It’s amazing how often bad ideas become fads in American business. Luckily, in capitalism there’s a Darwinian process at work. Adopters of truly stupid ideas tend to go bankrupt—or at least wake up, smell the red ink, and get better advice. Eventually.
Which brings us to Your Los Angeles Dodgers.
No, I’m not going to bring up personnel decisions like paying the execrable Juan Pierre $44 million to not get on base for the next five years. That would be shooting fish in a barrel. I refer, instead, to the Dodgers’ embrace of the latest marketing fad: “all you can eat.”
Marketing gurus are waving this one-price-for-unlimited-quantity strategy like a magic wand, promising that it will unlock profits in everything from music downloads to long distance phone service. But the Dodgers mean it literally. According to a May 16 article in the Wall Street Journal titled “Free Eats Sell Bad Ballpark Seats,” the facts are these:
– Seats in the club’s right-field pavilion, which holds 3,000, sold for $6 to $8 last season and were mostly empty;
– This year, however, tix go for $20 to $40 (depending on the quality of the opponent and whether there’s a group discount or not);
– The higher price gets you UNLIMITED amounts of hot dogs, peanuts, popcorn, nachos, and soda (though beer, candy, and ice cream are still “a la carte”);
– Business is boffo in the Gluttons’ Pavilion (well, it’s actually called the “AM/PM All-You-Can-Eat Pavilion,” after its corporate sponsor, but that seems like a mouthful to me), with 8 of 18 dates sold out as of mid-May.
Predictably, the Dodgers have been denounced by pundits who accuse them of contributing to America’s obesity epidemic, and defended by the marketing types for banking more profits by ingeniously luring fannies to otherwise-empty seats.
As a mere economist, I’m prohibited from making sweeping moral pronouncements (especially about consuming nachos—mmm, nachos). But I’m pretty sure the anti-gluttony pundits have the better of this argument. What’s more, I suspect the gurus who think this is a moneymaker are wrong.
First, the gluttony problem. The thing is, “all you can eat” is not just bad if you’re obese; it’s bad on general principles, and the reason has to do with the function of prices and the concept of economic efficiency.
“All you can eat” just means you pay nothing for extra hot dogs or nachos—free eats! This is why marketing gurus think it’s magic. People love free stuff; the prospect has a magnetic attraction.
But, obviously, it costs resources to produce food. It’s not free, but rather sold at a zero price, which must be below cost. Under “a la carte” pricing, you have more wholesome incentives: weigh the value of your next wiener against its price or cost. If you buy it, economists applaud because we know you valued it more than it cost to produce; that’s efficient.
Under “all you can eat,” we can’t say that. Since the price of one more dog is zero, you’ll grab it even if the benefit to you is trivially small—and far below its cost of production. That’s a nice definition of gluttony, and it’s inefficient. Or, in plain English, wasteful and bad.
Might it be profitable? Time will tell. But there’s reason to be suspicious. What could be happening here is what economists who specialize in pricing strategy call “defection.”
Sure, the right field seats are full more often—but notice that overall Dodger Stadium attendance this year is DOWN from last season. As this is written, the Blue have played to an average of 44,972 fans per game, vs. 46,400 last year.
There are many possible reasons for this, of course (e.g., a grass-roots protest against the indignity of watching Juan Pierre try to hit?). But maybe part of the story is that some of the fans who used to buy good seats are now hanging out in the Gluttons’ Pavilion. Those eight sellouts, in other words, might not be a result of attracting new fans, but merely relocating some from the better seats.
Why relocate? Because of the signal being sent by this price structure. As everyone knows, ballpark food is priced at levels that should attract a Congressional investigation and, ideally, jail time for the perps. It’s every prof’s favorite example of monopoly pricing: once you’re in, you’re stuck.
What the Dodgers have done is give some of their fans—the ones who value cheaper food more than a better view—an out. Stay in the grandstand and pay an extortionate tab for dinner, or sit in right field and sacrifice sightlines for zero-price calories.
The whole thing might actually be costing the Dodgers money. True, prices in Glutton’s Pavilion have been set high enough to cover the team’s costs of all the food consumed. But one wonders if the “defectors” doing all the consuming out there might actually have spent more, all together, up in the grandstand at the mercy of those monopoly prices.
The Dodgers had better hope not. After all, they’ll need a lot of cash to dig themselves out of the hole they dug when they decided to sign Pierre.
–Steve Walters
Editor’s Note: For those who don’t remember, Steve is not just a brilliant writer but also a Professor of Economics at Loyola College.
Wages of Wins Journal 
Peter
May 24, 2007
Slate had a funny piece about the AYCE pavillion a few weeks ago. Best line: at one point, the reporter said he was surrounded by “farting 250-pound men.”
Evan
May 24, 2007
Seems to me like it’s an attempt at price discrimination (albeit not solely on a price basis), and thus many economists would like it.
It’s the sort of thing that someone like me would go to. I don’t go to baseball games unless I have good seats. However, I would totally go enjoy the atmosphere in a bad seat if it was all you can eat. I like all you can eat joints.
Steve Walters
May 24, 2007
LOL, Peter. That gets at another aspect of this pricing strategy: “adverse selection.” The Dodgers obviously set prices equal to the expected average cost of feeding these, er, 250-pounders.
But then under-250 types may stay away ’cause they realize they’re getting a bad deal, while even bigger eaters are attracted because they do the math and realize they’re paying less per unit consumed. The Dodgers could be like a dog chasing its tail, cost-wise.
I’d like to know what the marketing profile is for AYCE restaurants. Anybody done any research on that? Is it possible they have a tough time surviving over the long term because of this selection issue? I mean, if their whole customer base skews progressively more and more toward gluttons, making money might be tough. Just wondering.
Steve Walters
May 24, 2007
Evan: Good point about price discrimination. But here, too, the Dodgers seem to be dropping the ball. The key to successful price discrimination is controlling the “defection” problem–i.e., you’ve gotta keep your high-price buyers from becoming low-price buyers; you hope to move down the demand curve and attract new buyers without allowing the old ones to get the discount. The attendance data suggest that ain’t happenin’ here.
Peter
May 24, 2007
I’d like to know what the marketing profile is for AYCE restaurants. Anybody done any research on that? Is it possible they have a tough time surviving over the long term because of this selection issue? I mean, if their whole customer base skews progressively more and more toward gluttons, making money might be tough.
Some time ago I read about the economics behind AYCE restaurants. Very interesting, actually. Many of the food items they offer are very cheap for them to purchase and prepare, starchy things such as pastas, potatoes, and rice dishes. Also breads and rolls, which may be somewhat more expensive to purchase but involve little or no preparation. What the restaurants figure is that many customers fill up on breads and starchy dishes, and as a result do not take large amounts of the much more expensive meat and fish items. AYCE restaurants sometimes try to encourge this in a subtle manner, by setting up their buffet lines so that people come to the breads and starchy dishes before they get to the meat and fish items. Another tactic is to have delicious-looking dessert items for everyone to see, hoping that many customers decide to “leave room for dessert.”
If most customers skipped the starches and went right to the meat and fish items, the average AYCE restaurant would be out of business in a flash.
Barkeep49
May 24, 2007
The most interesting thing in this article is the economic argument against an all you can eat buffet. Never knew economists frowned on that sort of thing.
John
May 24, 2007
great site, excellent writing, really enjoyed what I saw.
Derrick Eckardt
May 25, 2007
The Dodgers attendance was 46,400 is for the whole season. Baseball attendance tends to increase during the summer (especially with hockey and basketball no longer a distraction), and as teams are involved in pennant races (as the Dodgers were in last year). A more apt comparison is what was Dodger attendance through the first 7 weeks of last season?
Jon
May 28, 2007
Sporadic reader, decided to finally jump in and comment (I know it’s a few days after the post… whatever). Anyway –
Derrick raises an excellent point. Day-by-day averages for Dodger Stadium can be found here: http://www.sportsnetwork.com/merge/tsnform.aspx?c=sportsnetwork&page=mlb/teams/005/attendance.aspx?team=005
A quick check reveals Derrick’s point to be valid. Through the same 27 home games to start the 2006 season, Dodger Stadium averaged 44,171 fans (versus, again, 44,593 this year). So the argument that the Dodgers are eating into their own attendance figures with the AYCE pavillion doesn’t hold water. This despite the fact that, in addition to raised ticket prices across the board, parking costs at Dodger Stadium have DOUBLED since last season. I’m sorry, but Steve’s argument is based on cherry picking his statistics, and doesn’t hold weight, at least on its surface.
This raises 2 points. First, the value of the AYCE pavillion needs to be evaluated on the raised ticket revenue versus the added cost of both giving away free food, PLUS the lost revenue that selling the highly overpriced Dodger Dogs generates in the rest of the stadium.
Second, while the figures to date suggest Dodger Stadium is actually experiencing a slight upturn in attendance (again, despite raised costs for both tickets and parking), this doesn’t address the potential value of LA’s opponents to date. Certain teams have a greater draw than others (the omnipresent Red Sox and Yankees rise immediately to mind, though for the Dodgers the Giants, Mets, and Angels would ostensibly also draw larger crowds), as do stadium dates with promotions (try to get a ticket on bobblehead nights). It’s possible that the current numbers are inflated relative to last season’s due to some combination of more effective promotions/opponents (a better team is not, however, a factor – to this point last season the Dodgers were 28-22 instead of 29-21 with a home record of 16-10 versus 17-10, negligible differences).
But as it stands, though Steve’s gluttony problem might still exist (again, you’d have to weigh the ticket/parking revenues against the production cost of the food, as well as whatever food would have -normally- been sold at regular stadium prices), the question of defection does not apply, at least not without possibly delving far more deeply into the specifics of each individual game’s other factors (one other I didn’t mention, of course, being weather; etc).
—Jon
Steve Walters
May 29, 2007
Derrick does, indeed, raise a valid point. Thanks, Jon, for digging up those daily attendance numbers.
