Dynamic Pricing Blind Spots

Photo via flickr

Unsupported Dynamic Pricing -- a condition that exists when the results of dynamic pricing mask the broader weaknesses of an organization’s prevailing and inadequate pricing strategy.

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. 

Best of all, its success can be proven.  From sales reports, it’s easy to calculate a “price variance” that represents the extra money dynamic pricing generated.  And typically, there are no complaints from the ticket buying public to diminish the upside of incremental revenue. 

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. 

Deeper probing, however, shows otherwise.

In TRG’s analysis of sales outcomes, 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.”

Four reasons to start marketing holiday blockbusters now

Photo by Gabriel Saldana

For most non-profit arts organizations, a surge of revenue comes reliably twice a year:

• during subscription campaigns,
• and again during annual holiday blockbuster events like A Christmas Carol, The Nutcracker, and yuletide concerts.

Blockbusters boost annual revenue from time to time, but holiday events consistently and reliably provide sustaining revenue for the rest of the year.

Therefore, an organization’s annual holiday production—and the marketing campaign and box office operations surrounding it—is one of the most important things to get right. In TRG’s consulting experience, starting early is a key factor in a successful holiday (or any) blockbuster. For holiday shows, the time to start is NOW.

Upcoming Webinar: Christmas in July

Update: Thanks to everyone who signed up for the webinar. If you missed it, you can still view the recording here.

Christmas in July:
Maximizing Holiday Revenue Starts Now           

Date: Tuesday, July 17
Time: 2-3 p.m. EDT/11-noon PDT
Cost: Free--register here.

It’s summer—the time of year when an arts manager’s thoughts turn to poolside fun, family vacations, and—of course—planning for A Christmas Carol, The Nutcracker, yuletide concerts, and other holiday blockbuster events.

Not on your calendar yet? Then you are missing a major opportunity.

Holiday productions equal big money for arts organizations. But how can you get the most out of this once-a-year opportunity?

New York City Ballet (NYCB) wanted exactly that—to maximize revenue. The company had been selling out most of its performances of The Nutcracker. However, NYCB could not add more performances. Growth had to come from the schedule already in place.

NYCB Director of Marketing
Karen Girty

In partnership with TRG Arts, New York City Ballet found ways last summer to increase revenue from The Nutcracker in December 2011, and as a result it generated an additional $1.1 million. Read the New York City Ballet case study.

NYCB’s Director of Marketing Karen Girty joins TRG’s Keri Mesropov and Lindsay Homer to detail how they did it—and how you can get your organization on track for big holiday season success. You’ll learn:

• how pricing and scaling can make or break holiday revenue 
• best practices for timing and deploying a holiday campaign 
• specific techniques Girty, Homer, and Mesropov used to drive revenue at NYCB

To Register:
1. Go to Webex: http://bit.ly/H95IXO
2. Click on "register" (free).
3. Fill in the short form and SUBMIT.
You will receive log-in information for the webinar in the confirmation email.
Note: To participate fully, you will call in for sound and log on to the online presentation and virtual dialog.


Mark your calendar; mind your time zone:
Tuesday, July 17
11 a.m. Pacific
Noon Mountain
1 p.m. Central
2 p.m. Eastern

Questions? Comments? Contact us, or comment below.

Who’s a Scalper?

Sign from the Vancouver Folk Music Festival.
Photo: Richard Eriksson

The secondary ticket market is a hot button issue across the performing arts and broader ticketed-event universe. Anything this huge has to be.

The New York Times recently estimated that ticket sales through brokers and other resellers “is a $4.5 billion business nationwide.” Revenue of this magnitude in a sector with few barriers to entry likely means that further growth is inevitable.

After attending a long series of arts conferences this year where experts from the field have talked insistently about the evils of the secondary ticketing market, one has to wonder: Do ticket brokers have mothers? Surely, only a mother could love these people. The list of pejoratives is lengthy. “Scalper” is one of the kinder terms. Thus my question: Who’s a scalper?

