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Published on June 13th, 2011 | by L. Corwin Christie

9

The Dynamic Box Office

Modern Box Office

"Modern Box Office" by Ed Costello

Airlines have been doing it for years. Ticketmaster (in its latest incarnation) recently jumped on the bandwagon.

Dynamic or variable ticket pricing is the strategy of altering ticket prices based on different variables.  (As noted in the comments below, “Variable pricing is setting BASE prices according to differences in performances’ time of day, day of week, etc as in paragraph 2 (a midweek evening may be less expensive than a Sunday matinee, for instance). Dynamic pricing, on the other hand, changes prices after the initial on-sale in response to changes in demand over the sales cycle.”  I use the term “dynamic pricing” in this article to discuss changes made to prices once the tickets have already gone on sale, altering FROM the base price.  Thank you for pointing this out, Kara!) These can include everything from the number of seats already sold at the time of purchase, the proximity of the show date, alternative entertainment options on the show date, anticipated weather, and any number of factors that the host deems as having an impact on ticket prices. It is perhaps a more realistic and “fair” way to price tickets, allowing the cost of tickets to reflect the actual supply and demand of the market. This should result in minimized dead-weight loss, which benefits but the consumer and the supplier. For performing arts organizations, grappling with decreasing advance-ticket sales and discounting options that gouge profit margins, dynamic pricing might be “just the ticket.”

Unlike regular discounting or promotional pricing, the dynamic ticket model would enable organizations to price each production—and even each performance–strategically and, perhaps, more realistically. Instead of offering incentive discounts, both the organization and the audience would be able to gauge expectations for a show based on the ticket prices.

Declining ticket sales and decreased subscription renewals lead marketers to worry and wonder about the most effective way to promote ticket sales. A common “solution” is discounting, which leads to a host of other problems. Ron wrote this piece for Group of Minds outlining what the major drawbacks to discounting. Rather than reiterate what he has already presented so well, I will simply say that I agree with his concerns about this eagerness to discount in order to get butts in seats.  Considering these issues may make dynamic pricing a more attractive option for some.

A great example of the potential for dynamic ticketing is its recent use outside of the airline industry– the newest Ticketmaster/LiveNation partnership is exploring the efficacy of dynamic pricing for sporting events. Last year, an article in Sports Business Journal did a great job outlining the way that dynamic pricing works at the San Francisco Giants’ AT&T Park.

There are a couple of key sentences in this article that I wish to address as they pertain to the performing arts industry:

  • “Advanced software analyzes market conditions and determines a pricing recommendation that team executives can either accept, deny outright or tweak.” That’s the kicker: advanced software. I know that the biggest question is always: how can my organization do this? Non-profit performing arts organizations already face challenges being short on staff; the responsibility and complication of daily ticket price changes could be a full-time job in and of itself.

Analyzing the results of the 2011 Ticketing Software Satisfaction Survey, most respondents indicate that box office systems are either custom-built, cobbled together, or some of the solid, inexpensive options available to organizations. I went through and sent inquiries to the organizations listed in Amelia’s overview of the ticketing software survey results, as well as some others that respondents are using.

Unfortunately, at this time, nobody seems to have an easy-to-use “dynamic!” function in their software that makes it easy for an organization to alter prices without sending an actual staff member in to change them by hand each day. But the conversation is building in volume, and a few companies expressed that they can either design such a component for their clients, are looking into offering dynamic pricing in the future, or would like to know more about the demand for this function before they pursue including it in their products. (Just before posting this, I received the following from ProVenue: “We have no dynamic pricing customers in the UK as yet, however we do in the US. Please click on (this link) for details. We are looking to release in the UK sometime in the new year.” (I learned that ProVenue is part of the company that provides this model to the Giants. How accessible this component is for budgets that may be more modest than those of the Giants, however, is a question that I have yet to get a response to.)