I didn’t mean to imply that the attendance comparisons “prove” that many in the Gluttons’ Pavilion are relocators or defectors–merely that the numbers raised questions about the current view that the folks out there are all new demanders. If you look at the press coverage of this marketing strategy, there’s lots of talk about how much extra revenue the AYCE strategy must be bringing in, and none at all about “defection” from other revenue sources.
So I’d respectfully disagree, Jon, that the roughly 300-fan-per-game gain in attendance allows us to conclude that “the question of defection does not apply” (or allows us to reach a hard conclusion about anything, really). The contribution of AYCE pricing is an unsettled matter. But the marketing gurus are trying to present it at a clear-cut success–see all those 250-pounders out in RF?
But Jon and I agree that we need to be “delving far more deeply into the specifics.” There’s a lot that has affected demand this season, including the club’s spending on all those wonderful free agents like Pierre and Schmidt.
Finally, one piece of data we’d like to look at is something my wife (who is smart, even for a non-economist) asked about when she read the piece: What has happened to fan spending on concessions away from the Pavilion this year? If it’s down a little, that’s evidence of some defection.
Anyway, thanks for the feedback. Sorry it has taken me so long to comment–I’ve been on the road.
Jon
May 29, 2007
Hey, it’s great to get a response at all! I’d like to apologize for what could be construed as a bit of an overly-aggrandizing tone in my first message. I was having a bit of a bad day (not that that’s any excuse). Anyway –
I don’t think I quite phrased the point properly enough, I suppose. What I was trying to suggest is effectively the same difficulty in reaching any conclusion. That, unlike what the “yearly” average number suggested, the pro-rated attendance figures showed no loss of people in the stands, arguing against the ‘defection’ causing a loss of ticket sales in general.
So, the real question is, as you posed in the original post, which group of fans is defecting? The low-cost group that sits in the nosebleed section? Or the high-cost group right behind the dugout. Though one point I might make is that a change of 300-odd tickets could be a fair increase, as the right-field pavilion only holds 3,000 total (http://www.azcentral.com/sports/diamondbacks/articles/0524dodgerseat-ON.html); a 10% increase is non-negligible, IF and only if, of course, that’s where all 300 extra tickets were sold… clearly that’s probably not the case, just pointing out the AYCE pavilion doesn’t hold 56k people, just a fraction of that group.
Also, don’t discount the fact I mentioned that attendance figures are effectively steady despite a doubling in cost of the parking, and the largest average price increase per ticket in the majors (http://www.latimes.com/sports/baseball/mlb/la-sp-freenotes31mar31,1,5332830.story?coll=la-headlines-sports) of just under 27%! Though that article doesn’t address how the new AYCE pavilion is factored as part of that rise – that could account for a sizable portion of the increased cost, as 3000 seats jumped from $6-8 a pop to $25-40.
Nevertheless, I feel safe arguing that the Dodgers, if they simply maintained the same attendance figures as last season, would be earning much more in revenue based on those numbers alone (though if indeed a sizable portion of the 250-pounders are coming from the expensive seats that might not hold true).
The question from your wife is an excellent one indeed, and one I didn’t really think of to delve into when looking at the potential losses in concession sales. I suppose the idea being that the most likely defectors would be the ones most likely to purchase the most food? Anecdotally, I seem to recall in my visits to the stadium that the ‘luxury’ food options (and I use luxury in the ABSOLUTE loosest sense of the word, as we’re talking Pizza Hut and Panda Express here) were lower to the ground. That might signal that the higher-paying customers are less likely to buy the Dodger Dogs in general, or it could be meaningless – without much more specific data I’m unfortunately left speculating. There are clearly a ton of variables here, though after reading your response I’m less sure that the Dodgers are quite as clever as I had thought before.
One last note, though – my guess is that, if anything, the approach of the summer probably means more profits via the AYCE pavilion for a simple reason: kids. The ‘unlimited food’ concept seems that it would greatly appeal to parents bringing their tykes to a game, especially early pubescent children (because the food is free, no need to pester mommy and daddy to dig the wallet out while sitting on an uncomfortable bleacher/stadium chair). The summer affords many more opportunities to go to the stadium. $20/person probably compares favorably to an AYCE buffet in L.A. after factoring in the entertainment experience of the game, so there could be a spike in attendance from that (this is about as unfounded as speculation gets, but hey, what else would the internet be for?)
Thanks again for replying, and if nothing else your article certainly has guaranteed that I’ll be watching the attendance figures for Dodger Stadium a whole heck of a lot closer than I normally would.
—Jon
Steve Walters
May 29, 2007
I think we’re basically on the same wavelength, Jon, which is that there are a lot of variables to control for before anyone renders a verdict of “AYCE is pure genius!” But, given the 8 of 18 sellouts, that’s the way the idea was being spun. I meant my post as counter-spin.
One last note: An e-mailer wrote, basically, “dang! I added up how much I spent on good seats and concessions at my last Dodger game, and NEXT time I go I’m sitting in the Pavilion.” So maybe defection could be a growing problem once people work out the trade-offs?
Jeff
March 7, 2008
you can probably get around 50 hot dogs for 30 dollars, I’m sure they are doing ‘alright’. It’s like costco for ballparks.