Upcoming Webinar: Demand and Success Factors for Museum Pricing

TRG President Jill Robinson

Admission price increases at some of America’s highest profile museums trigger major media coverage and a “fear factor” in discussions about how museums should determine pricing. However, museums aren’t getting useful direction from the dialog about the pricing, says TRG President Jill Robinson in her recent blog post.

Jill leads TRG’s counsel for museums, and in this free webinar she will explain the demand-based pricing approach that has led TRG clients to sustaining revenues and lasting patron loyalty over the last two decades. Hear how pricing fits into a smart revenue strategy as well as the key success factors for optimizing admission pricing in museums and other membership-based organizations. Jill will make a brief presentation and then take your questions.

Join us for this free hour-long webinar on November 29, 2011 at 1 Eastern/10 Pacific.

To Register:
1. Go to Webex: http://bit.ly/tLvqLi

2. Click on "register" (free).

3. Fill in the short form and SUBMIT.

You will receive log-in information for the webinar in the confirmation email.

Note: To participate fully, you will call in for sound and log on to the online presentation and virtual dialog. 

Pricing Dynamics for Commercial and Non-profit Entertainment

A version of this post originally appeared as my guest commentary for Ticket News, an online resource for ticket industry news and information.

Photo by Bobby Bradley via Flickr

When it comes to pricing ticketed events, what works? For nearly two decades, TRG Arts has answered that question for hundreds of non-profit arts and culture organizations. About four years ago, TRG also began working with a number of commercial entertainment clients, mostly Broadway productions.

Although non-profits and commercial entertainment presenter/producers serve very different missions, both face the need to get the most from every ticket sold. Maximizing revenue is frequently a life or death issue. Everyone is familiar with the fragile business model of a nonprofit. But the tight operating margins and pressures to re-coup production costs of a commercial event are no less challenging.

The key driver for both non-profit arts and commercial entertainment is demand, a completely situational factor that varies by market, organization, time of year, time of day, and of course, programming—what’s on the stage or in the exhibit space. To maximize revenue, the pricing strategy should anticipate and manipulate demand for an event or exhibition.

Pricing for Museums is a Demand Issue

My partner and TRG President Jill Robinson has led the development of our firm’s counsel for the museum industry. Recent media and blogosphere buzz about museum admission pricing coincided with Jill’s preparation for upcoming counsel sessions and a webinar on the subject.   In this post, Jill summarizes her insights and adds her voice to the ongoing dialog. She is currently attending the American Museum Membership Conference (AMMC) in Philadelphia and will join me later this week in San Francisco for the ArtsReach Marketing, Development and Ticketing Conference.

October 2012 Update: Jill and I will be doing a webinar on dynamic pricing and its role in patron loyalty strategy on October 31, 2012 at 2 pm EDT. Please register (free) by clicking here.

Photo by Glen Scott via Flickr

Museums aren’t getting useful direction from the recent public dialog about the prices they are charging or want to charge for admission. 

Admission price increases at some of America’s highest profile museums have made news in major media and online, and that coverage has touched off discussion that appears more emotional than productive. It seems like the further away from free or low-cost admission a museum gets, the more the institution is vulnerable to criticism on grounds of not making their collections accessible or affordable. It’s as if admission price is the only way to express accessibility and that accessibility is the only reason for a museum’s being.

Of course, accessibility is important. But, it’s not – and should not be – the sole basis for a museum’s admission price decisions. As Clare Ruud points out, pricing is a mission-based decision.

Per-Capita Ticket Revenue: The Canary in the Coal Mine

This week, TRG's own Will Lester and Amelia Northrup are contributing to the Arts Marketing Blog Salon on Americans for the Arts' ARTSblog. This article by Amelia was originally posted as part of the salon, which previews the National Arts Marketing Project (NAMP) Conference in November.

Usually when organizations consider their ticket sales, they look mainly at total revenue. After all, revenue is what keeps an organization running, and total revenue is the 50,000-foot view of how well an organization is doing.  However, when considering how to optimize ticket sales, calculating and analyzing per-capita revenue becomes a critical measurement.

Yes, “per-capita revenue” sounds boring, complex and technical, but stick with me—the reality is that it allows you to zoom in and see how tickets are selling on a season-by-season or show-by-show basis and that’s actually pretty useful.