  • “(S)hould a game get rained out, standard refund and exchange policies would apply. But if a fan pays a premium price to see a particular player, such as a starting pitcher, and that player doesn’t play, there is no refund.” This quotation makes me smile, because in the performing arts, understudies are just part of the game. It does beg the question, however: what if someone paid a price bump because of a certain headliner, and that artist’s understudy performs that night? Does the ticketholder get a refund of the difference? We are all familiar with understudies and what that can mean.
  • Perhaps the most universally applicable part of this article is the section “What’s the payoff?” As it outlines, “Dynamic pricing structures can provide significant cost savings for fans over original list prices for lower-demand games, and for teams, provide another means to help fill seats, generate additional concession revenue and potentially upsell that fan into a larger, future purchase. And for higher-demand games, dynamic pricing provides teams a revenue maximization tool to capitalize better on that heightened fan interest.” So actually, dynamic pricing could give us in the performing arts a real understanding of how our work is valued. We make a lot of guesses, some educated, some not, to try and figure out what the “best” price is for the work that we produce. Could dynamic pricing remove some of the mystery, and help us maximize both the number of tickets sold and the revenue generated?

Some may balk at the idea, as Diane Ragsdale does in this article on dynamic pricing in the non-profit sector. She quips, “Let’s call a spade a spade. Dynamic pricing is a method for maximizing profits….Suddenly increasing ticket prices in response to high demand, and selling ‘premium’ seats priced as high as people are willing to pay, strike me as questionable practices in a nonprofit organization.” What will it take for people to stop associating “non-profit” with “NO profit”? She likens dynamic pricing in the non-profit performing arts sector to soup kitchens charging for certain perks. What an unfortunate and offensive comparison. Non-profit arts organizations are businesses, regardless of their tax status or their primary sources of funding, and selling tickets is a fundamental component of what they do. Certainly, there are organizations whose missions might preclude them from dynamically pricing their tickets (e.g. “free art for all”), but there are others for which dynamic pricing could help generate more revenue (not a bad thing) and bring in more audience. As Lori Kleinerman of the Goodman Theatre remarks in her compelling talk on the Goodman’s use of variable and dynamic pricing, “We are aware of our civic responsibilities as a not-for-profit institution, so it’s important that we are accessible while still optimizing our income.”

There are many ways to apply dynamic pricing within the performing arts sector, and with more use some things may become evident.  It is possible that it is a practice best suited for venues that do not scale their houses, or best applied to the “nose-bleed” sections, or only effective for the blockbuster shows. Of course, the key word there is “possible.” As we lament the decline of ticket sales, the loss of revenue when we discount with programs like Groupon and LivingSocial, and the oh-so-onerous epidemic of last-minute-ticket-buyers, why not consider dynamic pricing as an alternative model for revenue generation?  After all, we may be “non-profits,” but that doesn’t mean that we aren’t subject to the supply and demand curves that drive for-profit business economics.

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About the Author

Corwin is enrolled at Carnegie Mellon University in the Masters in Arts Management graduate program. A Chicago native, Corwin received her B.A. from Oberlin College, researched her undergraduate thesis at Magdalen College, Oxford University, and spent the last few years in Denver, CO.


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  • http://www.arts-knowledge.com/ Kara Larson, Arts Knowledge

    Corwin,
    Nice post, and you hit the ball out of the park on some points re: discounting. May I add a detail though? Variable and dynamic pricing are not the same thing and the differences are important. Variable pricing is setting BASE prices according to differences in performances’ time of day, day of week, etc as in paragraph 2 (a midweek evening may be less expensive than a Sunday matinee, for instance). Dynamic pricing, on the other hand, changes prices after the initial on-sale in response to changes in demand over the sales cycle. The difference is important because anyone can (and should) do variable pricing without much struggle with current box office systems.

    And I will point out that anyone who ever discounts because sales are slow is already doing dynamic pricing. We often accept it as a business practice without reflecting on what we are really doing. It just means we are dynamically pricing downward; if we already do that, why should we not also dynamically price upward when circumstances permit?

    I have implemented dynamic pricing at several arts non-profits, and I know that it isn’t, for the most part, a systems issue. DP requires understanding demand in your market, doing revenue projections that depend on realistic base prices, and being well prepared in advance for anticipated changes. Technology is not the solution here; intelligence is. Implementing dynamic pricing the wrong way can leave patrons feeling abused and taken advantage of. Done right, it adds needed revenue to the bottom line, makes advance purchase patrons feel they’ve done the right thing, and lets very enthusiastic late buyers pay what they think the performance is worth.

