The perils of dynamic pricing

Over at 2am theatre Trisha wrote this post on the benefits of dynamic pricing that merits a response.

A quick primer:  This is how she defines dynamic pricing -

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.

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About 2 years ago dynamic pricing became the big idea.  I can remember sitting in a conference session and hearing a presenter brag about how he got this idea from the airline industry.

The airline industry.

Think about that for a second.

The airline industry is probably one of the most disliked industries in America.  There are like 2 profitable airlines and the rest are one step away from Chapter 11.

*This* is where we want to get our ideas?

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I understand the concept of dynamic pricing and I understand why its so attractive.  The performing arts are expensive, donations and other forms of contributed revenue are on the slide, so there is a certain logic to finding the ideal price/demand ratio.

But it worries me a bit when people talk about pricing models that could easily add another $10-$15 to a ticket with such . . . enthusiasm.  Particularly when many of us work in nonprofit arts organizations.

The question isn't whether you can use dynamic pricing.  Of course you can.  The question is SHOULD you use dynamic pricing and that strikes me as a much more complex conversation that raises difficult questions:

What message are we sending to the public when we do that sort of thing?

Could dynamic pricing undercut the "case for support" that many nonprofits use to solicit contributed income?

How does your audience change when you put dynamic pricing into place?

The whole concept just feels like a mixed message to me.  On one hand we are determined not to let someone pay $1 less for a ticket then the ratio says they should.

On the other hand we are community organizations that depend on generosity and goodwill to make our way.

Again, I understand the reasons for dynamic pricing.  I'm not some kid standing outside the circle throwing spitballs.  I've devoted my career to helping artists generate more revenue from their art.  But dynamic pricing seems like ones of those things that could easily slide off the rails and turn an organization into something they never intended on becoming.

I've heard advocates of dynamic pricing say things like:

"Nobody is going to notice the difference."

"It's just a few extra dollars."

"If they can pay, they should pay."

And I'm pretty sure the people saying that didn't come into the field hoping that one day those sorts of words would be coming out their mouths.

So I'm going to suggest that you be VERY cautious when using dynamic pricing and that you really consider the long term implications.  If you look at it carefully and decide it's right for you then knock yourself out.

Just be sure you're doing the right thing . . . and not just the easy thing.

Comments

[Damon Runnals]

How about this for dynamic pricing. For "The Baltimore Waltz" which Swandive Theatre will open next Friday in Minneapolis we are offering Friday and Saturday shows for $15.
All other performances (Sunday, Monday, Wednesday and Thursday)will be Free.
Ok not exactly free so here is the caveat. The performances are "Pay what we are worth." Audience members will watch the show for nothing and then pay whatever they think the show was worth, AFTER seeing the performance.
We are offering our patrons a chance to define the value on their own terms. We are also saying "look if you can't afford anything, that's ok just come see theatre."
We think it is a unique way that actually combines flexible pricing options that are rooted in the idea of support and good will.
Having the set price on Fri and Sat says to our patrons if you want to come during the prime hours then you'll need to pay a minimum, if you want a discount where you decide the value come to these other shows.

We tried this in December and it worked pretty well.
We will be doing it for both of our main performances this year, after that we should have some concrete data to see if it is worth continuing.

[Anna-Karin]

To me the given example proves a quite disrespectful way of viewing your audience, which can’t be constructive in a long term perspective. I can surely understand the advantage of time based pricing (when striving for the “ideal price”) but as marketing professionals in the performing arts sector we know that there are so many other factors than just the price that makes the audience come to a performance. We have to sell theater with a long term perspective in mind, which makes the audience interested in the theater experience and not in a bargain.
Today people are in general very well aware of the commercial language and you can’t trick them into buying theater tickets. And as far as I am concerned, you wouldn’t want your audience to pay a lower price on a Tuesday evening and sit behind a pillar and never come back…

[Adam]

Damon,

Keep us posted on how things progress.

Anna,

We agree.

[Trisha Mead]

The argument opposed to dynamic pricing you propose is that a "right price for the right seat at the right time" strategy somehow undercuts the mission of a non-profit.