Let’s break it down:

What is per-capita revenue?

In laymen’s terms, per-capita revenue is the average price paid for a ticket. You can calculate per-capita revenue for an individual performance, a series of performances or an entire season. You can also break per-capita revenue out by group tickets, single tickets or subscription/membership purchases.

How is it calculated?

The formula for calculating per capita revenues follows:

Per Capita Revenues =     Total Sales Revenues                                     

                                             Total Unit Sales 

And (most importantly) why should you care?

How Big Is Your Market?

As I was reviewing data for this post, two significant contributions to the national dialogue on arts and culture sparked a lot of online discussion. The publication of the National Arts Index by Americans for the Arts and comments made by NEA chairman Rocco Landesman raised compelling questions about the nature of supply of and demand for arts organizations, arts venues, and forms of expression. The consumer trends we see in transaction data offer additional perspective to consider on the demand side of this ongoing conversation, which is provocative and timely. We hope it will continue.

When I was a new young marketing director, my boss at the Cincinnati Symphony Orchestra began my orientation with a number of helpful observations about the new job and the field I was about to enter. One key ‘fact’ really pulled me up short. The target market for a symphony orchestra, Managing Director Steve Monder stated, was very different than my prior experiences as a marketer in the theme park industry. Supporters of the typical symphony orchestra accounted for no more than 2% to 3% of the population in any community. To succeed as a new marketing director, I would have to quickly learn an entirely new skill set. I would have to efficiently find a very small target market.

To do so, best practice followed the catalogue industry for inspiration. The powerful tools of direct marketing were perfectly suited to mining our arts market. Early prospect targeting efforts typically focused on (high) income as a surrogate for high education. (Demographic profiling tools available to catalogue retailers were frequently too expensive for a nonprofit to buy.) Later, Response Rate Reports became the prevailing best practice for understanding “who” was saying yes to our offers. “Back-testing” confirmed that successful list segments might produce 1% to 3% return on each offer. Ultimately, with my colleagues at TRG, we used Patron Loyalty Index data and other lifetime value analyses to perfect understanding of our best prospects. PLIs showed that a relatively small number of patrons provided the overwhelming majority of resources needed to sustain the organization each year.

So, throughout most of my career, there was never a hard fact that contradicted my earliest education about the small size of America’s market for arts and cultural offerings. That is - until now.

A few weeks ago, I received an internal report that summarizes the status of TRG’s community data networks (co-ops). A key metric that we monitor closely is the number of patron households in each community that have transactional history. In simple terms, we are looking to quantify arts and culture consumers in a market by examining the count, location, and transaction activity of households in a database community. [See postscript below for more on co-op study methodology.]


When I examined the numbers for our three largest community co-ops (Los Angeles, Philadelphia and Houston), it hit me. Something in the numbers didn’t match my expectations. If the target market for arts and culture is just a small fraction of the population, then who are all these people in community databases? In these three markets, we’re looking at counts ranging from 1.2 to nearly 3 million arts and cultural consumer households


Key Finding: The relationship between the number of households in these community data co-ops and the population each serves is much larger than one would expect. In Houston and Los Angeles, the patron household count is equal to more than one in three (37% and 39% respectively) of the total community database service area. In Philadelphia, the ratio is a whopping 61%! And, our recent review of TRG’s newer, developing database communities indicate that they are all headed toward similar results.


Clearly, a significant percentage of the citizens in these markets are buying tickets, attending exhibits, making donations, and becoming members. And, they are doing so at rates that are at odds with the concept of a tiny, narrowly defined market.


The data provides further insight into the depth and breadth of arts and cultural consumerism.

• Arts and cultural consumers in our most mature co-ops are recently active. Most households, 78%, have transaction history in the past three years; more than half, 54%, were active consumers in the past year.
• While three out of four of the households in our most mature co-ops have transaction history with only one organization in their community, 24% – and that’s hundreds of thousands of consumers in each market – are patrons of two or more of their market’s arts and cultural organizations.
• The number of out-of-market households – cultural tourists – is significant. Popular convention holds that very few U.S. markets are magnets for those who travel to experience art and culture; New York City or Santa Fe come to mind. But our analyses showed evidence of cultural tourism in all three of our most established co-ops. In Houston, for instance, 18% of the co-op population comes from outside the greater Houston area: 10% from other parts of Texas, 2% from Louisiana, and 6% from other states.
  

So, what’s an arts and cultural manager to do with this information? Some thoughts.

1. When prospecting for new patrons, look first to active arts and cultural consumers close to home. Instead of selecting prospects using demographically defined attributes with no previous purchase history (you know, highly educated, wealthy households who read the ‘right’ magazines or newspapers) look for cross-over patterns in the local community of patrons. Which colleague organizations tend to produce patrons that migrate in my direction? These prospects should receive a special offer – an invitation to give my organization a try. Finding active arts and cultural consumers in the community data that have not yet made a visit to your organization can be gold, when approached properly.

2. Use community database resources to change the playing field that defines the relevancy of the arts and culture locally. The large number of households that are investing time and money to engage in arts and culture offerings describe a vibrant, vital part of a community’s fabric. Do the math. By our count, the arts and culture organizations are serving a very high percentage of consumer (and voter) households in American communities. When advocating elected officials, I would make the case that a high percentage of their constituents are patrons. I would also have the hard facts to back up my point.
3. Explore the potential of out-of-market buyers. Our analyses suggest that cultural tourism may be a larger potential source of patronage than conventional wisdom assumes. More study is needed on who are cultural tourists, how often they come, and what attracts them. That’s on TRG’s radar for future examination.


How have you used your data resources to mine your market? Let me know by leaving a comment.


Postscript: This kind of study requires a baseline understanding about the nature of co-op data and how it can be measured. First, the co-ops we manage bring together performing, visual, historical, and cultural arts organizations in thirteen U.S. communities for the mutual benefit of sharing data on patronage (i.e. paid admissions, event attendance, membership, donations, volunteer participation). The mix of co-op organizations is diverse; those that track paid activity, including performing institutions, dominate the mix. Newer co-ops tend to be smaller than those with a longer lifespan. Well-established co-ops generally have more member organizations and their data sets generally are much more extensive – they include more households that have patron transaction and activity history for longer periods of time.


Secondly, in studying co-ops, we use specific definitions for population and market area. Co-ops are measured by the number of participating households, not individual consumers. Therefore, to calculate the ratio of arts consumer households per market area, our studies are based on co-op household count. To determine market penetration, we use U.S. Census estimates of households within in each of the jurisdictions each co-op serves. Therefore “market area” is defined by the unique geographic footprint of each database community.

The Myth of Last Minute Buyers, Part I

Last year I added a new quip to my repertoire of answers for use during the inevitable Q&A sessions during conference season. At virtually every gathering, someone would ask about possible solutions to the increased numbers of single ticket buyers making purchase decisions later and later in the sales cycle. America’s recent economic downturn, it seems, was making this worrisome long term trend even more problematic.

I’ve heard this complaint for more than three decades. It was never supported by data or quantified over time. So, my quip seems equally unhinged from reality: If late-buying keeps increasing then any day now we’ll have patrons buying their tickets a month after the performance takes place.

An opportunity for TRG to explore the issue of late ticket-buying presented itself recently. The source data came from Southern California’s LA STAGE Arts Census. Specifically, we examined single ticket purchase patterns for more than 1.5 million households, about half of the total LA data warehouse. We were specifically looking for changes in the time between purchase date and date of performance. Our study period was 2006 through 2010.

As background, we note that the volume of single ticket orders changes from year to year in this market, as it does in every market. A number of factors drive purchase volume: the number of total performances will vary each year. So will the demand for tickets that accompanies the popularity of the productions offered on stage. Some seasons are just “hotter” than others.

In this analysis, the 2008-09 season marked a significant downturn in total ticket orders for the organizations included in our study – a one-season drop of about 20%. The 2008-09 season coincided with the worst (fears) of the Great Recession. This one year drop in total sales, accompanied by anecdotal reports of swings in buying patterns, offered a unique opportunity to use this particular data from a very large arts market to explore and quantify significant changes in buying behaviors.

