Should Theaters Use Dynamic Pricing?
This installment of 'Green Means Go' asks: Should performing arts theaters & nonprofits take a page from the professional sports playbook and use dynamic pricing? Fraught with controversy, the risks and rewards of dynamic pricing for tickets require very careful consideration by theater owners and nonprofit organizations.
Taking A Page From The Sports Playbook
Dynamic pricing has been in use by electricity suppliers, hotels, rental cars and commercial airlines, for years and the practice represents the pinnacle of supply and demand. When demand for a service or commodity is high, the price goes up. Low demand causes low prices. In the context of event ticketing, dynamic pricing is a relatively new phenomenon and its use therein is closely tied to the rapid switch to online ticket sales via so-called "virtual box offices".
Professional sports teams have taken to the idea of dynamic pricing for tickets in a very big way. The NFL and MLB governing bodies are now being fully invested in dynamic pricing algorithms for game tickets.
With so many industries using dynamic pricing, is that reason enough for theaters to use it too?
Chris Jones, theater critic for the Chicago Tribute, recently wrote of dynamic pricing being adopted by nonprofit organizations in the Windy City. In 'How theater ticket prices are changing like airline fares' Jones describes the results for theaters versus results for professional sports.
...the bleacher seats at Wrigley Field are now subject to dynamic pricing; some Cubs fans would prefer that adjective be applied to the team. Dynamic pricing has arrived with a vengeance in the nonprofit world...Dynamic pricing, it should be said, is not the same thing as having different prices for different baseball games in different months or different tiers of seating. When you do full-on dynamic pricing, you don't publish prices at all.
The Jones account of theaters using dynamic pricing is well written but is localized to the Chicago area. Given the business critical nature of ticket sales revenue, theater owners will need to consider more empirical research.
The somewhat nefarious practice of charging more or less money for a ticket based on the weather or the physical health of a player may not be well received by fans. If such extraneous conditions are being calculated openly into the ticket price, what undisclosed conditions are being added?
Fee Free Friday's cynicism aside, Rick Lester has published an authoritative OpEd entitled 'Dynamic Pricing Blind Spots' on the TRG Arts blog. TRG Arts is a respected research group dedicated to the business of performing arts theaters. Lester's cautionary tale about dynamic pricing begins with a mocking tone:
Dynamic pricing is so simple anyone can do it, right? When sales hit a pre-determined target point, prices for the remaining ticket inventory move up by five or ten bucks. From sales reports, it’s easy to calculate a “price variance” that represents the extra money dynamic pricing generated. This set of operating assumptions finds its way into the executive office and the boardroom. Touting dynamic pricing results becomes a badge of honor demonstrating that one’s organization is truly maximizing revenues for each performance on the schedule.
Lester's expertise in the business of theaters reveals itself as his 'Blind Spots' post continues:
We find that dynamic pricing practiced in isolation allows arts leaders to be convinced that their pricing strategies are working well while huge revenue and loyalty opportunities go unrealized with most every performance. We call this condition “Unsupported Dynamic Pricing". TRG Arts analysis divided the company’s performances into quartiles based on unit sales results, from the Lowest Sold to the Highest Sold performances.
All theater owners and non-profits considering a dynamic pricing schema are strongly encouraged to read the entire Lester post.
Lester summarizes dynamic pricing as "Money left in the market for the larger number of mid-selling performances is always significantly more than the potential of dynamic pricing alone."
That is to say that dynamic pricing is not a magical path to higher profits when the theater has not laid the ground work. The long tail revenue generated by the medium selling performances is higher than the gains dynamic pricing yields for the small number of shows in very high demand. Lester is a strong supporter of dynamic pricing, and as J. Kelly Nestruck notes in 'Coming soon to a theatre near you', only for theaters that treat it as another arrow in their quiver:
[Dynamic] pricing is not just about squeezing more money out of existing audience members, but part of an overall strategy of creating – or perhaps recreating – a culture of loyalty among patrons. The larger goal is to build audience members up what TRG Arts calls the "trier-buyer-advocate" ladder.
Safety In (the) Numbers
If dynamic pricing is under consideration for your theater or nonprofit event, take into account the results provided in Rick Lester research and the professional sports results cited as well. Dynamic pricing algorithms may lure you with their promise of profits measured for a single performance while masking long term losses. Running a successful performing arts theater is challenging enough as it is, introducing the volatility of dynamic pricing algorithms for tickets may be more trouble than its worth.
Your choice in ticketing software should provide you with the more conservative approach of manually adjusting the ticket prices based on demand. The act of manually adjusting pricing, and not leaving it to algorithms, means you can use your professional experience and sales data from years past to gauge the short term benefits with the long term business goals.
ThunderTix has easy-to-use tools for adjusting ticket prices on an as-needed basis, plus you can sell tickets online with no fees. Better still we specialize in online ticket sales for theaters and nonprofits with features like custom reserved seating charts and nightly deposits. If your current ticketing system doesn't provide the tools to fine tune ticket prices to meet short term supply and demand as well as your long term business goals, allow us show you our solution by requesting a demonstration.
What is 'Green Means Go'? ThunderTix’s commitment to The Arts doesn't end with a sold out performance. We want to help theaters, big and small, meet their operational goals by sharing new ideas and best practices for accepting donations and increased ticket sales. 'Green Means Go' is a series for performing arts theaters and chronicles the latest developments in fundraising, event awareness and ticket sale technology. The previous installment is here: