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The Filthy Lucre Magic Bullet: Dynamic Pricing.

05.24.10 | 21 Comments


CATEGORIES audiences, ideas, marketing

Ah, Dynamic Pricing. The holy grail of entertainment earned revenue. Has worked for the airlines for YEARS. And yet we are still deeply afraid of it.

What am I talking about? Assumptions number 3, 4, and 5.

Let’s throw out the notion that two people sitting next to each other in the theater have any notion whatsoever what the other person paid for their ticket.

You might believe that, because you have posted your prices on a postcard or a brochure, that your audience has developed  a reasonable expectation of paying the same price as their neighbor.

But here’s what’s true- They will often expect to have the opportunity to select a seat at the lowest advertised price. They want to have the lowest advertised price AVAILABLE to them. But most of the time they don’t actually choose a ticket at that price point. And they hardly ever look at the top bracket price. Nor do they call and say “Can you please sell me your most expensive ticket?” So why do you tell them what it is in advance?

Instead, take a stab at dynamic pricing- a model being strenuously and successfully promoted by Target Resource Group, among other consulting groups. Under this model, you advertise your lowest regular adult price, with the phrase “Starts at $XX.” Then you make sure the lowest advertised price requires them to buy early, come to the least popular performance night and sit in the very visible but not very good seats right up front on the side.

If they want a better night, a better seat, or the chance to wait until the last minute, it will cost them more. And if you haven’t advertised your additional prices in advance, you can adjust these numbers on the fly, experimenting until you find the right price breaks for this audience for this particular show.

Choose an audience you want to be “accessible” to, and make them an offer they can’t refuse if they buy their tickets early. This helps get your houses looking full early in the game.

“But,” you say, “If I sell a bunch of tickets at a deep discount early on, aren’t I leaving money on the table? Wouldn’t some of those people have paid more?”

Possibly, yes. But as we discussed in Filthy Lucre #3: Through the Looking Glass you’ve just rewarded the people who are willing to commit early- before reviews, before rumors of sellouts, and most DEFINITELY before closing weekend. This is a pretty self-selecting bunch of deal hunters. So don’t worry about that.

How you’ll make your money is on the next round of patrons. The ones who call once a show starts to get good buzz or get full. Because you’ll set target dates and agree as a company that once an individual performance has sold a certain percentage of the house (say, 70%), you’ll raise the price $5 for the remaining tickets to that performance. When it hits 80% full, you’ll raise it again. And so on. (Have an average ticket price that’s closer to $10? Raise it $1 every time you get 10% closer to sold out. You’ll be shocked how quickly those dollars add up).

And that perpetually sold out closing weekend full of people who waited till the last minute? That becomes your most profitable weekend. The people who complain? They get told that the earlier they buy the cheaper their tickets would be. The next show, some of them won’t wait.

This can’t possibly work, your box office staff may tell you. People will KNOW that they are paying a different price today than they paid yesterday. They will COMPLAIN. They will REFUSE TO BUY.

Here’s the thing though. If you only raise prices on shows that are filling up quickly, you will discover that those people just want to see the show, and largely don’t care what it will cost to see the show on that night. If they DO care, you can always direct them to a night that is not selling as well, and is therefore cheaper.

As counter-intuitive as it sounds, nobody loses by this equation. The people anxious to get in to a nearly sold out performance feel lucky to get in, not stiffed on the price.

And the shows that don’t sell as fast start looking like a better and better deal.

The end result? Your hits can work harder for you, all without the expense of adding performances.

Yeah, but does it WORK?

Well, I was introduced to the idea by TRG at a Theater Bay Area conference. They cited examples from major ballets and symphony orchestras across the country, all of whom had seen major earned revenue increase with no additional cost. I was intrigued, but skeptical.

I brought it back for discussion at my current theater and our Marketing Director, who had also heard the concept, was game to try it. We omitted the price lists from our website. We worked with our IT staff to figure out how to build in stepped price increases into our ticketing system that could be activated when capacity hit certain key markers.

We crossed our fingers, squeezed our eyes shut tight, covered our ears and pulled the switch.

And to our amazement, our earned revenue and average ticket prices started to steadily climb, even as we were able to continue offering aggressive discounts to special groups and Facebook fans to reach our new audience and accessibility goals.

All with nary a peep of complaint from our patrons. Even the ones, who in some cases, paid as much as $15 more per ticket than the original price for their performances.

So yeah. It worked for us. When will you start making it work for you?

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  • Congrats. I'm thrilled to see a real life example, especially since I wrote about this in a blog post a few weeks ago. http://patrontechnology.com/elearning/blog. You're right that there's a lot of talk about this these days, and it shows that with proper guidance, and some risk taking, this actually works. In my view, this is a much better approach than the millions of discount codes that many marketers rely on.

