Pricing

Dynamic Pricing Backlash

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I learned today via a post on Twitter from TRG Arts that the University of Michigan will stop using dynamic pricing at their football games as a result of protests from the general public.

The article talks about negative feedback from alumni and students as well but much of that relates to a separate issue with season and student tickets which were more expensive, but not subject to dynamic pricing.

Living as I am in Ohio, I am obligated to suggest that this only goes to illustrate the inferiority of the Michigan football program.

What really interests me about the policy change was that two years ago I wrote about how University of Michigan and the Cincinnati Reds were going to be using dynamic pricing for their games. I took a quick check of the Red’s website and they will continue to use dynamic pricing during their 2015 season.

My post two years ago emphasized that value is not price presenting some thoughts on that concept. As I looked into University of Michigan’s decision to eliminate dynamic pricing, my effort to determine where the balance between price and value became further complicated.

If you look at the bottom of this article, you will see students protesting with signs invoking tradition over money and the university brand. But if you read my original article, I note at the time tickets were already on sale on the secondary market for far more than the published price, prior to single tickets going on sale. At that point, the only ones who had them were season ticket holders and maybe some students.

While not everyone is going to try capitalize and sell their tickets to hot games on the secondary market, it is clear that some of the tickets are more valuable than what you paid for them. Shouldn’t you be happy about getting such a great deal?

As much as you may want to complain about students and alumni being malcontents who want to maintain the status quo rather than acknowledge increasing costs and value, there really isn’t any difference between them and the people who comprise your audiences.

Except maybe they are much more passionate about football than your programming. (Which is why I can’t have shows on Saturdays in the Fall.)

I suspect one of the biggest factors in whether people will tolerate dynamic pricing or not is the level of investment they have in the activity and how strong the sense of community is. The Cincinnati Reds and Broadway shows can probably get away with it because people expect to pay more or less dependent on the popularity of the event.

College football isn’t just a sporting event, it is entwined more deeply with personal identity. For students and alumni, it is directly associated with your occupation for four plus years. You didn’t just live in a locality with sports teams, all the buildings you occupied all day in were owned by the entity that owned the team. All the people you worked, ate and played with everyday were members of that entity.

There is going to be so little distinction between value, price and identity that change to any one of these will result in a strong reaction.

It probably doesn’t help that the university was requiring $150 donation to be considered for season tickets with no guarantee you would get some and no refund if you don’t. (And this is a very common practice among larger university sports programs, even ones that don’t perform very well.)

I don’t think University of Michigan’s decision should dissuade an arts organization from considering dynamic pricing in itself. I think it points to the fact that you need to consider the level of investment your potential audience has in your work and what the tenor of that investment is.

For some, a higher price may only increase the sense of investment as it indicates a greater level of personal prestige. Not surprisingly, for others it will be a sign of exclusionary elitism. Other communities may barely notice the prices changed since they weren’t paying attention to begin with.

Info You Can Use: Story and Pricing

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Seth Godin posted some thoughts about pricing that are worthy of consideration. The fact this post is about three times as long as his usual posts indicates the importance he places on the topic.

He tackled the concept of substitution which is basically what we talk about when we identify movies, television, Netflix, video games, etc as competitors for people’s entertainment dollars and time.

One of the key elements of pricing is realizing that people have choices, and that substitutes are available. This is more nuanced than it sounds, though, and I want to highlight key things to keep in mind when you think about how much to charge and how people might react.

Marketers make two mistakes over and over. They create average, commodity products and expect that people will pay extra for them. Or, in the other direction, they lose their nerve and don’t charge a fair price for the extraordinary work they’re doing, afraid that people will find a substitute.

This second paragraph that essentially summarizes the situation arts organizations face. Arts organizations are either accused of overvaluing their product and charging too much in the face of substitutes. Or they are accused of setting prices too low leading audiences to expect those prices should be the norm for something that cost five times as much to produce.

Godin addresses a number of factors which impact what price someone will pay. The one I felt was most applicable to the arts was:

Some goods are difficult to understand before purchase and use, and most consumers undervalue them and treat them like commodities

[…]

This leads to opportunity and challenge of marketers who choose to sell something that we don’t buy very often and that we can’t tell if it’s better (or if the story is true) until after we buy it. In situations like this, our instinct is to assume that the thing is generic, a commodity, not worth extra.

Having read this, it occurred to me that as arts attendance decreases there is an increasingly likelihood of arts experience meeting the definition of something that is difficult to understand before purchase and use. As a result, people see it as interchangeable with other entertainment options. To be fair, many elements of the experience are interchangeable, but others are not.

According to Godin, what enables you to sell a good or service at a higher price is if it has a story. The example he used are organic eggs. We are all probably aware of some aspect of the story associated with organic eggs: they are better for you; the chickens are handled more humanely; you support small, local farmers; lack of antibiotics and pesticides; locally sourced means a small carbon footprint in production.

Whether these things are completely true or not can be immaterial. If some part of the story resonates with the consumer, they become more willing to pay a higher price.

