The 2012 London Olympic Games

Issue:

Paul Williamson, the Head of Ticketing for the 2012 London Olympic Games, must come up with a pricing strategy for around 7.9 million tickets to the 2012 Olympic Games with 26 sports and 300 events. Impartial affordable access must be ensured to everyone planning to attend the event. The price of the tickets should be optimal to ensure maximum attendance without compromising much on the revenue generated through the sale of the tickets. The tickets must be made available to not only the elite but also to the average people.

Analysis:

Ticket pricing is directly dependent on various factors such as popularity of the game, popularity of the players in the event, event type (preliminary rounds, final rounds), etc. Tickets of opening ceremony and closing ceremony add another dimension to the pricing strategy. Apart from these factors, there are other factors such as size of the stadium for an event, timing of the event, popularity of a game amongst international spectators, etc. which effect ticket pricing indirectly. For an event like Olympics, revenue is not the only factor that drives the ticket pricing. High prices may be a tempting option to get more revenues, but they come with a risk of low audience turnover and affordability issues for common people. The LOCOG wants Olympics to be Everybody’s games which is not possible if the ticket prices are high. Inefficient pricing in past Olympic events has lead to low attendance and lackluster audience causing criticism of the host country by media throughout the world. Low ticket prices have also shown a negative impact on Beijing Olympics in two ways: revenues were very low and many people who bought the cheap tickets never showed up.

Based on all these factors the following alternatives can be considered:

Option 1-Targeting the elite

Ticket prices can be kept on the higher end to maximize the revenue and to target the elite crowd in London and across the globe. London is home to many affluent people and targeting this segment can help generate a lot of revenue. The elite crowd would not only watch the games because of their interest but would also consider buying the expensive tickets as a status symbol. The price range for this strategy can be set up by looking at the past three Olympic games and choosing the most expensive ticket price for each event from the three as the reference price. An inflation factor can be further used to come up with prices for London Olympics. But, there is a lot of risk involved with this strategy. London got its hosting right because of its proposal of collaborating the games with a novel cause of development of East London and involving each segment of society into the games. This pricing strategy would be completely against that ideology. Also, there is a high risk of tickets not getting sold due to the high prices resulting in a low revenue.

Option 2-Everybody’s games in true sense

The LOCOG’s forecasted budget is about $3 billion and Olympic Delivery Authority’s total expenses are projected to be around $12 billion. A revenue of $650 million is expected from ticket sales. Most of the other funds would come from local and national taxes in the United Kingdom. It can be easily seen that the revenue from ticket sale is a minor contribution to total expenses. The tickets can thus be sold at lower prices because the revenue from tickets is negligible when compared to total expenses. The price range for this strategy can be set up by looking at the past three Olympic games and choosing the least expensive ticket price for each event from the three as the reference price. Another strategy could be to sell all the tickets online in the form of an auction where people can choose their own prices. The risks involved with this pricing strategy are loss of revenue and low turnover rate. At such low prices many people may buy tickets and not show up on the day of the actual events. 

Option 3-Pricing to optimize revenue and audience

The events can be categorized based on two factors i.e. popularity of the game (high, medium, low) and event type (preliminary rounds, final rounds). This will lead to a matrix in which all the games would fit into one of the categories. In addition, the seating capacity and seating type can help in further classification. Seats can be split into 3 tiers and different prices can be charged based on the quality of seating. Tickets for both preliminary rounds and final rounds of high popularity games and only final rounds for medium popularity games can be easily sold at high prices. In contrast, the tickets to the remaining categories will require price moderation to be sold. These tickets can also be easily sold by lowering the prices a lot and compromising on the revenues. The strategy is to optimize the mix of revenue and audience. Thus, it is important to have low priced tickets in high and medium popularity games to allow all brackets of the society to have a fair chance to see those games. Similarly, the low and medium (preliminary rounds) popularity games can be used to target the lowest stratum of the society who may not be able to buy tickets otherwise. This could also be an opportunity to increase the popularity of these games by reserving a quota of tickets for school and college students.  

Recommendation:

Based on the comparison of the three options in Table-1 (Appendix-1), Paul Williamson must go with a pricing strategy to optimize revenue and audience (option 3). This might be the most complex option to implement but this is the only option which can help achieve the maximum objectives of LOCOG. In terms of financial status and buying power of people, London is closer to Sydney than to Athens and Beijing, making Sydney as the suitable option for reference prices. Easy connectivity to Europe gives an added advantage to London, when compared to Sydney in terms of number of international elite tourists wanting to buy tickets. A factor of inflation for 12 years also needs to be added to ticket prices if taking base prices from the past Sydney games. Both factors drive prices higher for London when compared to Sydney. Opening and Closing ceremony are two major events which attract a lot of people and have seen success in terms of ticket sales at high price in Sydney games. These two events can have 3 types of tickets to target 3 different sections of the society- Elite class, middle class and lower class. The prices for tier1, tier2, and tier3 tickets could be around $1500, $500 and $50 respectively.

In terms of different games, similar factors can be used to decide a price range for the tickets. Table-2 (Appendix-1) shows the prices that should be used for games from different popularity categories. Online ticket booking portal should be opened as soon as possible to get an estimate of the percentage of tickets booked in advance. This will allow to estimate the approximate percentage of tickets that might remain unsold. This information can then be used to distribute free tickets in schools and colleges. A 10% quota of tickets should be kept aside for people above the age of 60 who may not be able to book it online. These tickets can be sold at shops in every neighbourhood by allotting one ticket per valid age identity proof. Government shops or post offices can be used for this purpose. Lastly, another reservation of 10% tickets for international tourists should be made to ensure that they can enjoy the games as well. This will also help the local hotel and travel industry a lot and bring in a lot of business and buzz to London during the Olympic games. A few events which are happening in cities other than London, may not be able to attract a lot of people due to the tendency of people avoiding travel and staying in London for most of the remaining events. Tickets to these few events can be sold with a promotional discount on flight and train tickets from London to those cities. Local public transport within London should be free for ticket holders during the time-period of Olympic games. This will promote the use of public transport and avoid overcrowding of streets.