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Seat Pricing

Disciplines > Marketing > Pricing > Seat Pricing

Description | Example | Discussion | See also

Description

In a number of business situations, the main product that is being sold can be reduced to the idea of 'seats'. Businesses that sell seats include:

• Airlines
• Bus companies
• Vacation companies
• Hotels
• Theaters (movies, plays and other events)
• Festivals
• Training courses

To determine the minimum average price per seat, divide the total cost of putting on the event by the number of available seats. Beyond this, pricing can vary significantly. You can even give away seats free, as long as the average price covers the cost per seat (in other words, the total cost is covered by sufficient seat sales).

A number of strategies are available for seat pricing:

• One fixed price: All seats are the same price. Estimate the likely seats sold. Price these to cover costs, plus any safety or profit margin you seek.
• Tiered pricing: Still fixed price, but price different seats according to how desirable they are. For example airlines have 'first class', 'business class' and 'economy'.
• Package pricing: Add other benefits, such as priority boarding and VIP packages to allow you to add to the basic price.
• Declining price: As time gets closer to the event, steadily decrease the price in order to ensure you sell all seats.
• Increasing price: As time gets closer to the event, steadily increase the price.
• Staggered pricing: Selling the first A seats for B, the next C seats for D and so on. Typically A and B are small, C and D are a little larger, etc.
• Algorithm pricing: Sell seats based on a complex formula that takes into account such factors as customer price sensitivity, seats sold, proximity to the events, weather, news items and so on.

Example

An airline sells the first five seats of a flight for $10 each. The next ten seats sell for $15. The next 15 for $20 and so on.

A theater uses tiered pricing for different seats. It also has a 'friends of' group to who they offer unsold seats at a 50% discount a week before plays.

Discussion

While 'seat sellers' may actually be selling the benefit of transport, entertainment, learning and so on, the transaction is for a place which only one person can occupy (the seat) in a one-off, time-bound event. A key problem that 'seat sellers' face is that any unsold seats act as a form of loss. Not only does an unsold seat offer zero revenue, but unsold seats cannot be sold after the event. Worse, the majority of costs per seat are still retained.

Getting all seats full can offer benefits beyond the basic revenue and profit need. For example, a theater that is only half full will not have the atmosphere of one which is full, and audience members may consequently decide not to come again. Declining pricing can, however, have negative effects, such as people waiting until the price drops, resulting in reduced profit or even loss.

Increasing pricing is often used by airlines who prefer predictability and who may cancel or combine flights with other airlines if insufficient seats on a a flight are sold. They also know that people trying to book close to the flight date are likely to be desperate and less sensitive to higher pricing.

Online and telephone seat sales allow for dynamic pricing that uses any level of algorithm. They can use knowledge gained from offers refused and taken to vary subsequent pricing. They can also use 'big data' including knowledge of customers' previous purchases.

Some events are so desirable that seats are sold very quickly. This allows for premium pricing and perhaps even auctioning of seats.

See also

Fixed Pricing, Loss-leader Pricing, Discounting