In 2022, Taylor Swift’s Eras tour was coming to Seattle, and this dad had to find a way to get tickets for his little Swifty and him to go. While the launch was a technological debacle, from a pricing and revenue management perspective, I was remarkably impressed at the beautiful way they took all the wallet share they could from this dad, who was determined to make his little girls dreams come true and unlock those core memories from that magical night at Lumen field.
Ticketmaster & Taylor Swift weren’t doing anything new here. What they were doing was engaging in the art & science of yield that dates back over 50 years of yielding.
It is just the latest iteration of this art & science.
To understand where yield is headed, let’s start with a brief background and then some shared understanding of the factors that prime a market to yield.
In the 1970s, the airline industry was deregulated, and with that change, revenue management was born to better represent the value of a seat on a particular flight at a particular time. It took a few decades, but by the 1990s, yield found its way to hotels and resorts, and soon National Rental Car became the first car rental company to implement yield rates in 1994.
Since that time in the early 2000s, yield started to come into live entertainment, really coming into full adoption with the pricing model used by Taylor Swift for the Eras tour in 2024. Now that we have in a few words come to the modern era (pun intended).
I’d like to do a thought experiment on what’s next for yield and dynamic pricing. To begin with, let’s start with what factors lead to a successful implementation.
What Factors Make a Market Appealing to be Yielded?
For yield to be at its best, there need to be seven factors that are present, according to Ben.
I’ve presented these roughly in the order of importance to the magic of yield working:
Perishable Inventory: Whatever you are selling must have a really clear expiration date. Think a seat on a plane can’t be sold once that plane takes off, or a seat at a concert sold after the show starts, or a hotel room sold after the night has passed.
Fixed Capacity: For yield to work, the market must be one that can’t easily shift supply. If it can, then it can often maximize return not by yielding price, but by finding equilibrium between supply & demand
Variable Demand: The best products to yield are those that have different demand for different periods of time. A hotel room isn’t worth the same typically on a Saturday night of a holiday weekend as it is during a random Wednesday in the off-season.
Segmentation: Yield works best when you can easily take your customers and assign different values to them. In live entertainment, think ticket prices; in hotels, think room types, etc.
Advanced Reservations: For yield to work best, customers must book in advance so that you can vary prices based on demand in real time.
Historical Data Availability: It’s hard to impossible to build a highly effable yield model without historical data. This is the pixie dust that makes the algorithm work.
Low Marginal Cost: The cost of selling one additional unit must not be too expensive, as sometimes you will yield up and sometimes down, meaning the marginal cost must not be so high that yield causes it to become unprofitable
So, What Checks those Seven Boxes? What’s Next for Dynamic Pricing?
The change curve from static pricing to variable pricing in an industry seems to happen slowly (it took twenty years for it to move beyond airlines) but also seems to be accelerating. To figure out where this art might add value, let’s think of industries that check all those seven boxes. I will not bore you with the details, but in my brainstorm, here is what I think is prime for yield….
Healthcare: Checks all the boxes above, and could we lower costs by raising the cost on peak appointment times and lowering it on off-peak times? It’s an interesting thought experiment.
Colleges & University Tuition: Should tuition be fixed or on years where college enrolment is down should the rate lower to maximize return and then rise when there is higher demand for a semester? Should we apply it at the class level? Some interesting pondering here.
Wellness & Spa Services: Every box is checked here, and we are starting to see limited engagement with yield in this space. I think this is a likely industry to take the plunge into full dynamic pricing soon. Particularly at resorts.
Escape Rooms, Mini Golf, Other Amusement Experiences: This is no brainer to me. I don’t know why the variability is limited in these spaces so far.
Parking Facilities: You see some variation, but full dynamic pricing has been elusive. I think a lot is possible if demand-based pricing and parking are fully integrated.
I’d love to hear what you think the next industry is poised to take the plunge in. Fill out this survey to let us know.
Finally, at our core, Luxe Pricing isn’t a hotel yield company; we are a pricing company. While we started by yielding resorts, today we have HouseCount driving some of the world’s best live entertainment. No matter where yield goes next, there is no doubt that we will proudly have a seat at the metaphorical table.