  • L. Corwin Christie

    Kara:

    Thank you so much for your comment.  You make an important point about
    the distinction in methods, which I have integrated into the post. 

    As you mention, introducing dynamic ticket pricing is something that
    must be done carefully and with consideration, and there should be a
    strategy in place that reflects an understanding of the market.  This is
    the case for discounting, as well, (which you point out is, in some
    cases, another form of dynamic pricing).

    It is encouraging to hear that you have had success implementing such a pricing strategy without relying on software.  I hope that more organizations look into the potential of dynamic pricing, and realize that audiences may be flexible, and that organizations can find themselves generating more revenue, with a fresh look at ticket pricing.

    Thanks again,

    Corwin

  • http://twitter.com/Musicshosh Shoshana

    I’m curious where you would place increasing the price of an event due to instinctive popularity.  Would this be considered variable or dynamic pricing?  I guess if the price does not change after the initial price set, it would be variable?

    I understand both sides of this issue.  In terms of keeping your audience in mind, do our audiences like dynamic pricing?  People tend to hate the dynamic pricing of the airlines, but since they do not have a choice, they will pay the price rather than cancel their trip.  However, will this line of thinking apply to dynamic pricing of arts event?  It would need to be something very special and incredible to be able to use dynamic pricing.  An event may be selling well at the price point set, but raising the price could actually turn an audience off.  In our days of transparency due to social media, if an organization gets caught doing dynamic pricing, the audience could retaliate. 

    I agree that an arts organization, non-profit or not, needs to function like a sound business, as it should.  What I advocate for is to find out what an audience would pay for certain types of shows and attempt to accommodate to the best of your ability.  I would implement variable pricing to the tune of what the audience would be comfortable with paying for certain types of events.

    Many surveys have noted that a $25 ticket in most areas is a good price point base for a general audience for a general seasonal event.  If an event is exceptional, they will pay more.

    In summary, ask your audience, they will lead you to the best pricing points.  You won’t have to play any pricing games.

  • L. Corwin Christie

    Shoshana:

    Thank you for your comment!

    I agree completely that organizations must understand their specific market, product, and own audience’s willingness to pay–pricing should never be arbitrary.  Certainly
    there will be trial-and-error when it comes to making changes to ticket
    prices, but I am a firm believer in research-driven decision-making.  This does not, however, mean that organizations should get stuck in a rut of doing something one way–we must also give our audiences credit for being adaptable, and should periodically check in to ensure that we are meeting audience needs and maximizing our ticketing structure’s potential.

    I don’t think that dynamic pricing is a game–that is to say, it shouldn’t be.  It should be strategic, based on research and analysis.  It is merely a different tool, and may yield different results.  I am not sure that it would need to be for a very special event, although for a particular organization, perhaps it can only be applied to the holiday show.  I do envision the possibility for dynamic pricing to be applied by one organization for all of its events, but the rate of price change may vary.  Again, it is not necessarily for every organization, but some may find it worthwhile and even financially beneficial while others may never find value in it.

    I think that audience satisfaction when it comes to pricing is a matter of communication.  If the website communicates that prices are subject to increase after a particular date, if advertisements do not list specific dollar amounts but indicate that the audience should “buy early for best prices,” all potential buyers are armed with the same information.  I would venture to guess that people would be surprisingly unfazed by this practice, and that people will quickly adapt to this structure.

    When we attempt to fill seats by discounting tickets at the last-minute, or offering deals to prospective buyers through other channels that disregard loyal buyers, subscribers, or early-purchaser, I think that we run a much greater risk of upsetting audiences.

    Thanks again!

    Corwin

  • http://www.arts-knowledge.com/ Kara Larson, Arts Knowledge

    If it were possible to determine in advance what price would fill the house and pay the bills, marketing would be a much easier discipline that it is. If we could always predict the perfect price, we’d never have to discount or dynamically price. Alas, life is not so predictable.

