Thursday, June 3, 2010

Bending the Demand Curve

The national conference season is officially in full swing. Right now, I am in Washington, DC participating in the annual meeting of the Association of Arts Administration Educators while my partner, Jill Robinson, heads to San Diego for the California Arts Presenters annual Artist Information Exchange conference. By the end of this month, my colleagues and I will have participated in ten conferences so far this year.

At almost every arts industry conference, Demand Based Pricing has been a ubiquitous topic – nearly as popular as the sessions about the importance of social media. If you know TRG well, you are aware that we’ve been preaching the message of fundament change in ticket pricing for more than a decade. It’s strange to suddenly find oneself at the center of a debate about a topic that for years was too geeky for most arts industry conversations.

There are many organizations using the techniques TRG pioneered back in the early days of the last decade. TRG’s demand-based pricing strategies date back to a project with our brave friends at Pacific Northwest Ballet, whose first effort grossed a whopping $1,500 in incremental revenues. (Subsequently, PNB has annually generated six-figure income improvements from demand pricing tools.)

Those earliest techniques have become the standard for many who wish to dynamically change prices as sales progress; that is: when seat sales hit 75%, raise prices by $5. What was true a decade ago is true today. If you dare to raise prices for hot performances, you will make more money. And, the tiniest bit of care prevents complaints from those paying the higher prices. The real change? Today, you can do dynamic pricing yourself. You don’t need complex ticketing systems or consultants to figure out how to make this method work. It really is that simple.

Simple, indeed, and there’s a big “but.” I’m observing – and commenting as frequently as possible – that dynamic pricing misses the larger point. When done well, dynamically changing prices is like the icing on your favorite cake. While great, the icing works best if it sits atop a perfectly prepared cake. The problem with dynamic pricing, as practiced by the newly converted, is that the approach is almost exclusively limited to tickets at the top of the price table and for top-selling attractions. Incremental revenue benefits are limited to a relatively few tickets and performances in the season schedule. That’s why it has always been TRG’s contention that dynamic pricing is a tactic that works best when combined with broader strategies for sustaining revenues across an entire season .

In TRG-speak, optimal pricing is all about "getting to the middle." By this, we mean the middle of your price table. It’s easy to sell through the most and least expensive seats in any house. The middle is where success or failure lives. How one manages the middle determines the outcome of per capita revenues for every performance. Managing the middle means purposely creating opportunities to “bend the demand curve,” purposefully creating increased demand and higher revenue for seats in the middle range price points.

The key metric that should drive every pricing decision is per capita revenue; or the average price per ticket paid by the patron. If faced with the choice of making an extra $5, $10 or $25 for a few top priced tickets or boosting the per capita revenues across the house by $5, I would take the latter option every time. Why? Simple arithmetic. An extra $5 for every ticket in the house is almost always more money – a lot more money.

For the Denver Center for the Performing Arts, this boost in per capita results contributed an incremental $3.2 million in revenue this year. In one year. What did DCPA do? They created a cutting edge scale and inventory management plan that correctly predicted the order of sale (by section), the velocity of inventory sell-through rates and a pricing plan that maximized per capita revenues across the entire pool of ticket inventory. This scale and inventory plan (using static, rather than dynamic pricing models) created about $2.2 million in price variance during their subscription campaign. The remaining $1 million jump came from dynamically adjusting single ticket prices, using the subscription results as a springboard. Without the subscription scale and inventory plan, the results of dynamic changes to single ticket prices would have produced much more modest success.

What does this say about the Broadway house, orchestra, opera, theatre or ballet company that focuses obsessively about their top price point? In TRG’s experience, a fixation on top prices (especially if it’s the only price offered) almost always means that little or no attention is being paid to the middle. And the middle is where winners make the big bucks.

Coming to the TCG Conference in Chicago? Learn more about bending the demand curve at the session I’m leading, The Art of Pricing, Thursday, June 17 at 12:30 p.m. Contact us about how we can connect this month at this and other national service organization conferences.


  1. I'm not in marketing, but the experience of a hall's management (DCPA) needs to be distinguished from a self-presenter's subscription results. Many dance and opera companies find their top scale sells out first. For example, the First Tier at NY City Ballet is priced higher than the Orchestra, and it sells out all the time. The lowest three or four scales almost never sell well (speaking as an observant subscriber, not an employee...). I would also observe that when NY City Opera raised prices *after* The Pearl Fishers started to sell well, they angered some customers, and (opinion...) violated city ticket price posting rules. If ticket sales are going to be a medieval market square with bargaining, the pricing needs to go both ways. We also need to learn if "Subscribe Now!" (i.e. commit and PAY in advance) is dead or not.

  2. Average ticket pricing may very well be the future for arts groups, but that's an economic model - don't forget that this isn't just about cashflow and advance sales, it's really about loyalty and building and retaining a base. Post recession we're all asking if subscription is dead, and frankly I think the truth is that we've shifted back to such an individualized consumer marketplace (no more one size fits all) that the answer lies in how well organizations know their base and what kinds of relationships their patrons want with them. Successful organizations are creating dialogues with their patrons, learning how best to interact with them from a consumer perspective and customizing based on how their patrons want to engage with them. At the end of the day, buzz sells shows, but the deeper engagement of subscription or membership requires a belief in the core of the organization and a level of trust in them. Personally, I think "Subscribe Now" is as relevant today as it ever was. Translate it into the new lexicon of 21st century marketing and it's still all about creating relationships with patrons one at a time and leveraging the loyalty of your base into audience development practices. Our subscription sales are up more than 20% for next year. Perhaps it's the great season line-up, but after years of decline it's more likely that it's our work in reaching out to our patrons, the inclusion of their voice in how we're building the future, and responding nimbly to their changing needs and demands that is bringing them back. Average ticket pricing is worth exploring, we're seriously considering something similar, but how well you do in building loyalty will always be at the heart of sustainability.

  3. Demand pricing does work both ways: up when demand warrants and down (discounts and firesales) when demand is slack. The challenge for our theatres in Los Angeles in this recessionary market is very acute: we don't have a problem with high priced seat locations, nor do we have a problem with lowest priced tickets in the balcony. The recession has pointed its ugly finger at the mid-priced tickets in the back of the orchestra section or rear mezzanine. Those buyers are not coming as frequently. In fact, for the same performance, demand pricing can raise some prices in prime high-demand locations and lower prices in mid-priced sections.

    Regarding season tickets: in the old days there were three buyers, subscribers, single ticket buyers and group buyers. Today, technology allows us to segment into much finer micro targets: specialty buyers (they like certain genres, like musicals vs plays), smaller groups (those between 6 and 15), go-when-I-want-to-go package buyers, discount freaks (they need discounts to feed their culture diet, because they go to theatre multiple times PER WEEK and discounts help them go often), mavens and fans (preferential treatment) newbies (20% of our audiences have never been to our theatres at every performance -- and we've been around for more than forty years), cultural tourists, cultural communities (not just ethnic), etc. etc. etc.

    Technology helps us to communicate, but WOW there are now hundreds of micro target markets and hundreds of media outlets to pay attention to when a decade ago, there were just five: newspaper, radio, television, direct mail, and word of mouth. And you all know what's happened to the first four on that list. Word of mouth is now all about social media and will eclipse newspapers, if it has not already, for effective selling of the arts to consumers.

    Jim Royce, Center Theatre Group, Los Angeles