Dynamic Pricing: It Worked for the Airlines, but Can It Work For Theatres?

Dynamic pricing has become a hot topic for the arts. And it's no wonder, since a few theatres that have begun to test the waters have been quite successful. Before you decide to delve in, however, there are a few things to know.

Dynamic pricing essentially means that in order to maximize profit, the price changes as market demand changes. In the context of theatres, the price of a ticket is determined by how well seats are selling, how many of them are remaining, and other variables that affect demand, like the weather and traffic perhaps. Theatres monitor the house as it fills for each performance and make decisions each day on whether to adjust prices up or down based on demand.

Whenever the viability of this type of pricing scheme comes into question, proponents usually point to the fact that it been working for the airline and hotel industries for decades. But, there are three distinct differences between the airline industry and non-profit theatres:

1. People need to buy airline tickets because, in most cases, they have to be somewhere at a particular time. People don't need to see a show; theatre is considered by many to be discretionary spending.

2. Airlines are primarily interested in making a profit, while theatres have other objectives like making arts accessible, educating, or getting a particular message out and they rely on the generosity of supporters who believe in their mission to survive.

3. Airlines have relatively few competitors, which makes it easy for them to charge what they like. Theatres, on the other hand, have an abundance of competition.

   So, the real question is: does it work for theatres? According to The Pricing Institute and Target Resource Group (TGR) there are several impressive success stories.

The Arts Club Theatre Company in Vancouver implemented a dynamic pricing strategy, and in the first year increased sales by $430,000, about 10%.[1]

The Geffen Playhouse implemented a dynamic pricing strategy for a production that brought in an additional $60,000, a 23.5% increase.[1]

The Yale Rep brought in an additional $50,000 of revenue for a production using dynamic pricing, a 37% increase.[1]

The Carolina Performing Arts raised an additional $50,200 in revenue above the base prices of four popular performances by using dynamic pricing.[2]

While these numbers are impressive, it is important to note that ventures into dynamic pricing are still very much in their infancy. Also, success is not determined by revenue alone; there are a number of other things for a non-profit to consider. For instance: how this pricing scheme will affect accessibility; what is the message you will be sending to the public; and what kind of relationship you would be establishing with supporters.

A real issue is brought to light here in the Mission Paradox blog.[3] Consider, for a second, the kind of relationship you have with airlines. The author probes:

Remember the last time you bought a plane ticket? If you're anything like me it became a sort of game, you versus the airlines. Your goal was to get the cheapest ticket possible. The airlines implied goal was to get you to spend the most they could get... [As a result] most of us have developed a fairly ruthless attitude towards the industry. To save $50 we will switch dates, switch airlines, switch airports, whatever.[3]

Obviously this is not the kind of relationship you want your supporters to have with you, especially when you rely on their generous donations to survive.

If you do decide to try dynamic pricing, here are some tips:

1. Be very cautious about taking it too far. You don't want to lose sight of your mission and undercut your case for support.

2. Make sure that advertising does not give the wrong impression of prices. Supporters will undoubtedly get upset if the price they have to pay for a seat is different than what was advertised. For that reason, you may want to print a price range instead of precise prices on tickets, on your website and anywhere else prices are visible.

3. You may only want to apply dynamic pricing to parts of the theatre. For example, perhaps you want to leave the best seats in the house at a static price so they don’t lose their perceived value.

4. Set the goals that you want to achieve by dynamic pricing and define metrics of success in advance.

5. Experiment and analyze. In order to find out what works, you may need to experiment with several price triggers and variable prices. Each time you change your method, make notes about it for future analysis. Also take note of the costs to administer dynamic pricing, how people attending the theatre like it, and other factors that may have an effect on ticket sales and supporters’ overall experience. All of this information will help you determine whether dynamic pricing is successful, and what contributed to its success.

Notes

[1] Carr, Eugene. The Demanding World of Dynamic Pricing. March 10, 2010. Available at: http://blog.patrontechnology.com/patronmail_idea_center/2010/03/the-demanding-world-of-dynamic-pricing.html?cid=6a00d8345224a269e2013481d1fc0b970c#comment-6a00d8345224a269e2013481d1fc0b970c

[2] The Artful Manager. Is Dynamic Pricing in Your Future? May 18, 2009. Available at: http://www.artsjournal.com/artfulmanager/main/is-dynamic-pricing-in-your-fut.php

[3] Mission Paradox. The Perils of Dynamic Pricing (Part 1 & 2). May 26, 2010. Available at: http://www.missionparadox.com/the_mission_paradox_blog/

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