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.”

Upcoming Webinar: Dynamic Pricing or Patron Loyalty?

Dynamic Pricing or Patron Loyalty? (Do Both in 2013-14.)
Date: Wednesday, October 31
Time: 2-3 p.m. EDT/11 a.m.-noon PDT
Cost: Free--register here.

TRG CEO Rick Lester and President
Jill Robinson lead this new webinar.

TRG’s latest work has focused on how ticket pricing and inventory management practices impact patron loyalty.  The conclusion?  Pricing – especially top-end tactics like dynamic pricing – must recognize and reflect the impact of these strategies on the loyalty of subscribers, donors, group and single seat buyers alike.  Why?  The risk of reduced contributed revenues is too great to ignore.

In this webinar, CEO Rick Lester and President Jill Robinson will offer must-know insights about the new tools, processes, and revenue results that come from placing the most loyal patrons in the best seats at the best price.

You’ll learn about:
•    Making strategy decisions now that can payoff in more revenue and more loyal patrons next season.
•    Measuring and observing best pricing practices for subscription packages, seat assignments, scaling the house, and discounting policies.
•    How to tell your price story in ways that secure loyalists (like subscribers) and drive newcomers to return back often.

Savvy managers will apply these techniques to grow sales revenues while improving both the demand for tickets and measurable growth in patron loyalty scores.

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: 
Wednesday, October 31
11 a.m. Pacific
Noon Mountain
1 p.m. Central
2 p.m. Eastern

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?

Upcoming Webinar on Dynamic Pricing and Patron Loyalty

Regular readers of this blog know that we've talked about dynamic pricing quite a bit in past weeks, including the case study of Vancouver's Arts Club Theatre Company (ACTC), who found success with dynamic pricing as part of an integrated patron loyalty strategy. Our latest webinar, led by TRG consultants and ACTC staff, goes in-depth on this case study. 

Title: Dynamic Pricing is NOT the Story
Date: Wednesday, August 3, 2011
Time: 11 a.m. to 12 Noon, Mountain Daylight Time
(See below for your time zone)

Dynamic pricing, the tactic of raising prices after tickets go on sale, has often been in industry headlines these days. However, when it comes to growing revenue and increasing patron loyalty, it’s not the whole story. While it’s true that Vancouver's Arts Club Theatre Company (ACTC) generated six-figure revenue from dynamic pricing, the real news is how ACTC increased the number of its most loyal subscribers. Read more about ACTC's success on TRG's blog, and register for the webinar to hear TRG consultants and ACTC staff retell ACTC’s $3 million client success story, including how:

• Loyalty strategies -- not pricing tactics -- led to sustaining revenue.
• Unified, company-wide change in focus brought about increased revenue and subscribers.
• Dynamic pricing made subscribing more valuable.

To Register:
1. Go to Webex: http://bit.ly/nkw5r5

2. Click on register (free).

3. Fill in the short form and SUBMIT.

Mark your calendar; mind your time zone:
Wednesday, August 3, 2011
10 a.m. Pacific
11 a.m. Mountain
Noon Central
1 p.m. Eastern

Questions? Comments? Contact us, or comment below.

Dynamic Pricing AND Subscription, not Either/or

I recently had the opportunity to talk with Mike Boehm of the Los Angeles Times about dynamic pricing.  The resulting article highlights the success that L.A. organizations have had using the tactic to increase revenue, while maintaining the accessibility that is a part of most non-profits’ mission.  You can read the article here.  That post, Thomas Cott’s briefing the same day, and the subsequent flurry of online discourse tells me that we, as an industry, are looking at dynamic pricing as something greater than it is.

The tactic – repeat, tactic – of dynamic pricing is but one means to an end – greater ticket revenue.  It is not an end itself – sustainable patronage and revenue.  Since 2002, when my colleagues and I first worked with clients to implement the practice of raising ticket prices after sales were underway, dynamic pricing has been part of an integrated revenue management strategy.  That strategy began with consideration of subscribers and the demand for seats subscribers create. 

Why?  Subscribers have been and – hard as it is to accept these days – still are the foundation of sustainable patronage for performing arts organizations.  

Subscribing is an act of loyalty.  Ask subscribers why they subscribe.  They will tell you – as they have been telling researchers for decades – they love the art form and that they choose to pursue that passion by subscribing to an organization that offers what they love.  It’s a renewable choice and one that sustains ongoing patronage.

Subscribers invest serious money.  They value their passion and are willing to pay for the seats and series that satisfy onstage their attachment to the art form.  We have looked at the data on subscription for hundreds of clients and there’s no dispute:  subscription revenue is the cornerstone of earned income.  Whether subscription represents 10-, 25- or 50% or more of ticket revenue, it’s a fundamental, renewable revenue source that comes in the form of series income as well as associated donations and additional purchases from those very same loyal subscribers. 

Can pricing tactics replace subscription?  Of course not.  Dynamic pricing, for instance, can build short term incremental revenue.  But that tactic on its own cannot build loyalty.  It cannot feed the passion that drives patrons to invest in multiple performances each season, season after season.

