• Discuss your personal experience with dynamic pricing $($airlines$,$ hotels, Uber, event tickets, etc.$).$  Also, discuss any professional experience including:

• What revenue$-$management methods does your current or future company $($a company you would like to work for in the future$)$ use if any?

• If none are currently used, how could surge pricing benefit your current company or future organization?

• What are the drawbacks, if any, of such systems?REVENUE MANAGEMENT AT AT&T PARK$*$

Transcribed Image Text:

MANAGEMENT SCIENCE IN ACTION REVENUE MANAGEMENT AT AT&T PARK* Imagine the difficult position Russ Stanley, Vice President of Ticket Services for the San Francisco Giants, found himself facing late in the 2010 base- ball season. Prior to the season, his organization adopted a dynamic approach to pricing its tickets similar to the model successfully pioneered by Thomas M. Cook and his operations research group at American Airlines. Stanley desparately wanted the Giants to clinch a playoff birth, but he didn't want the team to do so too quickly. When dynamically pricing a good or service, an organization regularly reviews supply and demand product (tickets to home games) and the primary product sold by airlines (tickets for flights) and adopted a similar revenue management system. If a particular Giants' game is appealing to fans, tickets sell quickly and demand far exceeds supply as the date of the game approaches; under these conditions fans will be willing to pay more and the Giants charge a premium for the ticket. Similarly, tickets for less attractive games are discounted to reflect relatively low demand by fans. This is why Stanley found himself in a quandary at the end of the 2010 baseball season. The Giants were in the middle of a tight pennant race with the San Diego Padres that effectively increased demand for tick- ets to Giants' games, and the team was actually scheduled to play the Padres in San Francisco for the last three games of the season. While Stan- ley certainly wanted his club to win its division and reach the Major League Baseball playoffs, he also recognized that his team's revenues would be greatly enhanced if it didn't qualify for the playoffs until the last day of the season. "I guess financially it is better to go all the way down to the last game," Stanley said in a late season interview. of the product and uses operations research to determine if the price should be changed to reflect these conditions. As the scheduled takeoff date for a flight nears, the cost of a ticket increases if seats for the flight are relatively scarce. On the other hand, the airline discounts tickets for an approach- ing flight with relatively few ticketed passengers. Through the use of optimization to dynamically set ticket prices, American Airlines generates nearly $1 billion annually in incremental revenue. The management team of the San Francisco Giants recognized similarities between their primary "Our hearts are in our stomachs; we're pacing watching these games." Does revenue management and operations research work? Today, virtually every airline uses some sort of revenue-management system, and the cruise, hotel, and car rental industries also now apply revenue-management methods. As for the Giants, Stanley said dynamic pric- ing provided a 7% to 8% increase in revenue per seat for Giants' home games during the 2010 season. Coincidentally, the Giants did win the National League West division on the last day of the season and ultimately won the World Series. Several professional sports franchises are now looking to the Giants' example and considering implementation of similar dynamic ticket-pricing systems. *Based on Peter Horner, "The Sabre Story," OR/MS Today (June 2000); Ken Belson, "Baseball Tickets Too Much? Check Back Tomorrow," New York Times.com (May 18, 2009); and Rob Gloster, "Giants Quadruple Price of Cheap Seats as Playoffs Drive Demand," Bloomberg Business-week (September 30, 2010). MANAGEMENT SCIENCE IN ACTION REVENUE MANAGEMENT AT AT&T PARK* Imagine the difficult position Russ Stanley, Vice President of Ticket Services for the San Francisco Giants, found himself facing late in the 2010 base- ball season. Prior to the season, his organization adopted a dynamic approach to pricing its tickets similar to the model successfully pioneered by Thomas M. Cook and his operations research group at American Airlines. Stanley desparately wanted the Giants to clinch a playoff birth, but he didn't want the team to do so too quickly. When dynamically pricing a good or service, an organization regularly reviews supply and demand product (tickets to home games) and the primary product sold by airlines (tickets for flights) and adopted a similar revenue management system. If a particular Giants' game is appealing to fans, tickets sell quickly and demand far exceeds supply as the date of the game approaches; under these conditions fans will be willing to pay more and the Giants charge a premium for the ticket. Similarly, tickets for less attractive games are discounted to reflect relatively low demand by fans. This is why Stanley found himself in a quandary at the end of the 2010 baseball season. The Giants were in the middle of a tight pennant race with the San Diego Padres that effectively increased demand for tick- ets to Giants' games, and the team was actually scheduled to play the Padres in San Francisco for the last three games of the season. While Stan- ley certainly wanted his club to win its division and reach the Major League Baseball playoffs, he also recognized that his team's revenues would be greatly enhanced if it didn't qualify for the playoffs until the last day of the season. "I guess financially it is better to go all the way down to the last game," Stanley said in a late season interview. of the product and uses operations research to determine if the price should be changed to reflect these conditions. As the scheduled takeoff date for a flight nears, the cost of a ticket increases if seats for the flight are relatively scarce. On the other hand, the airline discounts tickets for an approach- ing flight with relatively few ticketed passengers. Through the use of optimization to dynamically set ticket prices, American Airlines generates nearly $1 billion annually in incremental revenue. The management team of the San Francisco Giants recognized similarities between their primary "Our hearts are in our stomachs; we're pacing watching these games." Does revenue management and operations research work? Today, virtually every airline uses some sort of revenue-management system, and the cruise, hotel, and car rental industries also now apply revenue-management methods. As for the Giants, Stanley said dynamic pric- ing provided a 7% to 8% increase in revenue per seat for Giants' home games during the 2010 season. Coincidentally, the Giants did win the National League West division on the last day of the season and ultimately won the World Series. Several professional sports franchises are now looking to the Giants' example and considering implementation of similar dynamic ticket-pricing systems. *Based on Peter Horner, "The Sabre Story," OR/MS Today (June 2000); Ken Belson, "Baseball Tickets Too Much? Check Back Tomorrow," New York Times.com (May 18, 2009); and Rob Gloster, "Giants Quadruple Price of Cheap Seats as Playoffs Drive Demand," Bloomberg Business-week (September 30, 2010).