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March 16, 2009

6-4-3

Why Youve Paid It

by Gary Huckabay

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About ten years ago, I did some really cool and fun research for one of the large casino resorts on the Las Vegas strip. It was a rather long engagement that lasted over a year total, and involved both qualitative and quantitative research. It was good work, too, because it was interesting, and the client was serious about doing what was necessary to act on the results.

That kind of follow-up is quite rare; a lot of times, you come up with a good plan of action plan, but the client doesn't respond, for whatever reason, be it a change in management philosophy (or management, for that matter), a lack of funds, or just too many other balls in the air at the time. It happens, so when you get a client that's willing to keep at the learning process, despite the costs and the questions, and is serious about taking advantage of the work you're doing, it's very satisfying. One aspect of the research involved trying to figure out the value of the retailer deals that the casino was working on. As anyone who goes to a casino, or for that matter to a baseball game knows, partnerships, co-marketing deals, and licensing are a big part of the mix when it comes to revenue.

One thing that I took away from the conversations keeps popping back into my mind whenever I fork over a ton of dough for something at a movie theatre or some rodent-infested theme park. It was said in passing by one of the execs during a meeting when talking about pricing at one of the planned stores associated with the casino. He said, "They'll never make the kind of volume they're forecasting unless they charge a lot more than that."

I didn't say anything at the meeting, but it stuck with me. I'm a somewhat secretive, heavily quantitative guy, and I work hard to be rational. So I figured it was a short-term calculus-the quantity would remain high for the short term, but in the longer term, the quantity would fall in line with my neat little assumptions. And, being annoying and working on a deliverable that required buy-in from approximately nine million people, and that had massive Excel-based financial models, I followed up with the exec, to absolve myself from any responsibility about the assumptions therein.

The assumptions I was ordered to use showed no reduction in sales volume due to the high price. In fact, the sales volume calculation was not driven by price at all. I wasn't supposed to even use it in the model. I was told that I didn't get it, that hospitality and entertainment ventures spend more money and time understanding their customers than any other industry. (I don't know if that's actually true.) All of the marketing people had the behavior of their customers burned into their heads. And, above all else, the product had to be great, and the product was the escape. You don't rationally walk into a casino; no such behavior exists, outside of a very few. People want to escape. What do they want to escape? I can't provide the numbers, but here are some of the survey items from one of the market research surveys performed during the engagement:

  • Stress (Sources:)
    Financial
    Parents
    Kids
    Spouse
    Job
  • Monotony
  • Responsibility
  • Quiet
  • Boredom
  • Obligations
  • Weather
  • Commute

Over the coming days, I spent a fortune paying for lunches for all sorts of marketing people from among the ones that I was working with. If economy is psychology writ large, then is individual consumer behavior simply a matter of cognitive psychology? We suck at making rational decisions; it's just an electrophysiological fact. Or, let me rephrase-we suck at making the decisions we're faced with most often in a highly evolved and technical society. Baring your teeth and ferally growling at your boss is not likely to be received well if you work at, say, GEICO. Most immersive entertainment ventures know this institutionally, the same way that the US collectively knows that capitalism is considerably more desirable than despotism. It's built in.

When someone walks into a casino, or a water park, or a ballgame, they generally don't want to deal with the crap that they have to deal with on a daily basis. They don't want to worry about how much a f---ing Coke costs. They're escaping, and entering a kind of role playing. A very sizable chunk of the population wants to pay $550 for the distinctive blue bag that says "Tiffany & Co." on it, and a sizable chunk of the population, you and I included, will make purchases, and many other decisions, in spite of rationality, not because of it.

Is this a long-lasting effect? Well, does it really have to be? You read Baseball Prospectus, so I know enough about you to know you're not a middle-of-the-distribution baseball fan. How many games did you attend last year? I can't go into the distribution of how many people attend how many games, but run through some scenarios in your mind. What's the learning or memory curve on pricing for concessions or parking? How many replacement products are available, and what's their effect on how much you enjoy the game? If you see your friends once a month, and you can work a grill, you might want to tailgate, right? In many cases, seeing your friends is far more important than the actual game, and that means parking, right?

