the ferocity of an economic downturn.
The San Francisco Giants are experimenting with a possible solution – software that weighs ticket sales data, weather forecasts, upcoming pitching matchups and other variables to help decide whether the team should raise or lower prices right up until game day.
How many of us have reexamined and rethought our pricing philosophies lately? I think the current economic conditions present a great opportunity for all of us to look for more creative pricing strategies.
Pricing is definitely an art and not a science. Therefore, it can be an experimental endeavor and we can’t be unwilling to risk making mistakes along the way. Most of us have never really thought about pricing as a core business competency.
For us, it was whatever Sage somehow magically decided was retail price for software plus an hourly rate for our services that our customers certainly did not have any input in determining (who would dream of such a thing!). That wasn’t much of a strategy and was certainly more prone to mistakes because it was basically a random approach to pricing. We were saying: one size fits all. I don’t know of any two companies that are exactly alike so that strategy couldn’t possibly have worked.
At the Giants level, implementing pricing software to assist with setting prices probably makes sense. However, for most of us I think pricing strategy will still be set by people. I like the idea of establishing a pricing group within the company and involving people from different areas of the company (not just the sales department). I think it is valuable to include people who are outside of your company. We continue to take this approach by asking customers how they would like to do business with us.
An economic downturn is the perfect time to introduce innovative thinking into your business and innovative pricing is the most powerful change you can make.
Aries Technology Group Blog 
May 30, 2009 at 11:59 pm
I would caution to be sure that your pricing practices don’t leave you with unsustainable margins. In the retail world, unsustainable margins are just as damaging as sales declines. In this environment, pricing is likely only to stem the tide of sales decreases, not generate increases.
June 1, 2009 at 1:27 pm
Ted,
Thanks for the feedback.
The revamping of our pricing model has indeed led to sales increases.
In the IT consulting world, the traditional approach to pricing is to bill customers based on a time unit. The customers hate it because they are taking all of the risk for budget overruns.
As Ron Baker at Verasage (www.verasage.com) likes to say: Through risk comes reward. We made the conscious decision to take on the risk for all of our projects.
By taking on that risk and changing our pricing model, we have received projects from customers that we would definitely not have received in the past due to the pricing uncertainties of the old model.