Is subscription dead?  No, but plenty of organizations are killing it off by removing it as an option. When organizations make the sale of full renewable subscriptions a central priority, growth occurs as we saw in the success story of Vancouver’s Arts Club Theatre Company.  However, subscription is more apt to die whenever organizations promote it to the wrong prospects, too little, too late, or they stop promoting it all together.  In so doing, these organizations eliminate an irreplaceable means of passion-based demand and investment by arts consumers with lifelong loyalty potential. 

Not everyone is going to be a subscriber, and that’s ok.  The ones who choose to subscribe will be your loyalists, your bread and butter.  And, with the right retention and cultivation strategies, they also can become your advocates, your legacy investors.

Selling subscriptions has never been easy – not since the days almost 40 years ago when Danny Newman first suggested Subscribe Now as the definitive patron call to action.  But, the payoffs are as robust today as ever.  Just recently, we posted on this blog achievements of Vancouver’s Arts Club Theatre Company and Denver’s Colorado Symphony.   Subscription campaigns were at the heart of million dollar increases for each of these organizations.  And, that’s just two of many who are doing subscription right, and growing their institutions in tough times.

To hear more from Arts Club Theatre Company about how subscription AND dynamic pricing helped fuel their $3 million success story, join our free webinar on August 3rd.  Request to register by leaving a comment below or emailing info@trgarts.com.

Dynamic Pricing is NOT the Story

I have a passion for sharing stories of success. This seems especially important when so many of our ‘water cooler’ conversations are dominated by accounts of doom, gloom and bankruptcy. Success stories offer important reminders that arts and cultural organizations are not limited to merely surviving. Even during tough times – perhaps especially during tough times – we can thrive!

At the recent Canadian Professional Association of Theatres (PACT) conference, TRG had the pleasure of sharing a truly remarkable client success story, that of Vancouver’s Arts Club Theatre Company (ACTC ). About three years ago, ACTC became curious about our work in dynamic pricing, the tactic of raising prices based on customer demand after tickets go on sale. Could ACTC exceed their $4.5 million annual revenue history with this practice?

Boy, could they ever! After two years of our working together, ACTC grew its subscription and single ticket revenues by nearly $3 million, achieving a total of $7.4 million, an increase of nearly 70%.

Fact: Dynamic pricing delivered a six-figure chunk of the income contributing to this success. But, as our PACT session put it, Dynamic Pricing is NOT the Story. The real news is how in just two seasons ACTC achieved:

• 33% increase in ACTC’s full, renewable 5- and 6-play main series,


• $5 more revenue for every ticket sold through a theater re-scale,


• 32% reduction in the number of comp tickets distributed,


• Earlier, faster sales of hot shows -- even selling out a holiday production before it opened.

As Howard Jang, ACTC’s Executive Director and TRG’s Senior Consultant Laura Willumsen pointed out in our PACT session, ACTC’s success came from a focus on building loyal patrons. In the process, ACTC debunked some myths and misconceptions that – sadly – have become part of the industry’s conventional wisdom.

ACTC ‘s story tells us:

Subscriptions are alive and well. A big part of the overall growth effort at ACTC was an unrelenting focus on generating high-loyalty subscriptions –ACTC’s full, renewable main stage series. The number of full series and associated revenues grew --even with a re-scaled hall and price increases.

Flexibility is no panacea. Everyone needs flexibility or they won't buy, right? For years, ACTC followed this conventional wisdom and offered flex series from day one of their subscription selling campaign. The result? Flex series renewals were so low and resulting subscriber churn was so high that growth was stymied. ACTC’s now offers limited, more strategically placed flex offers. Flex sales represent a much smaller portion of the subscriber mix. And, that's helped increase overall renewal rates to the healthy range of about 77%.

People don’t automatically buy late. Readers of this blog have seen data debunking the myth of late buying. ACTC’s success illuminates the point. The company used early on-sale and pacing strategies for its holiday blockbuster White Christmas. In previous seasons, hot shows generated 25-40% of total revenue during the run. Last season’s White Christmas sold out before the curtain went up on the first performance.

Done right and well, dynamic pricing can generate loyalty and incremental revenue. ACTC’s smart, creative team converted patrons who bought the highest, dynamically priced single tickets into subscribers! This is an excellent example of putting the right offer in front of the right targets at the right time.

Ultimately, dynamic pricing became one tactic that made subscribing more valuable. ACTC stopped believing and acting on negative assumptions that had become self-fulfilling prophecies. When they started acting differently, so did their patrons.

ACTC grew because everyone was willing to change. Leadership ensured that everyone was on board --from programmers to box office staff. Everyone at ACTC had a relentless focus on creating and manipulating demand. Bravo to Howard and his entire team, especially Marketing Director Peter Cathie White, Marketing Manager Bryan Woo, and Box Office Manager Reena Taank.

ACTC has agreed to help us tell their story again via a webinar that we’ll schedule in the coming weeks. Leave a comment or let us know if you’d like to attend.

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.