This paper is co-authored by marco bertini, john t. Gourville. Marco bertino is assistant professor of marketing at the london business school and john guville is professor of business administration, albert j. Weatherhead jr., harvard business school。
The quadrennial summer olympics are taking place in rio de janeiro, brazil。
As of 3 august, less than 80 per cent of the ticket sales at the brazilian olympic games were known to be larger than when the ticket sales at the london olympic games exceeded 95 per cent。
Why? Brazilians complain that “the price of tickets is too high”
Pricing strategies are too important for both olympic organizers and other enterprises。
Companies have been accustomed to reaping as many benefits from transactions as possible through price mechanisms. This approach is fatally weak, and the biggest problem is that it creates a situation of confrontation between the company and the consumer, who is diverted once they feel deceived。
Businesses and organizations should learn from the london olympic organizing committee on the “creating shared value pricing strategy”。
Pricing policies are both enormous challenges and opportunities for companies. The challenge is that consumers are resisting not only unreasonable pricing, but also fundamental corporate profit-making methods。
The root cause of the problem is that, in the traditional practice of companies, market values are seen as a piece of cake of fixed size, and companies must seize as much value as possible from their customers; any company's value is derived from its lost share, and vice versa. Based on this logic, pricing is seen as one of the best mechanisms for companies. Companies profit from mechanical pricing models and often take advantage of consumer disadvantages, such as limited consumer information, attention and choice。
However, the value is neither corporate nor exclusive. There is no value without willing customers. Therefore, companies must share value with their clients. Not only that, but it's not worth what most companies think is a piece of cake of a fixed size. On the contrary, its size may be expanded by consumer collaboration, for example, through high-quality discounts that not only increase the volume and reputation of commodity sales, but also contribute significantly to the building of corporate brands and user loyalty。
Companies must take the lead in creating shared values through pricing, the main language of their communication with consumers. No factor affects consumer behaviour more than price. If branding is a persuasive market technique, pricing is the real engine of consumption. Prices clearly convey the value of the company, its attitude towards its customers and the way in which it interacts with customers. Corporate consumer-led behaviour creates new values that will become a new source of revenue for the company, increase user satisfaction and loyalty, create a good reputational effect and help companies save costs and many other benefits。
The creation of value-sharing pricing strategies is an essential way for firms to improve their competitiveness。
What is a pricing strategy of shared value? The 2012 london olympics is a good example. Over a period of 16 days, a total of 12,000 athletes participated in 26 sports competitions. The london olympic and paralympic organizing committee pre-sold 8 million tickets for the event, ranging from 20 pounds to 2012. In addition to considering income factors, the committee set the goal of the olympic games as “olympics for all”. In order to carry out this social mission, the london olympic committee needs to address extremely complex pricing challenges in a creative and value-sharing manner。
This is not just the unique challenge of the london olympics. Most companies face similar challenges, except for the more urgent timing of the london olympics and broader media attention. While very few companies, like the london olympic committee, clearly declare their shared values missions, most of them benefit from the pricing methods of the london olympic games。
Through an in-depth study of the pricing strategy of the 2012 olympic games, we have found five principles of pricing that are useful to companies。
I. Focus, not trade
Consumers often have a sense of identity in the brand they purchase, and companies want to have loyal customers rather than temporary clients. However, pricing strategies tend to build a wall between brands and followers. The company's branding is probably saying, “we value you”, while the pricing strategy is saying, “we value your wallet”. Consumers are able to respond accordingly when they can identify the company's different intentions。
Ii. Proactive pricing
Companies often develop price strategies in response to changing circumstances, such as changes in the behaviour of competitors or customer dissatisfaction. Companies that create shared value need to set prices proactively according to the needs of the target client and the client's response to the price that may arise. For example, where simple and reasonable means of circumvention exist, consumers usually bypass payments; they are sensitive to sinking costs and react differently in the face of repetitive small costs and one-time large costs. Companies can use this information to proactively price actions that are detrimental to consumer interests and encourage behaviour that is beneficial to both parties。
Iii. Focusing on flexibility
The pricing strategies of companies are often too rigid. Many companies wish to find a “right” price, thereby maximizing profits or achieving a temporary goal. However, the same commodity may have different values for different consumers, and the same commodity's value for the same consumer may change over time. For example, in the case of computer buyers, commodity functions are important at an early stage, but the value of technical support and individualized services will gradually become apparent at a later stage. Inflexible single pricing policies often result in firms not sharing value with consumers or adjusting prices in a timely manner in response to changes in consumer demand。
Iv. Increased transparency
Transparently profitable companies can build trust with clients and bring in more engaged clients. High-level customer maintenance costs are lower, and the purchase of ancillary products and ancillary services and their conversion to high-end users will provide more valuable feedback and product innovation advice, as well as greater tolerance for company failures. On the contrary, it is difficult for a company that is less transparent to establish a trust relationship with its clients and to show that it has something to hide. Many customer satisfaction products or services have long production lines, complex pricing schemes or obscure contractual terms. In other words, there is little transparency in the relationship between these companies and their clients。
