Sam Island/The Globe and Mail
For years, concertgoers complained, with few results, about Ticketmaster’s anti-competitive habits, such as giving easy access to bots that would snap up the best seats as soon as they went on sale and then repost them for higher prices on resale sites like StubHub.
The ticketing giant had already begun to tweak its pricing techniques by the time the Competition Bureau and Ticketmaster Canada released a so-called “consent agreement” last summer to address complaints about its marketing practices.
Part of the Competition Bureau’s investigation focused on “drip-pricing,” a term for the method of gradually hiking the prices of tickets purchased online as consumers move through the various checkout steps and accumulate fees, surcharges and taxes. These additional costs could add between 20% and 65% to the price of a ticket.
As a result, the company’s Canadian subsidiary was slapped with a $4.5-million fine and ordered to be more forthright with its advertised prices, something, in fact, it had already begun to do as the competition investigators closed in. (In the consent agreement, the bureau acknowledged Ticketmaster’s voluntary compliance, but the fact of the investigation made it clear that the company was flirting with the laws preventing misleading or deceptive advertising.)
Discontinuing this pricing practice might seem like the only ethical choice available to Ticketmaster, but new re-search suggests it could actually help sales, not hinder them.
The regulator’s focus on Ticketmaster’s pricing tricks underscores one of the most enduring sources of tension in consumer-driven capitalism: the psychology of pricing. Sleights of hand have abounded for generations, from two-for-one bargains to car dealers offering “no-haggle” pricing.
E-commerce, of course, has its own suite of pricing tactics. Travel booking services can now be programmed to boost the cost of a particular flight with each return visit to the site—a psychological pressure tactic intended to hustle consumers to that book-now moment. Some people may claim to know a workaround, such as using a different computer for the research portion of a booking. But the perceived benefit might not outweigh the time required to game the system, says Claire Tsai, an associate professor of marketing at the University of Toronto’s Rotman School of Management.
What’s more, new research from the University of British Columbia and Nanyang Technological University in Singapore offers marketers a solution to encourage consumers to spend more without running afoul of competition laws. So-called “add-on pricing” shows the base price of an item but also informs consumers that for a specified additional amount, they can get a product with more features. For example, a consumer electronics firm might be selling a $199.99 computer monitor, but it can promote a more elaborate monitor by telling consumers the higher-end version is “just $60 more.” Based on a series of experiments with students, the researchers found buyers consistently chose the latter option.
A similar phenomenon is apparent in the telecom sector, which relies heavily on bundled services (such as Internet, cable and mobile). Tsai was part of a team that carried out a trial on bundling for the Competition Bureau. The results, released in August, revealed that consumers do indeed prefer marketing pitches that highlight savings and the convenience of purchasing a service bundle rather than acquiring each individually, even if the final price is the same. “What we found is that consumers are really prone to bundling,” Tsai says. “They think it’s more cost-effective even if it doesn’t save them money in the long run.”
“We buy things, in large part, based on how expensive they feel,” explains David Hardisty, a professor of marketing and behavioural research at the UBC Sauder School of Business and a co-author of the add-on pricing study. Rational judgments often take a back seat. Add-on pricing works because incremental additions look small compared to both the base price and the price of the premium version.
Yet, as the study concludes, add-on pricing can be seen as an ethical practice, because all the relevant information is revealed at once, unlike Ticketmaster’s drip-pricing approach. In fact, the researchers argued that the add-on pricing tactic can even be pressed into service to guide consumers to choose ethically produced goods, such as organic foods or fair trade coffee, which tend to be costlier.
“With this model, there’s no withheld information,” Hardisty says of the findings. That’s the upside for consumers. But from a business perspective, he adds, “it’s pretty straightforward. Price framing works to get people to buy more.”
And it does so, apparently, without breaking the law.
Editor’s note: An earlier version of this article incorrectly identified StubHub as a subsidiary of Ticketmaster. In fact, it is a unit of eBay.