I fail to follow the logic. That might be accurate if dynamic pricing advocated for increasing prices for all people at all times (regardless of demand or ability to pay). That would be simple price inflation, and of course that would create an elitist dichotomy between those who could afford the show and those who cannot. But those of you with standard pricing structures already have that dichotomy. From year to year you argue about where exactly to set the cut off limit for those who "can't afford it."

By contrast, in my experience of having actually tried it, dynamic pricing has allowed us to be more accessible to a wider range of people. That top end price on the almost sold out show that people were happy to pay (because the show was that GOOD) helped subsidize a wider array of special accessibility pricing, and even free tickets for specific groups who would otherwise not have access to our artform.

In fact, paying more attention week to week to how our houses are filling (and where the gaps are) has given us the data and flexibility to make amazing seats available for amazing shows to groups who might otherwise never be able to afford to see the show (and no, not just those Tuesday behind a pillar seats).

And the higher ticket prices on the shows that are in hot demand have only increased the strength of the case to foundations and donors who want to support the ability of the theater to supply those high demand seats at a discount to at risk or disenfranchised groups.

Or to look at it another way- everyone wants to feel a part of a successful organization- even foundations are more likely to give to non-profits that are thriving financially. The logic is that their money then goes to growing the mission or establishing new programming, not subsidizing debt or bailing out an organization that undersells its work.

The same is true of individual donors. People don't give money to theaters to keep the ticket prices low for themselves. They give money to theaters to keep the art form rich and diverse (and in certain cases, subsidize the experience for those who, not like themselves, find price a barrier).

The right price for the right person at the right time, applied correctly, ensures that all comers have the opportunity to see the show at a price that's right for them. And far from alienating new audiences, it seems to gently train them (through their own innate buying patterns) into behaviors that are better for their long term relationship to the organization. Namely, committing early, valuing the art highly, and maintaning closer communication with an organization they love (and thereby getting thanked with a better deal.)

[Adam]

Trisha,

Thanks for responding. I'll do this one response and then if you want the last word it's all yours.

The core of a nonprofit arts organization is risk. We ask our audiences to take chances on us and (ideally) see everything we do. But dynamic pricing basically tells the majority of the buying public "when we have a hit, you pay." That's what Broadway does and it has created a situation for them where they are trying to get more and more money from fewer audience members.

I'm concerned that we could be creating similar situation in the nonprofit theatre/performance sector.

But ultimately, my hope is that arts organizations take your words (and mine) and use them as a springboard to deeply considering the short and long term consequences of dynamic pricing. Sure, I worry that it could create a slippery slope where we find new reasons to charge people without actually giving them more . . . but that all depends on the character of the organization using the model.

Thanks for sparking an interesting conversation.

[Kara Larson]

Sorry to be late to the party, but I'm fascinated by the conversation. I do dynamic pricing, and as far as I'm concerned it's not some hole-in-corner shame. The extra money I can bring in by raising the price a late-comer to a hit show pays, the more we can afford to subsidize tickets that go at steep discounts or free to those who would otherwise be less able to attend. I don't force anyone to buy an expensive premium ticket; for the most part, we sell those to people WILLING to buy when there are less expensive options. Why, if someone wants to hand over more money, would any not-for-profit arts producer say, in essence, "no, thank you, we prefer you to pay less?"

There are various models of dynamic pricing. The airlines, hated by all, have created a model we can never hope to match in its complexity and real-time flexibility. (They are unpopular, however, mostly for reasons having everything to do with customer service, not pricing...). And lots of organizations have instituted a somewhat self-defeating model described above, in which the advertised price is for a seat/day/tome no one would want.

To my mind, prices should be set to manage demand in the first place, so that the curtain rises with a few seats still available. At that point, you have balanced demand and supply. When this fails, it fails in one of two ways. Dynamic pricing deals with one of them: excess demand.

In situations of excess demand, raising prices helps keep tickets available and reaps extra revenue. Which helps to support the art form. Win. Win.

This article http://www.arts-knowledge.com/docs/dynamic-pricing.pdf might be useful.

Kara Larson
Director of Marketing
Carolina Performing Arts
University of North Carolina, Chapel Hill

founder & principal
Arts Knowledge, llc
www.arts-knowledge.com