Boycott Stubhub - cautionary tales about pricing and capitalism

This week I bought tickets for a Yankees game on Stubhub. I used their online chat service, which resulted in being sent a customer service questionnaire. I am now going to boycott Stubhub unless I have no alternative.

The experience has eerie parallels with an earlier one I had while working for Shell. I think it can reveal a lot about consumer behaviour, pricing strategies, and also about capitalism in general.

So, first the story that leads me to boycott Stubhub. I have been in the habit of using Stubhub every so often, usually for sports tickets. For some Mets games, they are cheaper than buying on the club website or showing up on the day. For places I buy from just once, it is easier to use Stubhub than bothering to navigate a new website. There is no doubt that Stubhub and its competitors have made a brilliant innovation, with a strong business model on the back of a valuable customer service.

But the fees are high. They have always been high, and I have always resented it a bit. The costs of running Stubhub are trivial, so how can they justify 25% margins (10% from the buyer, 15% from the seller)? Someone is getting rich at my expense here.

Still, up until now I just sighed when I saw the bill and moved on, happy to have acquired the tickets and too lazy to shop further. So what happened this time to change my mind?

After I had bought the Yankees tickets, an e-mail arrived as usual. This time, however, I was informed that I couldn’t print the tickets, but instead had to download some app on my mobile phone and then use the phone as the ticket. I am old-fashioned, and don’t bother to download many apps, so was already annoyed when I bothered my son to do it for me, and even more so when he told me that my phone was too old to be compatible with the app.

So I contacted the Stubhub online chat service, and connected with an agent who was friendly and efficient enough. He told me that Stubhub had an “exciting” partnership with the Yankees that meant that all tickets were processed this way with them. My alternative was to print the receipt, bring an ID to the game, and report at a specific will-call box office to collect physical tickets.

So that is what I did. Predictably enough, the box office had a ten-minute line, but otherwise it worked.

This morning I received an online survey request from Stubhub. Usually I ignore such things, but the request prompted me to be angry again about them and to want to vent, so I took the survey. It was ridiculously long and all about the agent, but I was given a chance to vent in writing at the end, so I did.

I told them their fees were extortionate, that it was egregious for them to display their fees only obscurely and at their checkout window, and also that it was discriminatory to offer a reduced service to people without fancy phones. Presumably they do this to reduce their own costs, and perhaps from Stubhub and maybe also the Yankees to make it easier to bombard me with advertising material that I don’t want.

Just filling in the survey made me angrier, so I looked up Stubhub on Wikipedia. I learned that they were a classic startup, had sold to ebay in 2007, and that the founders had now left the business, but ebay still do not report financials.

I also clicked on another link, that helpfully explained the fee structure, the history of rising fees, the fact that the obscuring was an active policy from 2016, and offering me alternative providers and ways to save money. I’ll try these out, and try hard to avoid Stubhub from now on.

So now let us step back, make some parallels and learn some lessons.

First, do not awake the sleeping tiger. If Stubhub had not fed their agent stupid marketing lines about the reduced printing service, sent me the questionnaire, and not designed the questionnaire so badly, I would probably have taken no further steps as usual. They themselves prompted me to think more deeply, and they lost a customer as a result.

Next, price elasticity is complex. Many of us just accept fees or high prices out of laziness. But a trigger may come to think or research further, and then the host of minor overpricing insults becomes a personal sleight, and a customer is lost forever (even if the fees were somehow to come down again).

In the pricing and margin models of Stubhub, they will have measured the business loss immediately after raising and obscuring their fees. They will have concluded that the extra margin was well worth the lost business. But their model will not pick up me, and all the other insulted who will one day walk away when triggered.

This part is where Shell comes in. In my early days at Shell UK, we used to consciously price above the market. We deluded ourselves that our fuel or brand was so much better that customers would be delighted to pay extra. We did surveys that showed that a large percentage of our customers were “loyal” and also that much of the market was not very price sensitive. When we raised prices, the volumes did not suffer much. All of these data encouraged us to continue and even expand the policy. But this created space for hypermarkets, and even without them our volumes would have declined slowly anyway. We ignored the sleeping tigers, and did not realise that elasticity could be a long-term thing, and that “loyalty” was little more than “habit”. Given a trigger to feel insulted, these customers eventually left, and most left forever.

Generally, any business that relies on habit rather than genuine loyalty will lose out, because somehow or other the sleeping tigers will awaken. I advocate competitive pricing in most situations, trying to build a cost advantage through volume rather than margin. The exception is where the sleeping tigers have nowhere to go.

Which takes us back to Stubhub. Unlike Shell, it is almost a monopoly, and it seeks to become more like one by doing deals to lock out competitors. In common with many internet businesses, barriers to entry are high and incumbency is valuable. Their pricing policy is greedy, but it may be smart.

Increasingly, entrepreneurs are looking to monopoly potential as a key success factors, and avoiding businesses where competition is rife. Valuations reflect this. Ebay will only get a return on its purchase of Stubhub if it can push up margins. The investors demand ever higher returns, and managers have to get greedy to satisfy them. This is not a healthy model for capitalism.

The losers become the customers. Stubhub and its like offer a new service that customers value, but in the end become so greedy that the value is eroded. Watch out for businesses that rely on insult pricing to reach their goals. Unless their monopoly is bullet-proof, they are ripe for a fall. Look for them the seek monopoly advantage via lobbying, that strategy may not work forever either. And as voters, look for policies that promote competition and work to remove monopolies. I see little evidence of that in the US. The EU does a good job of it.

Oh, and one more request. Join me in boycotting the insulting Stubhub.