Here’s what we observed:

Overall, near-performance advance ticket order volume was relatively consistent during the multiple-year study period. About 35% of total single ticket orders occurred during the week of the performance and about half of all orders (47%) were made during the two-week period prior to the performance.

However, these ratios ceased being normative during the 2008-09 Season - the year that witnessed the large decline in total single ticket orders. Week-of-performance sales rose from 35% to 46% of total orders and the two week ratio moved from 47% to 57%! These ratios were significant to be sure, and triggered our deeper dive into the raw transactional data. When we did, we saw that the actual number of orders for single tickets during the final weeks of sale in 2008-09 was virtually identical to the number of orders in comparable periods for prior seasons. That is, the number of households making a last minute purchase was the same as it historically had been – not more in number, just a higher proportion the total.

The bigger news in this analysis is that early ticket order volume was significantly lower in 2008-09. Advance single ticket orders fell behind historic sales pacing patterns beginning with the very first weeks of sales results. Thirteen weeks out, single ticket orders were already 60% behind the historic sales pace. As each subsequent week unfolded, this gap closed slightly – until the final couple of weeks. As the performance date approached, order volume increased as prospects finally made their decision to purchase.

The real story is that at the peak of the Great Recession, advance buyers in this large market appear to have decided to stay home – or at least, to delay their purchase. Their buying pattern in 2008-09 differed sharply from recent historic advance pacing. That created the perception of increased last minute buying because such a high proportion of those who did buy made their purchase nearer the performance date. In truth, however, the walk-up line was no longer and near-curtain traffic no greater than in other seasons.

So what happened next? During the 2009-10 Season, total single ticket orders recovered, far outpacing order volume experienced in 2008-09 – exceeding even the results of the two prior years. What fueled this growth? Advance sales returned to pre-recessionary patterns. And “week-of” sales? They grew proportionally with overall ticket order growth and the ratios remained consistent with seasons prior to 2008-09.

Questions and great curiosity remain, however. When there is a decline of 20% of the total audience in a single year, one has to ponder – who bought and when? Who skipped that season? Specifically, which patrons changed their behaviors? When sales rebounded in the following year, which patron group drove that success – did early buyers “come home?” Did arts organizations do what they have always done – find lots of brand-new buyers?

One of the great things about being a part of the TRG team is that we get paid to be curious. These kinds of questions make us both a bit crazy and really eager to dig in, seeking quantifiable answers. That’s just what we’re doing next. We’ll be back to you when we have more results to share.

Do you have a myth you would like busted? Leave a comment and we’ll add it to the list.

What It Takes To Grow

Blogger’s Note: It’s been a long time, several thousand travel miles, two conferences, a first draft of a new book, and two new grandchildren since my last blog entry. During that time, I’ve seen case and study results that I’ll share via this and future posts. Here’s to a happy, more prosperous, more communicative New Year.

Recently, a very smart entrepreneur in the commercial entertainment industry made a surprising observation. He admitted that he carefully follows the business and marketing practices of not-for-profit arts and culture organizations. Nonprofits, he said, tend to “work smarter -- they have to.” Strategies born of necessity frequently breed cutting-edge ideas that can be applied elsewhere.

I would agree. In these tough times, the margin for error is so small and the stakes so high that survival for many nonprofit performing arts organizations depends upon the ability to do everything exactly right.

So when client organizations began posting higher ticket sales in late 2010, we took notice. We also took a closer look to understand what was happening. What were the forces that appeared to drive sales up – or down? Were there organizational or market factors at work? If so, what lessons might we learn?

To find out, TRG fielded an internal analysis on a study group of clients representing large and small organizations across the U.S. and Canada. We chose cases for which we had a good understanding of both the operational and market situation. Each case offered clean, consistent data. Every organization had staged several performances or productions since the opening of the 2010-11 season. At the time of the study, many were in the process of opening their big holiday performances and events so this analysis did not include the yet-to-come impact of December attractions.

