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OM in the News: Revenue Management Puts Lion King at the Top of Broadway

March 27, 2014

Since 2011, the show’s producers have been relying on a previously undisclosed computer algorithm to recommend the highest ticket prices that audiences would be likely to pay for each of the 1,700 seats at every performance. While other shows also employ this dynamic pricing system to raise seat prices during tourist-heavy holiday weeks, only Disney has reached the level of sophistication achieved in the airline and hotel industries by continually using its algorithm to calibrate prices based on demand and ticket purchasing patterns.

By charging $10 more here, $20 more there, “The Lion King” stunned Broadway at year’s end as the No. 1 earner for the first time since 2003, bumping off the champ, “Wicked.” And Disney even managed to do it by charging half as much for top tickets as some rivals. “Credit the management science experts at Disney’s corporate offices — a data army that no Broadway producer could ever match — for helping develop the winning formula,” writes The Times. The algorithm, a software tool that draws on “Lion King” data for 11.5 million audience members so far, recommends prices for five different types of performances — peak dates like Christmas, off-peak dates like a weeknight in February, and periods in between. “The Lion King” is widely believed to be selling far more seats for $227 than most Broadway shows sell at their top rates, a situation that bolsters its grosses.

Our newest video case study, “Using Revenue Management to Set Orlando Magic Ticket Prices,” in Chapter 13, makes a similar point for the sports industry, which has also traditionally lagged behind airlines, hotels, and rental car companies in profiting from yield management.

Classroom discussion questions:
1. Why is revenue (or yield) management a critical OM tool at airlines and hotels?

2. Why don’t more sports and entertainment organizations use this tool?

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