Think it through. We've paid it because ultimately, we want to. Did you imagine, twenty years ago, that'd you'd pay $1.39 for a pint of bottled water? The fact of the matter is that you're paying for the value chain, and it's a question of how much the seller can get you to lay out. By presenting the product at the best possible time and in the best possible circumstance set, the seller can get the buyer to cough up at the time when their perceived utility for the product is the highest. That bottle of water is cold, so you didn't have to worry about refrigeration. It's there right now, at the time when your caterwauling three-year-old is thirsty. It's where you are, so you don't have to drop everything, get out of the checkout line, and find some nasty water fountain guarded by a homeless ex-linebacker with hepatitis B. You didn't have to haul around a backpack to carry a thermos, which you also didn't have to wash. So you pay the $1.39 for the Dasani or Aquafina while surrounded by hordes of red-and-khaki go-getters around the fubar checkout at the local Target.

And you pay the $925 for the .0025-carat diamond nose ring at the Bulgari attached to the Ostentatia-Vegas casino resort. Not to mention the $20 to park to see a mid-season baseball game. Or the $6.50 for the Souvenir Cup Dr. Pepper. The key is the creation of the proper circumstances. You pay it, because under those carefully-crafted circumstances, you want to.

Well, at least you did, which we can cover in more detail next time.

Gary Huckabay is an author of Baseball Prospectus. 
Click here to see Gary's other articles. You can contact Gary by clicking here

23 comments have been left for this article. (Click to hide comments)

BP Comment Quick Links

Richie

So there is going to be a quick followup to this? Good.

Because conspicuous consumption isn't THAT prevalent. Marketing people need to think we're all misleadable idiots, in order to occupationally justify themselves.

Mar 16, 2009 09:47 AM
rating: 2
 
Brian24

I guess it depends on what you mean by "that" prevalent. For example, the entire dance club industry is built around conspicuous consumption. Nobody goes to a club and buys $22 Cosmos--or, better yet, a table that conveniently comes with a $600 bottle of vodka--because it's a reasonable price. It's because it's an opportunity to spend a ridiculous amount of money conspicuously.

Much of Vegas, at least in the big casinos, is designed the same way.

Mar 16, 2009 10:16 AM
rating: 2
 
Richie

The dance club dynamic is driven by girls who reallyreallyreally want a rich guy, and prices that ensure any guy they meet there is reallyreallyreally rich, or at least willing to fake it long enough to spend a ton of dough on them. Not much different from how the sorority/fraternity dynamic worked at the University of Southern California when I was there.

And very, very different from the ballpark dynamic, I would think. Which is why I'm looking forward to Gary's followup article on this.

Mar 16, 2009 10:47 AM
rating: 2
 
ScottyB

Price is a big deal for me. I'd rather be parched than "buy" water that I can get for free (and will never drink a bottle shipped from Fiji!!!). I always bring food to sports events, and sneak food/drinks to the movies. As for the "nightclub" conversation earlier in the comments- I always drank at a cheaper bar (or had a flask with me) before going to expensive clubs.

Then again, I'm apparently the one guy who saved enough to put 20% down on a 30-year fixed mortgage.

Marketers are very smart and insidious, but they can't get you if you know what they are trying to do.

Mar 16, 2009 13:33 PM
rating: 0
 
beerd90210

Actually I take my kleen kanteen to the game, filled with delicious tap water, and it doesn't require any cleaning, really - it's water after all. I take public transit to the game and don't spend a penny on concessions. $6.50 for a coke? I'll sneak in a couple beers and take a burrito with me.

I can't imagine what circumstances would get me to pay for a $925 nose ring. Well... I can imagine them, but this is a family website.

Mar 16, 2009 09:59 AM
rating: 4
 
SFC B

I hope you're exaggerating about not needing to clean your Kleen Kanteen. It might be made of stainless steel but it still requires a bit of sanitation every now and then.

Mar 16, 2009 13:16 PM
rating: 2
 
Zabadoey

Glad to see you around Gary. Any chance of a SF/Bay Area Pizza Feed sometime soon?

