A short entry today because I had a job interview.
I came across an article recently about a study done on multi-tiered ticket pricing for theatres. The concept is similiar to how airlines price their tickets so that some people are paying a premium while the person next to them paid next to nothing.
A study was performed by Phillip Leslie, a professor at Standford University’s Graduate School of Business. He looked at the 1996 Broadway run of Seven Guitars to determine if the production’s 17 category pricing structure was beneficial to consumers or not. He found that it wasn’t particularly beneficial or harmful to consumers on the whole, though the producers did realize a 5% larger profit than they might have.
The article goes on to discuss the benefits of some decisions the producers made and how they could have made some more money given consumer purchasing habits. There were a couple sentences that caught my attention in the piece:
“Price discrimination is a practice used by companies that generally don’t know a lot about what consumers are willing to pay. “It’s something firms do when they lack good information about customers,” says Leslie.”
When a performing arts organization sets their prices, they are essentially setting a maximum price they feel their regular audience will be comfortable paying. They do surveying and communicate with this group directly and indirectly so they know at least a little about them. However, they don’t know much about those who don’t attend and they are the people multi-tiered pricing would be structure to.
In an entry last week I referred to the PARC survey that discovered the people who find price to be the biggest impediment are those who actually attend performances with some frequency. It might be beneficial if arts organizations could find a simple tiered pricing structure (airlines need a lot of computing power for their categories) that didn’t ultimately hurt their bottom line.
Those who are frequent attendees will be more familiar with the process of getting discounts and thus receive a “reward” for their devotion. Those who are not as familiar will end up paying a more premium price. Some people may end up paying as much as the market will bear rather than the top amount the theatre assumed the audience will pay.
This may be the structure which replaces the waning popularity of a subscription series. In order to make a tiered pricing structure work, especially one based on market demand, organizations would have to stop publicizing their prices. The only way to learn about discounts would be to be in an organization’s database to receive brochures, email, etc. where the discount prices were published. The core audience for an organization would then consist of people who are loosely interested in the production series rather than the devoted subscribers.
A multi-tiered system would put more responsibility on the shoulders of the consumers. Instead of knowing that they can always get half-price tickets the day of the show and knowing what half-price will be, the price might be half the current top price.
If tickets start out being offered at $25 and the show isn’t selling well, the theatre might email their core that tickets are now $20 two weeks out, if it still doesn’t sell well, 3 days out they might drop it to $12.50.
However, if the show start selling well, the theatre might raise the price to $35 and two weeks out email their core that discount tickets are $30, but then three days before might be selling the discount tickets at $40. Or perhaps they email their core a week out that it looks to sell out so get tickets now. (A claim they have to be very careful about making lest it appear to be hype to drive sales when the seats end up only 2/3 sold.)
Since people are making decisions about entertainment at the last moment these days, the only way it seems an organization can respond is by providing audiences with the information they need to make decisions. If the changing price structure drives people to your website so they can check which way the pricing is going, it provides the organization with an another opportunity to communicate additional information to them.
Changing pricing is a delicate matter and is as much public relations as maximizing revenues. The person who attends 2 productions out of 12 and barely gives a thought to the organization’s well being might become mightly offended that you are charging so much for a last minute ticket after the loyalty he has shown in the past.
In an early entry, I noted Ben Cameron’s observation that we may be entering a time when there is a shift in the social contract. This change in pricing structure might become a reflection of this shift.