About three of five organizations saw improved ticket sales over last year. About one in four were experiencing sales declines, with the remaining experiencing generally mixed or flat results.

Market conditions or severe weather appeared to have negatively impacted only two organizations in our study group. Far more important – especially for those organizations whose sales fell short of prior year results - were the artistic decisions about what went on the stage. Artistically challenging choices, in terms of audience appeal, clearly had a significant negative impact.

Of the organizations with mixed results, several experienced big extremes: for one production, the organization would achieve record-breaking sales volume and revenues only to be followed by a production (the same organization, mind you) with soft sales or just plain awful results.

That a majority of the study group witnessed increased admissions and revenues thus far this season is significant in TRG’s view. It was clear that these improved fortunes were no fluke or lucky break. Foresight, coordinated planning among programmers, marketers, and leadership, and exceptional implementation worked together to make these increases happen. In short, these folks worked smarter – as teams – under the worst economic circumstances of our lifetime.

What did they do right?

They put the right assets on stage. Anyone within earshot over the past three decades has heard me hammer away at this point: programming matters, especially early in the season. The organizations whose sales increased had planned and staged at least one production that drew large audiences at or immediately after the season opening. They front-loaded their season with a hot ticket – a performance or production that lots of people want (need!) to attend. Not only did subscribers look around and feel good about investing in a winning season, but relatively large numbers of new ticket buyers joined the patron base early in the season. These smart organizations gained not only immediate revenues, but simultaneously increased their prospect pool of repeat buyers (during the same season), which will create greater numbers of future subscribers and donors.

They anticipated patron demand in advance. Without exception, these successful organizations began promoting their hot performances and managing inventory for their not-so-hot dates last spring or earlier. Each had sales pacing and pricing strategies built into their marketing scheme long before single tickets went on sale. Houses were scaled and seats held and released to sell in a particular order so that hard-to-sell nights would look well-sold. Organizations -- Seattle’s 5th Avenue Theatre to name just one – created themed “sales” six months out. “Christmas in July,” Back-to-School” and “Black Friday” promotions strategically discounted seats to stimulate demand for production dates and performances that were not expected to sell out. As a result, they sold more seats much earlier in the normal sales cycle so they could maximize incremental revenue from demand-based pricing as consumer interest peaked nearer performance dates. In short, success stories were built on long-term plans that were implemented with scrupulous attention to demand and sales pacing.

They put resources in the right places. Winning organizations fueled their top-selling programs with the highest investment in marketing and manpower resources. Some saw an increased cost-of-sale but stuck with their plans, making investments that were necessary to fuel continued sales volume. Their results show that a growth-yields-growth strategy works especially well in these difficult times.

Finally, the most successful managers recognized that flawless execution is not optional. When times are this tough, missed deadlines or skipped steps negatively impact the bottom line and guarantee disappointing results – every time.

As I post this, final results from December performances are just coming in. Like you, we’ll be eager to see what the data tells us once the full impact of holiday sales can be measured. Whether or not we are witnessing hopeful trends, one thing is clear. Growth in the season ahead must be planned for now with well-informed decisions about patron demand, programming and its placement. We know it won’t be easy. In this business, it never has been.

Demand vs. Loyalty – No Contest

Based on the reports of my TRG colleagues, our recent blog posting on Demand Based Pricing prompted questions and conversations at recent national service organization meetings (Theatre Communications in Chicago, League of American Orchestras and Chorus America in Atlanta, DanceUSA in Washington, DC and Professional Association of Canadian Theatres in Cow Head, Newfoundland). Discussion revolved around how arts managers should reconcile potential revenue growth from Demand Based Pricing against long term goals of enhanced Patron Loyalty. The FAQs? Are these two concepts mutually exclusive? Do techniques designed to squeeze the maximum sales revenues for tonight’s performance come at the expense of the need to develop lasting relationships with our patrons? Do higher prices negatively impact giving levels?

My simple response is that price does impact patron loyalty. Why? Because everything impacts patron loyalty. The quality of the performance, the selection of seat location, the perception of box office success, the level of service offered by venue staff, the convenience of parking, the service and quality of the pre-curtain dinner at the restaurant across town – everything impacts the quality of the patron experience and therefore patron loyalty. Some of these issues are within our control. Others not.