V. Ensuring fair market standards
Finally, it is also important to ensure that pricing is fair to consumers. If companies price fairly, consumers usually buy more products and are willing to pay higher prices. Instead, if the pricing is unfair, the consumer gives the company some “lessons”. In particular, equity includes not only the final price but also the pricing process。
Let us look at how the london olympics have applied the “creating shared values pricing strategy”。
Pricing strategy for the 2012 london olympics
In 2012, the london olympic committee faced a huge business challenge: in response to 26 sports competitions, the london olympic committee needed to set a fair and reasonable price for 8 million tickets, both to secure income and access and to achieve the social goals of the olympic games. To achieve this goal, the organizing committee successfully and fully applied the five pricing principles that created shared value。
Focus, not trade。
The london olympic committee noted early on the relationship between the organization and the british government, the british public, the international olympic committee, etc., where ticket prices were the most tangible link. As one member of the organizing committee said, fare income represented only 20 per cent of the total revenue of the olympic games, but an error in pricing would be the most important thing for the organizers to scratch their heads。
The solution is to put consumers above the deal。
First, the organizing committee established multi-step ticket prices for many projects, which guaranteed both income and low-priced tickets。
Second, the organizing committee designed different fares for different age groups, with discounts for young people and persons over 60 years of age。
Thirdly, the organizing committee selected two high and low ticket prices for opening tickets, £20. 12 and £12 respectively, the symbolic significance of which was self-evident。
Lastly, the organizing committee had rejected the issuance of free tickets in order to avoid the public outrage caused by free tickets at previous olympic games. For many, the subtext of this act is “we are helping you”。
Active pricing。
In the past, olympic organizers have often tied scarcely-visited projects to tickets for popular games in order to increase seating and income. The failure of the london olympic committee to do so was mainly due to the fact that it would increase the burden on consumers and would not necessarily lead to an increase in the number of seats. Many of the consumers who used to buy bound tickets did not go to the coldgate project competition。
In order to avoid such problems, the london olympic committee has established separate fares for 26 sports projects and elaborated their respective target population and marketing strategies. It is worth mentioning that the organizing committee has tied public transport and tickets for sale in order to ease traffic congestion near the premises. Through active pricing, the organizing committee has both reduced the proportion of people who do not watch the competition and increased the frequency of use of public transport, which has made the audience and the organization happy。
3. Focus on flexibility。
The london olympic committee had to set prices for all tickets one and a half years in advance, at a time when market demand information was unclear. In order to address this uncertainty, as mentioned earlier, the organizing committee set more step fares for the competition, but the number of tickets per slot was not fixed, while the organizing committee promised the more expensive tickets the audience would buy, the better seats. In the spring of 2011, consumers selected the competition they wanted to see and the affordable fare through an online voting system. Upon enquiry, the committee may assess the need for each ticket and redistribute the corresponding number of seats accordingly. Since the number of seats with various fares was not pre-determined, the committee could be flexible in accordance with actual rather than anticipated demand, which not only resulted in the successful sale of more tickets but also high consumer satisfaction。
4. Increased transparency。
The london olympic committee is aware that every move of its kind is under public scrutiny, especially in the eyes of the british tabloids. One of the stated pricing objectives of the games was to avoid negative media coverage. Thus, from the outset, the organizing committee issued transparent information to consumers and the media, including pricing principles and processes, the main nodes of the time line for ticket purchases, the price of steps for each event, the number of tickets available for sale and the distribution of tickets by the organizers to sponsors and the general public. So far, the efforts of the organizing committee have been largely successful。
Ensuring equity in market standards。
Speaking of the olympic games, many london citizens have expressed their desire to watch the best games at the most reasonable fare. After all, the london city home office was built and made an economic contribution to the preparations for the games. However, not every audience wishing to watch a given competition has been able to buy tickets successfully, and the prices of some items are not reasonable。
In order to respond to these problems and meet the expectations of the audience, the organizing committee took the following two initiatives:
First, from the first day of the ticket sale, the organizing committee promoted discounts for specific age groups as well as special price tickets up to or below pound20 or pound30. While it goes without saying that the media may be slamming certain expensive entry points, the organizing committee would like the public to understand that without these expensive entry tickets, the organizers would not be able to provide the public with a wide range of low and special entry tickets。
Second, the organizing committee strongly prohibited the auctioning of hand-held tickets or the conduct of secondary transactions above the nominal value of the tickets. Tickets are obtained by random extraction in order to avoid any possible unfairness。
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