Mar 16, 2009 10:24 AM
rating: 1
 
tmangell

Gary - good article(not as good as the fantastic article in BP 2009), but, if I understand your premise, most consumers at recreational locales (theme parks, sporting events, movies, casinos, etc.), are captive consumers, with limited choices related to food, drink, souvenirs, et al., so the vast majority of them don't care that they're paying $6.50 for a keepsake plastic cup of watered down soda, $8.00 for lite beer filled with preservatives, or $7.00 for stale popcorn, since they care more about the experience than the stuff they purchase. In my mind, the stuff I eat, drink, or purchase at the ballgame is a major part of the overall experience.

Perhaps I'm the rare exception to the rule, but, when I attend a game at Wrigley, the Cell, new Busch, Miller Park, or PNC Park, I do care about how much stuff costs, for two reasons. If possible, I'll take public transit, unless I'm tailgating. For sustainability reasons, I'll pay $2.00 to take a bus or light rail rather than pay $15-$30 for parking. I grant that places like Dodger Stadium are not accessible easily by public transit, but, if i'm meeting friends at Busch, Coors Field, or Wrigley, I'll propose we meet either before or after the game at a nearby bar or restaurant where the food and drink are probably a little cheaper, there're more choices on the menu, and we can choose which establishment to patronize.

Secondly, almost all the parks I've been to in the past five years have made great strides in providing a a better variety of beer and food. In PNC, for example, I'll pay a buck more and walk farther within the park to buy a micro-brew on tap than a crappy Miller or Bud. At Wrigley, I'll go down to the first level and buy a brat rather than a hot dog. The White Sox, overall, have better public transit, food, and drink options than Wrigley, and that's why the overall experience, including the ballpark architecture, is better on the Southside.

Perhaps I'm a snobby old urban dweller, but the experience definitely includes quality food, drink, customer service, and transportation.

Mar 16, 2009 10:33 AM
rating: 3
 
Brian Kopec

Here's a data point...I live within 15 minutes of a major league ballpark and work within walking distance of it. I subscribe to BP, buy the annual, and read just about everything I can get my hands on about baseball. Yet I attended only 1 game (free ticket) and watched fewer than 20 innings on TV.

Neither decision was driven by the price of admission.

That's partially a product of my refusal to hand over cash to the Pirates and partially a product of having 3 kids under age 4. But I've often thought I must watch less MLB than any other BP subscriber.

Mar 16, 2009 10:42 AM
rating: 1
 
Ira

There's a new gadget at some baseball parks (I know its at The Ballpark in Arlington, or whatever they're calling it this week). Its Valet parking. For $40 (or free if you drive a Lexus, who sponsers it) you can get out of your car standing next to the stadium and allow someone else to park it. If you know where your seat is and are smart about where you drop your car off you have to walk about 45 to 50 feet to your seat. Compare that to spending $20 for the exercise of walking a mile and a half. If you are truly lazy, or have small kids (guilty on both accounts) then the money is well worth it. Especially since you can pick up your car right outside the stadium too.

Mar 16, 2009 11:06 AM
rating: 1
 
jdseal

Interesting article. Interesting to me, anyway, because this is exactly the kind of analysis I do for a living. (Not exactly the escapism I usually get from BP, where's the baseball?)

But (to address the first post) the point is not what marketers "think." It's what marketers have empirically demonstrated. Just like the "old school" vs. sabermetric perspective on baseball, you can act on what you "think" or you can do the research and analysis without pre-conceived ideas about what is true or not.

Just like BP can make pretty solid probabilistic estimates of how a player will perform (PECOTA), I (and plenty of others like me) can make pretty solid projections of how consumers will behave. Maybe not individual consumers (you may very well be the exception) but prevalent enough to maximize profits.

If you buy at all into an analysis-based or "Moneyball" approach to baseball, don't think for a minute the same thing isn't going on in the world of marketing.

Mar 16, 2009 11:13 AM
rating: 4
 
strupp

I've always thought that the "Moneyball" approach was just taking a broader "marketing" aspect to running a baseball team. Key phrases like "bang for buck" or "value for our dollar" were all the hot phrases we'd use in the staff rooms.

That said, I'm still glad that MLB and their stadiums are much more lenient than some of the race track owner/operators have become over time.

Mar 16, 2009 11:44 AM
rating: 1
 
Richie

I guess I was a little harsh. Not intentionally so, just a matter of brevity.