  • I've been thinking on this for a while. I work with a number of small arts organizations and we're always struggling those first 2 weeks of a 3-week run. And we're handing out discounts to seniors and students left and right.

    The idea of dynamic pricing allows me to identify what behaviors I value in my audience and then promote those behaviors.

  • Trisha Mead

    Eugene,

    Isn't it ironic that most of us already do dynamic pricing on the discount side of things? We already lower our prices on the fly with special offers when a show isn't selling.

    It's just plain logic to also raise them when a show is selling well. But for many people, this is the scariest thing you could propose to do.

    But so far, in my experience, once you get your box office over the hurdle of the logistics of a changing price chart (which is a challenge, for sure) and you get your artistic director, or in some cases, your board, over their fears of not being “accessible,” the system becomes so obvious to everyone that they kick themselves for not having done it years ago.

  • Trisha Mead

    Exactly. Give it a try on your next show- as a small organization you have very little to lose and much to gain from capitalizing on the nights that are successful for you.

    Go fight win!

  • I'm not a fan of dynamic pricing, I explain why here:

    http://www.missionparadox.com/the_mission_parad

  • Intriguing article on dynamic pricing for theatres.

  • Is there a difference between pricing philosophy for non-profits and for commercial theatre? Should there be?

  • I work at the Chicago Symphony Orchestra, where we've been using dynamic pricing for several years. It has helped. But be careful about the airline analogy. There are two major differences.

    (1) Those who buy the last ticket at the highest price on the week of the flight usually don't have a lot of choice whether or not to fly. A theater patron, on the other hand, certainly has the choice to go see a movie or go home instead, unless they have some sort of obligation, like a friend in the show. So, since most plays in a given year are not THE event of the season, it's not possible to exploit last minute ticket buyers to the same extent the airlines do.

    (2) Loyalty does exist in the airline industry to an extent (even if only in the form of frequent flyer programs that actually allow airlines to keep prices higher), but loyalty to a theater company or orchestra is much, much more important. Regarding Tony's question, if you're a nonprofit, you can benefit from that loyalty via donation solicitation, and still keep your ticket price low for loyal patrons.

    At BackStage Theatre Company in Chicago, where I'm on the Board and am Chair of the Marketing Committee, we're experimenting with something akin to dynamic pricing for the subscription campaign. If you subscribe with very little information about the season, you get a great price. As we release more information, the price will go up. This will be a good learning experience, no doubt, which will hopefully help us in our future pricing strategies. More info here: http://backstagetheatrecompany.org/its-a-secret/

  • For those who have used dynamic pricing, how often do you change? Once a day, once a week, do you program your ticketing system for midnight, or when the box office opens, or during the day? Is it automatic when you meet a certain financial figure, or is a manual change after upper management approves the change? I pose these questions, because i wonder how simple it is to implement changes to pricing, and whether someone is assigned the task of overseeing this program, every single day.

  • Here at Oracle, I see no reason to charge. 2010-11 Season we are coining Public Access Theatre in Chicago. Everyone should be able to enjoy the arts, we dont do this for the money (clearly), we do this for the love and the belief in the art form.
    Why would we as a community set up a barrier like prices to reach people? With ticket prices all you do is tell people “If you want to come, pay the fee”…..I'd like to change that to “Come see what were doing, enjoy it with us.”

    We are all public charities, what are any of us doing to honor that? http://eepurl.com/zH3X

  • There are many sides to this argument. One of the first ones given (and that I'm sure you've heard a million times) is that theater artists and practitioners deserve to be able to make a living for what they do. If it's only about the love and the belief in the art form, then it will primarily be trust fund beneficiaries and young people who can make art. Nearly everybody else has responsibilities that require income. And not every organization can find enough philanthropic sponsorship to pay everybody a decent wage and meet other costs of producing art.

    Here's another one: price is a way that our society indicates value. Love or hate it, it's true. A low price or no price signals low value. Studies of water purification tablet distribution in Africa have shown that when you charge somebody a price for the tablets, even if it is very low, the use of those tablets increases dramatically. Of course, fewer people receive them when there is a price. This is not a solution, but it is a useful lesson.

    There are a lot of ways that nonprofits honor our public responsibilities. Many of us provide subsidized tickets for those who can't afford them. And many of us have education programs. And, frankly, we're honoring our public responsibilities by putting nearly every dollar we get in the door back on the stage.

    Giving away free art is a wonderful luxury, but not everybody can afford it.