Within this context of total experience, it stands to reason that patrons’ perceived level of fairness of price is an essential consideration. But, how do we measure the “fairness” of price for a ticket? Pricing textbooks aren’t much help. There we find pricing theories that argue for “odd-number pricing” or “even-number pricing.” But “just” or “fair” pricing? Conventional wisdom holds that consumers (like markets) make rational decisions. No consumer knowingly pays what they believe to be an unfair price for anything.

I can’t speak for other products. I do know that savvy marketers can promote irrational patron behavior by enticing the shrewdest of consumers to make illogical purchase decisions for tickets to highly desirable events. Witness the prices paid for tickets in the secondary ticket market to any Super Bowl, major concert artist, Final Four basketball game, selected Broadway shows or World Series. Irrational is the only word that comes to mind when trying to explain the willingness of some to pay hundreds, if not thousands, of dollars for a ticket. Does that football fan feel somehow cheated if their prized $5,000 ticket results in a losing score? Does this fan become more or less loyal over time? Sports data is remarkably consistent. Winning seasons promote sales growth (and fan loyalty) the following year – regardless of price.

The price only becomes “unfair” if the experience fails to meet expectations. That shining new car on the lot is terrific until it becomes a “lemon” that spends more time in the shop than on the road. Sports marketers confirm that a sports ticket becomes a bad deal only when the team no longer has a "realistic chance” of being competitive – a chance of winning against most any opponent. And even then, the loyalty for some teams defies all logic. How long has it been since the Chicago Cubs won a World Series? (1908!) Yet, have you seen the price for a prime seat location at a Cubs game?

Our recent blog post described how the Denver Center for the Performing Arts adopted the principles of Demand Based Pricing and generated remarkable financial success. By any measure, revenue growth of $3.2 million in a single season is amazing.

So, what is the other side of this story? Recent conference debate raises a mix of caution and doubt, suggesting that such huge growth in earned income must have negatively impacted contributed income at DCPA. There is, some would argue, only so much money in any community. Moreover, some would assume DCPA’s fans came away from the pressures of the subscription renewal or acquisition campaign feeling somehow cheated or abused by a set of strategies that unfairly exploited the popularity of the season. Or so the argument would go.

Here’s what actually happened: Using the same data-driven strategies that fueled DCPA’s subscription and single ticket campaigns, the total dollars raised for the annual fund grew by 20%. In a single season. Improving per capita revenues does not mean that patrons will become less loyal – or less likely to write that donation check to support the mission of the organization. Patrons buy more, pay more, give more because the love what is put on stage.

Demand Based Pricing is all about improving per capita revenues – the average price paid for a ticket. Typically, this involves the construction of an integrated set of scale-of-house, inventory management and pricing strategies before the season begins and deploying those relatively static strategies throughout the season. Most buyers – especially the most loyal patrons – see or feel minimal impact. The Dynamic Pricing plans that adjust prices after tickets go on sale and when demand exceeds expectations typically impact the most transitory of audiences – the last minute buyer who has no idea of or interest in the range of prices previously offered. And, TRG’s research indicates that these folks are likely to never be seen again – regardless of the price they pay. (In fact, many walk away without a trace, never having been asked for contact information, which is another issue for another day). For these buyers, the price is simply what they agreed to pay, fair – or not. And rational or irrational, they make the same judgment that all of us make every day as we move through our consumer driven society.

So – does price impact loyalty? Of course it does, although not in the simple tactical sense that some might argue it does. Smart pricing plans improve both the perception of success for the organization and generate more revenue – which creates more stable business models. I’ve raised money for financially strong and financially weak companies and my experiences have been consistent. Donors respond to the legitimate needs of successful companies with the eagerness of a fan – not dread.

And, perhaps more importantly, Patron Loyalty impacts price. Loyal audiences assist our efforts to manipulate inventory and prices to encourage the kind of behavior that benefits box office and long term financial success.

Expect more on this topic from TRG. We will continue grinding through our data to see what else the numbers tell us.

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.