Some lessons for NRL on pricing Passengers are willing to pay more to travel at convenient times. The poor turnout at the City-Country game at the weekend, where only 4635 attended under blue skies and a brilliant playing surface, suggests the NRL may need to better understand its price points. One change it could make is to implement yield and revenue management practices to boost revenue, rather than the uniform within-categories pricing that it now offers. Yield management is a pricing system that is used very successfully by airlines and hotels to extract the maximum possible revenue from customers by taking advantage of the differences in willingness to pay of those customers. To illustrate, if I'm a passenger who wants to fly between Sydney and Melbourne and I'm willing to pay $120 for a one-way ticket but only pay $100, then the airline is losing $20 of potential revenue on the ticket. If the airline can somehow identify or approximate the willingness to pay of this passenger then it can charge that passenger an extra $20 and add 20 per cent to its revenue line. Airlines use simple rules to identify the differences in willingness to pay of different passengers. The easiest and most widespread rule is that passengers who attempt to book a flight closest to the departure date are more willing to pay a higher price than passengers who book a long way out from the departure date. Passengers are also willing to pay more to travel at more convenient times or at times where they must travel to meet appointments. It is for this reason that airfares between 7am and 8.30am and 4pm to 6pm during the week are more expensive than airfares outside these times. And airfares offered during public holidays, school holidays and at times of major sporting events are more expensive because the airlines know there is a greater willingness to pay for a higher price at these times. The NRL must work out how to extract this higher willingness to pay. It must do its statistical homework. It is quite clear that the good folk of Coffs Harbour and surrounding areas have a materially lower willingness to pay compared with those NRL fans living in Sydney, Brisbane, the Gold Coast and Melbourne. Ticket prices should have been lower at Coffs Harbour as a result. Within these major cities there will also be differences in the willingness to pay. The people of western Sydney will generally have a lower willingness to pay than those living in the northern beaches, the eastern suburbs and Cronulla. In general, lower income demographics have a lower capacity to pay, which in turn translates into a lower willingness to pay. Willingness to pay is also a function of fanaticism, but if you can't afford to go to the footy then the capacity to pay takes precedence over the willingness. The optimal pricing problem of the NRL is not that far removed from that of airlines or hotels. For starters they have a fixed capacity. There are only a certain number of people that a football stadium can take in the same way that there are only a certain number of seats on a plane or rooms at a hotel. The NRL must determine the utilisation of this capacity that will allow it to maximise profit, in the same way that airlines must determine the percentage of seats on the plane that should be occupied (called the seat factor) and hotels must determine the percentage of rooms or beds at a hotel that should be occupied (called the occupancy rate). It is not always the case that packing the joint out will maximise profit. In fact, packing the place out usually means that your prices are too low - an issue that airlines are battling with at the moment. There is usually a sweet spot between packing the place out and having no one turn up. Like airlines and hotels, football stadiums generate ancillary revenue - programs, food and beverages, football paraphernalia and car parking all generate revenue, of which the NRL is likely to take a share of the rewards. The entry price at a football stadium needs to consider this ancillary revenue stream. If it prices too high at entry then it reduces throughput at the stadium, which in turn reduces ancillary revenue. Similarly, if it is too aggressive with its ancillary pricing then people won't turn up at the game and its gate takings suffer. Patrons must also get to and from the stadium at a transport cost and line up in queues that also come at a congestion cost. These forces too must be considered in assessing the entry price and managing yield. Keeping and attracting stars of the game are also important in driving up willingness to pay, yields and revenue. When the NRL boss Dave Smith and his new management team sit down to talk about how to change the financial fortunes of the NRL, a holistic view to yield management should definitely be in their sights. And they shouldn't be writing off the City-Country game in country areas. Rather they should be doing their homework on the willingness to pay and pricing accordingly. Tony Webber was Qantas Group chief economist between 2007 and 2011. He is now managing director of Webber Quantitative Consulting and associate professor at the University of Sydney Business School.