  • I think this is very interesting stuff. The only issue I see with implementing this in the Chicago Storefront scene, is that many use goldstar as a ticket service and they insist on 1/2 off the lowest advertised price. Therefore, if tickets where advertised as as low as $5 they would want to sell tickets for you at $2.50, every night. I find their service frustrating, because people buy $10 tickets from them with a $4 service charge = almost $15, instead of giving us the $20. They are saving $5 but we are loosing $10.

  • I like to think of Google….How many times have you paid for a Google service? But you use them just about everyday, in some way. They found a way to give you a product for free and build their base of users; which in turn attracts a lot of people to pay to touch their base (advertising and venture capital). Those two variables allow them to retain well paid top-of-class employees.

    This idea can be molded to many businesses.

    The way we are looking at it…..Bring in many people because we don't charge (google search) and build the base; which in turn attracts many people that want to be a part of it and touch our base (Foundations, Organizations, Individuals); and because of those two variables, we have enough cash flow to pay our artists.

    Ill have to give props to Google for the concept, but the numbers work, and work well. You just need enough 'numbers'…..give it away and your numbers skyrocket.

  • Trisha Mead

    We do regular meetings between marketing and box office where we look at the sales trends and pull the switch manually on a price increase for specific nights when the demand warrants it.

    But we build the price codes from the beginning of the season to have multiple increases available (we use Tessitura, so building the price codes to allow for increases at the beginning of the season is central to making this work without making the box office crazy).

    New price types are brought online once we've determined that we've hit certain sales markers- a combination of good data and gut instinct.

    At a more basic level, I'd say a 5 minute weekly check in with your box office could probably accomplish the same process. Look at your sales numbers, pick the shows that are filling fast, bump them (leave the rest alone).

    The training challenge is in working with the people on the phones to consult the price list in the computer rather than a static list posted to the wall in the box office – remembering the Thursday night price can be difficult when it might be different for different weeks. Well worth the energy though.

  • OK, from a quick glance at your website, I got the impression that you were doing something along the lines of the NPR model, which is a fine model and all.

    The Google platform model (which is also the Facebook model, more or less) is a little different, and depends on big numbers. I am curious to hear more about your application of it.

  • Trisha Mead

    I'm not familiar enough with how Goldstar works to know whether there is a way around this particular issue, but I would argue that sacrificing your top end potential on a hit show in order to facilitate half-price tickets seems like a bad idea.

    This Goldstar objection came up in San Fransisco with some folks I talked to as well, and it left me thinking: has anyone talked to Goldstar about this? I suspect that, if enough people who find the service otherwise valuable have an interest in dynamic pricing, they'll develop a way to accomodate it. If not, you should ask yourself whether the service they provide is worth the cost to your organizations revenue potential.

    Perhaps someone with more familiarity with the mechanics of Goldstar could weigh in here?

  • Samantha

    We have weekly “revenue pacing” meetings where we look at the demand/sales for upcoming concerts. We normally pull a trigger when one price section is around 68-70% capacity, then another trigger around 85% capacity. Our meetings include myself (Director of Marketing and PR), our Box office manager, audience development manager, and our President and CEO. We make the changes manually in our system. This being said, we also will add more cheap seats if a particular concert isn't selling as well. Dynamic pricing isn't always about going up in price, but you have the ability to go down as well (discounts. BOGO offers, etc.)

  • We've used “dynamic pricing” to great success over the past few years. Similarly, I was introduced to the concept by TRG as we are TRG clients. With their guidance in implementation, we have seen a significant increase in earned revenue and have encouraged price sensitive patrons to purchase earlier. Another benefit we are finding is that it is helping to sell subscriptions. If you have a season that will appeal to a lot of people, and your customer base knows that prices will increase with demand, they can “lock in” the best prices and avoid any price increases by purchasing a subscription. We have revenue pacing meetings at least once a week, but with a show that is highly in demand, we can have them every day. And as I monitor all complaints that come into our organization at weekly meetings, I can honestly say that I haven't heard a single complaint about dynamic pricing. Before implementation, there was a lot of internal concern (as there is with anything new–remember, by nature, we are creatures of habit and don't always embrace change). Now, a couple of years later, it is second nature to us.

    Chad Bauman
    Director of Communications
    Arena Stage
    http://www.arenastage.org
    http://www.arts-marketing.blogspot.com

  • Trisha Mead

    Chad,

    Its great to hear from an another organization that's experienced good success with this model. I'm wondering- a recent TRG blog post talked about how one of the key benefits of dynamic pricing is in “massaging the middle.” Do you have any examples of how you've been able to adjust your mid-level prices based on demand to see an increase in revenue? I'd love to hear more about how this aspect of the system works for organizations.

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  • I’ll back again for sure, thanks for great article 😀


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