1 Case Study: Orlando Magic Drew Deas Graham School of Management, Saint Xavier University BANA 530: Operations and Technology Management Prof. Paul R. Bujak October 2, 2022 2 After researching revenue (yield) management in airlines, describe how the Magic system differs from that of American or other airline carriers. One major difference between the Orlando Magic’s system and major airline systems is the fact that the Magic offer every seat for sale at the same time when a game becomes available, while major airlines will set prices for seats but then limit the number/type of fares they will make available for a certain time. For example, fares may be set for different seating options on an American Airlines flight (first class, business, extra leg room, etc.), but the revenue management system will track how many of each have been purchased and will reduce the supply of overbought fares until additional premium fares have been purchased (Chandler, 2011). This artificial throttling differs from an NBA franchise’s system, where tickets for each game become available on a certain day, and no sections of the arena are “off limits” or not available. The revenue management process happens later in the cycle for NBA teams like the Magic, who assess demand and outside factors as the game approaches, rather than artificially constraining supply early in the season. The Magic used its original pricing systems of several years ago and set the price for a Terrace V, Zone 103 seat at $68 per game. There were 230 such seats not purchased as part of season ticket packages and thus available to the public. If the team switched to the 7-price dynamic system (illustrated in Table 13.11), how would the profit-contribution for the 45-game season change? (Note that the 45-game season includes 4 preseason games.) If the 230 seats were sold to the public throughout the year at a flat $68/game rate, the profit contribution for this section would be $703,800 total (45 games x 230 seats x $68). By implementing the 7-price system, if all 230 seats are filled according to the opponent popularity tier rating for each game, the Magic would expect profit contribution of $767,510, a 9.05% increase over the no-tier pricing model. 3 What are some concerns the team needs to consider when using dynamic pricing with frequent changes in price? This model could present challenges if the team begins to update the tier rating system midseason, based on trades, team rankings, playoff implications, injuries, etc. Fans can quickly turn on a team that charges premium prices for a marquee matchup with a rival, only to learn a week beforehand that a star player is being traded, is missing time due to injury, or worse: being held out for “load management.” These last-minute changes can have a huge impact on a customer’s perception of value, as they are not just paying for the seat itself, but what they think that seat will allow them to see. A customer purchasing an airline ticket knows that seat will (usually) take them to their desired destination, and a ticket to a concert or comedy show will (usually) provide access to set level of entertainment. But in sports, more so than in other areas, the customer expectations can sometimes misalign with reality, or the reality can change drastically in a short amount of time. This leaves the customer highly dissatisfied with the value proposition of their ticket. If dynamic pricing will benefit the team prior to changes in expectations, it should also benefit the fan afterward. Perhaps a “jersey buyback” program for fans who purchased a player’s jersey before they were traded would be a way for the Magic to engender goodwill and allow fans to recoup some of that perceived lost value, possibly leading to more repeat business. 4 References Chandler, Scott (2011). Tableau. Revenue management, pricing, and decision support operations at American Airlines. Digital presentation. https://www.tableau.com/learn/webinars/revenuemanagement-pricing-and-decision-support-operations-american-airlines#video Heizer, J., Render, B., & Munson, C. (2020). Operations management: Sustainability and supply chain management (13th Edition). Pearson.