    Demand should determine the base price of any ticket. And dynamic pricing needn’t be hidden or a surprise to patrons. (I also believe it should be used sparingly, on occasions when its effect is worth the trouble of implementing it.) You don’t want to annoy the patrons with frequent changes, or make them feel taken advantage of, but neither should you be forced to live with the consequences of underestimating demand.

  • Tim Roberts

    Tim Baker of Baker Richards http://www.baker-richards.com puts Dynamic Pricing in context well:

    “In a sense, dynamic pricing acknowledges that you got the prices ‘wrong’ to start with.”

  • Tim

    I don’t care for the use of the word “fair” in the second paragraph. Perhaps “fair” to the Income Budget, or “fair” to some dog-eat-dog economics textbook. Please consider “fair” to the tax-payers who gave you a tax-exemption, or “fair” to the people who bought your tickets back when nobody else wanted them. Giving unwanted back rows to Hospital Audiences or school children does not discharge your duty to the community

  • Rodi Franco

    I was so startled by your quote of Diane Ragsdale’s blog that I had to read her entire post.  I felt compelled to comment here and on her blog – even though she posted her article back in November of 2010.

    Her comparison between the performing arts and a soup kitchen is wrong because the two do not have the same financial structure.   A soup kitchen or nonprofit social service receives revenue exclusively from donors in order to serve food to those in need.  A performing arts organization receives revenue from a combination of fundraising and earned revenue.  While the percentages vary, the vast majority of nonprofit performing arts organizations rely far more heavily on fundraised revenue than earned revenue.

    Equally wrong is her statement that a successful performing arts organization can or should use dynamic pricing in order to maximize its profit (or more correctly, its surplus).   I’m sure that we can all agree that a successful organization is one that maximizes its audience. Dynamic pricing facilitates the diversity of prices available; by definition, it is the raising of prices for higher demand tickets and the lowering (or discounting) of lower demand tickets from the base price.  This practice allows all prospective patrons to choose the price point that they feel provides value to them, which directly results in a larger number of ticket buyers.  As audiences grow and prices more closely match the value that audiences perceive, overall earned revenue will grow.

    The idea that successful nonprofits have an obligation to leave money on the table is ridiculous!  The only difference between a commercial firm and a nonprofit is that the surplus/profit achieved by a nonprofit does not need to be shared with investors.  A successful nonprofit should use the increase in earned revenue to do any number of things: produce more challenging and/or expensive art, make select programs more accessible to those who cannot afford to experience performing arts or for art education, leverage the increase in earned revenue and audience growth in order to grow fundraised revenue, invest in staff, pay for a capital expense, or fund its endowment.

    As a community, we should embrace dynamic pricing because it is powerful enough to actually change consumer habits.  The future for successful nonprofits is a greater patron base that attends more frequently, with the resources to produce greater art that we can today.

  • http://www.facebook.com/profile.php?id=15902308 Amelia Northrup

    Corwin,

    Thanks for a comprehensive look at pricing practices and
    for the shout-out on the Ticket Software Satisfaction Survey. It seems like
    dynamic pricing is a pretty hot topic these days as evidenced by Cott’s recent
    round-up, so your article was very timely. I especially liked the way you tied
    pricing back to the value of an artist’s work.

    We’ve been talking about dynamic pricing a lot around the
    TRG offices since then, and we’re all a little troubled that some arts
    organizations are coming to see dynamic pricing as a replacement for
    subscriptions, instead of a tactic that is a means to an end. Our CEO Rick just
    made a post (http://bit.ly/px1DBM) addressing this shift in thinking. I’m interested in
    knowing your thoughts.

    You may also be interested in some research on late
    ticket-buyers (http://bit.ly/qzinoH) that TRG did earlier this year. Incentivizing
    late ticket-buyers is an oft-cited reason for implementing discounts or
    changing pricing structure and my ears perked up when you mentioned the “oh-so-onerous epidemic of last-minute-ticket-buyers”. :-)

    Glad to have you back on the blog this summer! Miss you guys!
    -Amelia

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