Think of the last time you were at a ballpark and paid for beer. You likely remember paying at least twice as much as what you pay in a restaurant and four times as much what you pay in retail stores.
Which ballpark in the country has the most expensive beer? According to the NPR story it is the Marlin’s ballpark.
According to an analysis by TheStreet.com, the most expensive beer of any baseball stadium is sold at the new Marlins Park, where baseball fans pay $8 for a Bud Light draft.
Why do baseball parks charge you a “small fortune” for a beer?
If you asked the Marlin’s officials, their company line is
“Well, when you look at it, the pricing reflects basically the total cost of the operations including our players,”
Well said. Don’t mistake this statement for pricing naiveté of Marlin’ pricing managers. They understand pricing at customer’s willingness to pay and not based on cost. They simply are using cost argument to justify the pricing. Seriously, no pricing manager worth his salt will believe for a moment the cost of ball players is included in the price of beer. So will the price go up when they sign an expensive player or go down when they fire one? (See here for an example)
The cost based argument is to justify the higher prices and nothing more (like we saw with Starbucks story).
If you read my Groupon book, there is a chapter on how different customers are willing to pay different prices for the same product. One of the example I used is the price of beer at ballparks. Some are willing to pay the set price to enjoy the beer and some aren’t. Ballparks, with so much data about their customers in their hands, can easily find the price at which their profit from beer is maximized. They don’t have to sell beer to most number of people, they only have to maximize their profit.
Take for example, one of the baseball fans interviewed for the story,
“I’m used to, like, $3 pitcher nights and, like, dollar beers and stuff. But I have no choice.”
Marinelli works a part-time job at a sporting goods store where an $8 beer is “an hour of work, on average,” he says. “It’s expensive, man!”
This fan may not buy all the time but does a few times. From the ballpark’s perspective people like Marinelli don’t have to buy beer on every visit, because there are lot more fans like him and there are lot others who are willing to pay every time. An additional thing going for the ballparks is there are no alternatives. You cannot bring beer from outside.
This is the reason why even at the peak of recession, beer prices at ballparks went up. See here for a detailed explanation of demand curve shifts.
Still not convinced how Marlins price beer? Here is a clear indication that they get pricing – Marlin’s EVP of operations says,
the Marlins could be charging a lot more — customers in Miami have been trained to expect expensive drinks. You go to a nightclub and the markup on a bottle of vodka might be 4,000 percent. In that sense, the 800 percent markup on Bud Light at Marlins Park could be much worse
They understand reference price of their customers (remember the famous willingness to pay for beer experiment by Richard Thaler). Customers have been trained to expect higher prices in such public venues and Marlins is merely building on it.
How do you price your products? And how do you communicate how you price your products to your customers?