Unless you're arguing that research empirically shows we are mostly conspicuous consumers, which I will then contest. Citing Kahneman, Tsversky, et.cet., in case you're loading up your gun right now. And want to join me in really really boring everyone else here :-)

I would also suggest marketers like cops do have a slightly jaded view of the rest of us, for similar reasons. Since cops professionally meet so many dishonest people, they start viewing folks in general a bit through that lens. Marketing makes more money off the more-gullible than the less-gullible, their efforts therefore are so systemically focused more on that segment. which colors their impression of all the rest of us, too.

Mar 16, 2009 12:30 PM
rating: 1
 
beerd90210

I'm sure marketers for ball parks have done all sorts of research along the lines of 100 beers sold at $7 = $700 vs 150 beers at $5, and the accompanying cost of additional beer and of beer salespeople at the lower price. But I just wonder if their models are realistic when I look around pac bell and see no one buying beer. especially not season ticket holders. It's really no sweat to me - if beers are $7, I'll sneak a few in. If they were $4, I'd probably buy a few and not bother with the sneaking.

Mar 16, 2009 13:59 PM
rating: 0
 
akyanks100

It seems like you are describing how marketers are capitalizing on societies unyielding path towards total dependence on the industrial machine's ability to fill up every concievable circumstance in which individuals can quit thinking and just rely on a sort of managed havoc known as our modern economy. I don't think that marketers depend on taking advantage of these circumstances as much as intentionally propogating them. I think it is sad when individuals lose control of their ability to reason.

Good story though.

Mar 16, 2009 11:35 AM
rating: 1
 
akyanks100

...of course there is much to celebrate in the progress certain industries have carried us too, and I am not advocating a return to nomadic foraging, and I understand that to extricate a logic in our decision making is absurd considering how complex our economic matrix is, but why must we rely so heavily on this matrix. Lets start thinking about what we want, not what is convenient.

As someone who appreciates the game of baseball for it's inner richness, and not just a means of escape, the current avenue that baseball organizations and there stadium ventures are headed on is not going to satisfy.

Mar 16, 2009 12:00 PM
rating: 1
 
mak1277

"Let's start thinking about what we want, not what is convenient."

Don't you think part of the issue here is that these two things are one and the same for a pretty sizable percentage of people? I, for one, will gladly pay a few dollars (or more) extra simply because something is easy and convenient.

Mar 16, 2009 14:52 PM
rating: 1
 
Rob_in_CT

I haven't gone to a game in years. When I did go, I bought very little (maybe a soda, maybe a pretzel), precisely because I do care that concessions are wildly overpriced. It irritates me - it's not that I couldn't afford it. I sat in the upper deck ($20).

I don't go to games anymore for basically 3 reasons:

1) I used to live ~1.5 hours away from Yankee Stadium. I now live ~3 hours away.
2) It used to be that you could get Yanks/Sox tickets without herculean effort. It's not just the price, it's the insanity. It's even worse if you want to go to Fenway (which I also used to do).
3) I get YES. I get to watch the games in HD in my living room. If I want a beer, I go to my fridge. If I want a snack... etc.

I'm also dubious about the design of the new stadium. I will probably try and get to a game next year. But if it's too much of a hassle, bah.

Mar 16, 2009 12:06 PM
rating: 0
 
martinkennedy321

Two things. First, I’d like to offer my own experience as a counter to the thrifty fans who’ve chimed in so far.

I see at most one baseball game a year. Why? Because to get there I take a 90 minute flight and then a 3-hour drive.

Because it’s such a big deal to go – and yes, an escape – I couldn’t care less what the prices are at the ballpark. I pay far too much for my tickets via StubHub so that I can be close to the action (more than I’d spend if I attended games regularly), and eat and drink whatever I want.

As a fan, I’m in the market for a perfect moment. I got one on July 15, 2005 when I watched Rafael Palmeiro get his 3,000th hit. The later scandal did nothing to diminish my memory of the experience.

So for those in the ballparks who are tourists – and there must be many in New York, Boston, Chicago and LA – I think there’s a pretty low sensitivity to price.

The second comment is in response to Gary’s client, who said "They'll never make the kind of volume they're forecasting unless they charge a lot more than that."

