Willie the Wildcat is the mascot for Northwestern University in Evanston, Ill.
Is Purple Pricing ready for the big time? The dynamic ticketing system created by two economics professors at Northwestern University (Evanston, Ill.) is about to tackle its biggest challenge yet — Big Ten Football.
“The basketball thing was just a trial,” said professor Jeffrey Ely who, with the help of a colleague, created Purple Pricing, a Dutch-auction style pricing system that moves ticket prices downward based on demand. The system was road-tested for the 2012-13 Northwestern Wildcats basketball season and now it’s going to be used for the school’s most popular program.
“Football is the big sport here at Northwestern,” explained Ely. “We’re hoping that football is going to be a big enough success so that we can expand beyond it to other schools and sports.”
The system, modeled after a Dutch auction, has fans bidding on tickets until all the tickets are spoken for. The lowest acceptable bid then sets the price for everyone else.
Here’s an example of how it’s supposed to work. Imagine the school has an upcoming game against a Big Ten challenger, like Indiana, and the school has about 1,000 single tickets to sell for the game. When a call for bids is made, the tickets might be priced at $30 per seat and 600 hardcore fans log in and make a bid at that price. But there are still 400 to sell, so the price is dropped another $2, generating an additional 200 bids. When the price is dropped a final time, to $27, the remainder is swallowed up.
And under the rules of the auction, all 1,000 tickets are sold for $27 — even to the fans who indicated they were willing to pay $30. Unlike other dynamic pricing schemes, with Purple Pricing the price never rises. It’s the same system used by the U.S. Treasury Department and the Federal Reserve to raise money through the sale of Treasury notes. It’s also the pricing scheme used by online exchanges to sell keywords and display ads.
Ely said he first became interested in ticketing while examining secondary markets, like StubHub, and the impact they have on the life of a ticket. He realized that if the school could instead capture the data, they’d have a better idea of the demand for each game. “Sometimes we sell out and then the prices [in the secondary market] are very high, and there’s revenue that we’re missing out on,” Ely said. “It’s the same problem that everyone has, and Purple Pricing is one way of trying to deal with that.”
Northwestern University football tickets went on sale Aug. 1, with Purple Pricing available on the Oct. 5 Ohio State game and Nov. 16 Michigan game, with a purchase limit of four tickets per game.
This season, Northwestern has also added a bidding element. Fans can enter a price lower than the current auction price. If and when the auction price falls to that particular bid level, the bidder’s credit card will be charged automatically and he or she will receive the best seats available in that section. The school’s Purple Pledge, which refunds the difference of the buyer’s price and the ultimate price, applies to the bids as well. If the final price does not fall to the bid level, the bidder does not receive tickets. Bidders are charged a 75-cent transaction fee for every bid they make, but that fee is refunded if they make a successful bid.
Ely devised the system with Sandeep Baliga, professor of managerial economics at the Kellogg School of Management, Northwestern University. The professors approached the university’s athletics department with a number of plans to maximize attendance while also capturing as much revenue as possible. “I think they were sold on a combination of things,” Ely said. “They understood that they have been charging the same prices for their tickets for a long time, and it’s not clear why they picked those prices over any other, and they really didn’t have much of an idea what the revenue impact and the attendance impact would be if they charged different prices.”
Another selling point was the potential for athletics and academics to team — “They liked that this was a joint venture,” Ely said.
While the pricing system was already in place for basketball games, there are fewer games in the football season as well as a longer lead time between when single game tickets go on sale and the game dates. “It certainly changes the nature of the auction,” Ely said. “There’s definitely a longer period that allows us to trace out more data as we move down the price curve.” Tickets will never drop below a floor price, which has been set at the season ticket price for an individual game for the football season. For the games that went on sale Aug. 1, however, he doesn’t foresee the prices going that low. Two sections have already sold out for the Ohio State game at $150 and $125, their initial posted prices, and sales are going strong for other sections for both games.
Ely added that the system has benefited from the cooperation of ticketing software company Paciolan, which helped to develop a software solution for Purple Pricing software — during basketball, the pricing scheme was all done manually.
“We look forward to cooperating with them more in the future as we expand Purple Pricing to other schools/teams/sports,” Ely said.
Paciolan CEO Dave Butler explained, “Paciolan’s core business model is to enable clients to sell tickets their way, including new pricing initiatives such as Purple Pricing. It is inspiring to see these innovations come to fruition, born from thought-leading institutions like Northwestern, and we are excited to hear the results of Purple Pricing this football season.”
Interviewed for this story: Jeffrey Ely, (847) 491-8208; Dave Butler, (949) 823-1636