Dynamic Pricing: It Worked for the Airlines, but Can It Work For
Theatres?
Written by: Sumac Research
Date:
July, 2010
Dynamic pricing has become a hot topic for the arts.
And it's no wonder, since a few theatres that have begun to test the
waters have been quite successful. Before you decide to delve in,
however, there are a few things to know.
An Introduction to Dynamic Pricing
Dynamic pricing essentially
means that in order to maximize profit, the price changes as market
demand changes. In the context of theatres, the price of a ticket is
determined by how well seats are selling, how many of them are
remaining, and other variables that affect demand, like the weather and
traffic perhaps. Theatres
monitor the house as it fills for each performance and make decisions
each day on whether to adjust prices up or down based on demand.
Does it work?
Whenever the viability of this type of pricing scheme comes into
question, proponents usually point to the fact that it been working for
the airline and hotel industries for decades.
But, there are three distinct differences between the airline industry
and non-profit theatres:
- People need to buy
airline tickets because, in most cases, they have to be somewhere at
a particular time. People don't need to see a show; theatre
is considered by many to be discretionary spending.
- Airlines are primarily
interested in making a profit, while theatres have other objectives
like making arts accessible, educating, or getting a particular
message out and they rely on the generosity of supporters who
believe in their mission to survive.
- Airlines have relatively
few competitors, which makes it easy for them to charge what they
like. Theatres, on the other hand, have an abundance of competition.
So, the real question is: does
it work for theatres? According to The Pricing Institute and Target
Resource Group (TGR) there are several impressive success stories.
Success Stories
The Arts Club Theatre Company
in Vancouver implemented a dynamic pricing strategy, and in the first
year increased sales by $430,000, about 10%.[1]
The Geffen Playhouse
implemented a dynamic pricing strategy for a production that brought in
an additional $60,000, a 23.5% increase.[1]
The Yale Rep
brought in an additional $50,000 of revenue for a production using
dynamic pricing, a 37% increase.[1]
The Carolina Performing Arts
raised an additional $50,200 in revenue above the base prices of four
popular performances by using dynamic pricing.[2]
A cautionary note
While these numbers are impressive, it is important to note that
ventures into dynamic pricing are still very much in their infancy.
Also, success is not determined by revenue alone; there are a number of
other things for a non-profit to consider. For instance: how this
pricing scheme will affect accessibility; what is the message you will
be sending to the public; and what kind of relationship you would be
establishing with supporters.
A real issue is brought to light here in the Mission Paradox blog.[3]
Consider, for a second, the kind of relationship you have with airlines.
The author probes:
Remember the last time you bought a plane ticket? If you're anything
like me it became a sort of game, you versus the airlines. Your goal was
to get the cheapest ticket possible. The airlines implied goal was to
get you to spend the most they could get... [As a result] most of us
have developed a fairly ruthless attitude towards the industry. To save
$50 we will switch dates, switch airlines, switch airports, whatever.[3]
Obviously this is not the kind of relationship you want your supporters
to have with you, especially when you rely on their generous donations
to survive.
A Bit of Advice
If you do decide to try dynamic pricing, here are some tips:
-
Be very cautious about taking it too far. You don't want to lose
sight of your mission and undercut your case for support.
-
Make sure that advertising does not give the wrong impression of
prices. Supporters will undoubtedly get upset if the price they have
to pay for a seat is different than what was advertised. For that
reason, you may want to print a price range instead of precise
prices on tickets, on your website and anywhere else prices are
visible.
-
You may only want to apply dynamic pricing to parts of the theatre.
For example, perhaps you want to leave the best seats in the house
at a static price so they don’t lose their perceived value.
-
Set the goals that you want to achieve by dynamic pricing and define
metrics of success in advance.
-
Experiment and analyze. In order to find out what works, you may
need to experiment with several price triggers and variable prices.
Each time you change your method, make notes about it for future
analysis. Also take note of the costs to administer dynamic pricing,
how people attending the theatre like it, and other factors that may
have an effect on ticket sales and supporters’ overall experience.
All of this information will help you determine whether dynamic
pricing is successful, and what contributed to its success.
Sumac is a complete software solution for non-profits that includes
online ticketing.
For information on Sumac or to
see additional articles published by Sumac Research,
visit: sumac.com
Notes
[1] Carr, Eugene. The Demanding World of Dynamic Pricing. March
10, 2010. Available at:
http://blog.patrontechnology.com/patronmail_idea_center/2010/03/the-demanding-world-of-dynamic-pricing.html?cid=6a00d8345224a269e2013481d1fc0b970c#comment-6a00d8345224a269e2013481d1fc0b970c
[2] The Artful Manager. Is Dynamic Pricing in Your Future? May
18, 2009. Available at:
http://www.artsjournal.com/artfulmanager/main/is-dynamic-pricing-in-your-fut.php
[3] Mission Paradox. The Perils of Dynamic Pricing (Part 1 & 2).
May 26, 2010. Available at:
http://www.missionparadox.com/the_mission_paradox_blog/