There are a lot of products where lower price diminishes sales, because it reduces status. And some products only get taken seriously once they hit certain price points (think: fine art).

On the ballpark side, if a luxury suite was priced so that you or I could buy it, it wouldn’t be a luxury suite anymore. It’s not about the views or amenities, it’s about the exclusivity of the hosting experience.

But if the financial crisis blows a hole in your target market – if there aren’t enough investment bankers left to buy the suites, or enough price insensitive tourists to buy souvenirs – then what do you do with your product? Hopefully Gary has some ideas he’ll share in the next instalment.

Mar 16, 2009 15:53 PM
rating: 1
 
R.A.Wagman

Wonderful, wonderful article - I've been waiting for a write-up on this aspect of the game experience for quite a while. I have always thought concession prices were overly exorbitant and generally do not eat or drink (save perhaps a Sprite) when attending games. I'll have my alcohol before or after the game. Same with the food. Street meat at $2.50 is much better than stadium meat at $5.50. Bigger, tastier, smaller wait times for eating and more condiments. The stadium itself seems to be designed in a way to get you - the consumer of the live baseball experience - to funnel your money out.

And yet, for all of my seemingly sensible refusals, the lines for bad food and overpriced, watered-down beer are nearly two-half innings long. I realize that prices will not go down until more people start acting like I do. But I'm not holding my breath - which waits abated for the continuation of this piece.

Mar 16, 2009 16:32 PM
rating: 1
 
Richard Bergstrom

People are ambivalent in some aspects and fickle in others. They complain about the price of gas, but don't notice the increased prices of food. They'll wonder how someone can spend $100 at a casino, but throw $100 themselves at lotto tickets. However, once a person makes a decision to do (or not do) something, they will go to any length of excuses to support their position. They won't attend the baseball game because Opening Day tickets jumped up to $100, decry the billionaires paying millionaires and ruminesce about the good old days. Check them later on, and that $100 goes towards some other luxury item such as Itunes downloads or new rims or $300 football tickets.

I smoke cigarettes bit have been a bit miffed about my health (and particularly my stamina). The latest stimulus package increased my cost per carton by $8. So, I've decided to try cutting back, if not quit, smoking. I thought to myself about the money I would save and all that yadda, how I would save myself trips to the store for cigarettes and all that jazz. Yet, to support my transition, I spent $100 on an e-cigarette, which is a fancy term for a nicotine vapor machine that runs on batteries. Could've thrown the money I spend at patches, or at gum, or some other method, but the novelty helped to give me some interest and incentive.

Of course, I could've just quit cold turkey and saved that money, but I believe it is hard for any person to remove a luxury they like (and I do like smoking) without replacing it in some fashion.

The point is that people are creatures of habit, to an extent. Tell them watching baseball is wrong when that money could go towards feeding the poor or funding our schools and they'll give a blank stare. Tell them that they shouldn't complain about being broke when they go out and party every night, and they'll argue vehemently about it. But, if maintaining that habit becomes uncomfortable or difficult, either because of increased prices, lack of access, or a bad experience, then people will vote with their dollars elsewhere. In quite a few cases, the money will go back towards a luxury unless there is some philosophical change or some life-altering event that changes a person's priorities.

Or, I could be wrong and kept typing this ramble to avoid smoking a cigarette ;)

Mar 16, 2009 17:52 PM
rating: 2
 
JeromeNYC

Great article, Gary. To me, it's all about the price/value equation of the item in question -- specifically, the ticket prices themselves. A great example is the Yankees' "once in a lifetime opportunity" to buy "tickets between the bases" for 20 home games. The field-level tickets are $350 per seat per game - games that include such gems as Baltimore on a Tuesday night in May. Now I love a midweek home game in a great seat as much as anyone, but $350?

The Yankees were betting that in the era of conspicuous consumption individuals and corporations would buy those tickets "in spite of rationality." Today, it's a different story.

As for me, I put the value of Yanks/Baltimore in a great seat on a Tuesday night at about $35. Throw in a $9 beer and I'm all set.


Mar 16, 2009 17:52 PM
rating: 1
 
somerford

I would like to thank Gary for noticing I'm not a middle-of-the-distribution baseball fan.

Mar 17, 2009 06:15 AM
rating: 1
 
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