If airline flight prices change daily, why is it that theater ticket prices are fixed? And why do we issue a zillion discount codes? Isn't there a better way?
"Dynamic Pricing," "Demand-Based Pricing," and "Variable Pricing" are all words that describe the notion of changing ticket prices day by day, like the airlines do. This concept has cropped up on a regular basis over the last few years in the arts, and it seems to be happening with increasing frequency. As a check on the state of the industry, I attended a session dedicated to this topic at a ticketing conference in January. Given that the room was packed with hundreds of attendees, it seems like dynamic pricing is the "it" topic across sports, live music, and the arts. And, as I found out, for good reason.
Before I went to this session, I thought that dynamic pricing was simply some new technology that automatically changes ticket prices in relation to demand from consumers. I thought dynamic pricing was a feature you could buy, as a new way to optimize theater pricing using a sophisticated technique to eke out every extra penny. While that's sort of true, it somewhat misses the point. Dynamic pricing is actually a good deal more complex than that.
Let's start with the facts. Dynamic pricing in the live-event world is still in its infancy. There are few if any fancy software systems in general use that are designed to handle dynamic pricing, and even large and well-respected venues such as the New York Philharmonic are only now dipping their toes in this water.
Before we talk about dynamic pricing, it helps to review some general philosophy. First let's look at the notion of pricing itself. Setting prices for any product is perhaps the hardest aspect of any business, and in the live-event business, it's even harder. In my view, it is certainly is most underestimated and under-appreciated of any of the tasks of a marketer, and one that we spend disproportionately little time on relative to its ultimate impact. I've been in those pricing meetings, and if the ones you sit in are like mine were, pricing decisions are typically based on "gut feel" and/or comparisons to last year, and are driven mainly by one goal: to achieve budget. The problem is that none of those approaches has the customer's needs front and center, nor will they necessarily help you arrive at the best pricing scheme.
And what's really frustrating about pricing is that you can't ask your consumers and get a reliable answer. If you research consumers and ask them what they would pay, you will get a different answer from what they actually do pay.
Now, an economist would have you set prices using a classic demand curve. The place where the two lines meet is the exact price you should charge to optimize your results.
But what would it take to understand the exact consumer demand for a single performance during a run of a show to create this demand curve? Well, you would have to consider all of the outside factors that come to bear in the decision-making of your target audience. You've got the particular performance on the stage (the art itself), the day of the week, the stars of the show, the weather, the venue. And that's just what you know before the show opens. Then you've got "stuff that happens," like traffic patterns, holidays, road closings, mass transit problems, and news. All of these things matter—even what's on television that night, such as the Olympics!
If you magically had perfect information, you'd hit the demand curve, price perfectly, and sell out the house and maximize your potential revenue. The odd but unassailable logic is that in this case, dynamic pricing would not be necessary at all! Of course, the problem is that you never have perfect information at the time you price the show. Thus the need for something else.
"Dynamic Pricing," "Demand-Based Pricing," and "Variable Pricing" are all words that describe the notion of changing ticket prices day by day, like the airlines do. This concept has cropped up on a regular basis over the last few years in the arts, and it seems to be happening with increasing frequency. As a check on the state of the industry, I attended a session dedicated to this topic at a ticketing conference in January. Given that the room was packed with hundreds of attendees, it seems like dynamic pricing is the "it" topic across sports, live music, and the arts. And, as I found out, for good reason.
Before I went to this session, I thought that dynamic pricing was simply some new technology that automatically changes ticket prices in relation to demand from consumers. I thought dynamic pricing was a feature you could buy, as a new way to optimize theater pricing using a sophisticated technique to eke out every extra penny. While that's sort of true, it somewhat misses the point. Dynamic pricing is actually a good deal more complex than that.
Let's start with the facts. Dynamic pricing in the live-event world is still in its infancy. There are few if any fancy software systems in general use that are designed to handle dynamic pricing, and even large and well-respected venues such as the New York Philharmonic are only now dipping their toes in this water.
Before we talk about dynamic pricing, it helps to review some general philosophy. First let's look at the notion of pricing itself. Setting prices for any product is perhaps the hardest aspect of any business, and in the live-event business, it's even harder. In my view, it is certainly is most underestimated and under-appreciated of any of the tasks of a marketer, and one that we spend disproportionately little time on relative to its ultimate impact. I've been in those pricing meetings, and if the ones you sit in are like mine were, pricing decisions are typically based on "gut feel" and/or comparisons to last year, and are driven mainly by one goal: to achieve budget. The problem is that none of those approaches has the customer's needs front and center, nor will they necessarily help you arrive at the best pricing scheme.
And what's really frustrating about pricing is that you can't ask your consumers and get a reliable answer. If you research consumers and ask them what they would pay, you will get a different answer from what they actually do pay.
Now, an economist would have you set prices using a classic demand curve. The place where the two lines meet is the exact price you should charge to optimize your results.
If you magically had perfect information, you'd hit the demand curve, price perfectly, and sell out the house and maximize your potential revenue. The odd but unassailable logic is that in this case, dynamic pricing would not be necessary at all! Of course, the problem is that you never have perfect information at the time you price the show. Thus the need for something else.
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