However, I think the story for the arts almost has to be more powerful than for organic eggs. When you are in the supermarket already, the story of organic eggs and your image as a responsible world citizen doesn’t have to resonate very strongly to divert your decision from one carton to another. If you are in a farmer’s market, the story and your self image are so self-reinforcing by the surrounding booths, it is actually easier to buy more than you intended.

When you are at work or at home making plans, the story offered by the local arts companies has to be pretty strong if it is going to influence your decision away from your usual activities.

Or at least this is the case for performing arts organizations. Visual arts organizations can benefit from impulse decisions. A couple weeks ago I was chatting with a friend at the front desk of the local museum and about five people came in saying they were in town for a funeral and decided to swing by the museum. Not necessarily the first thing that pops to mind when I go to funerals, but they enjoyed themselves.

In either case, if you do have a story, once people start to involve themselves with your organization, they integrate your story into their lives and it becomes easier for them to decide to do so again.

Movie Theaters and Demand Pricing

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A few days ago, NPR’s Planet Money ran a story asking why there isn’t demand pricing for movies where you pay more for blockbusters and less for the stinkers. Among the suggestions the correspondents made were having some movies free with a two popcorn cover.

They spoke to a movie theater owner who expressed concerns about low prices signaling that a movie was bad. Not to mention he worried that people would pay for the stinker and sneak into the blockbuster.

The biggest impediment to demand based pricing, however, is the movie studios. As the reporters mention, no studio wants to invest tons of money into making and advertising a show only to have a movie theater price it at $1.

If you are not aware, something similar occurs with many of the big Broadway touring shows, especially those that are getting a percentage of the gate. Theaters have to submit proposed ticket pricing and a marketing budget for the production company’s approval.

One interesting fact that came to light was that the term “B-movie” actually refers to an early practice where movies were graded A, B, C, etc and had corresponding pricing. The practice has fallen by the wayside, but the B movie term stuck around in common parlance.

One of the problems live performances face is the ability to provide such transparency in its pricing for audiences. The price for single perform doing a solo acoustic set might be low because the cost to the theater for one person is low. On the other hand, if that single performer is Eric Clapton, the ticket price is going to be commensurately high.

But a ticket price may be low because the theater has good funding, or will take a loss to encourage people to attend or because the quality stinks. The audience member doesn’t know why prices are the way they are and there isn’t really an elegant way to communicate it, should the arts organization so desire.

As I listened to the reporters asking if movie theaters weren’t foolish not to institute demand based pricing, I wondered if we might be approaching a place where audiences would be psychologically ready for arts organizations to implement similar pricing strategies for their own events. The whole question of demand pricing has been hotly debated by arts organizations and the fact that the subject is popping up in various forms indicates the topic isn’t going away any time soon.

Can You Increase Attendance By Raising Your Prices?

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Over the weekend I read a very interesting blog post by Nick Kokonas who implemented a system where people would buy tickets to his restaurants.

One of the problems he faced was that they were employing 3 people full time just to call people back and tell them there were no seats for Friday or Saturday at 8 pm. They were also losing a lot of money due to no-shows or partial no-shows because they couldn’t call their long waiting list of people to tell them they could be seated in 15 minutes.

What they did was create a demand based pricing structure with non-refundable tickets and put the whole system online. That way patrons could see exactly what was available and see that weekend nights were much more expensive than Tuesday nights and make decisions accordingly.

This creates a lot of transparency and trust with customers because the restaurant doesn’t have to overbook to hedge against no-shows and then divert people to the bar if more people keep their reservations than were anticipated.

They also differed their operations from other online services like Open Table. Most restaurants don’t put their entire seating online and customers have figured that out and call in to the restaurant anyway. Since Kokonas wanted to avoid paying his employees to say “No” all the time, they basically put everything they intended to offer online giving people no reason to call in and try to wheedle a seating.

Their no-shows dropped precipitously and even if only a partial table shows up, they have already collected the cost of the meal from them.

I should note, the restaurants offer a fixed menu so there is not a lot of variability in people’s orders. They do have one bar-restaurant with a more variable menu where they collect a $20 deposit which is applied against your bill and no-show dropped immensely there as well.

But reading this got me thinking– this is a situation where people pay a uniform price in advance to consume a similar product and the the result was a greatly reduced no-show rate.

This sounds lot like going to a live performance. Only when I have looked at the sales versus tickets taken at the door (or just eyeball the audience at a performance) I see more no-shows than I would like.

I wonder at the reasons behind this. It could be that many are subscribers and they forgot they had tickets for the show or they have decided this is the show in the series they are least interested in and want to skip it.

I know this doesn’t just happen to me because I have attended otherwise sold out performances where a significant swath of prime seating remains empty.

While subscribers have the right not to occupy the seats they have paid for, as conversations about demand pricing for seats at performances continue, you have to at least consider whether you are setting prices high enough.

This is absolutely a consideration at sold out performances where you might really have an opportunity to increase your earned revenue in the face of decreasing support from foundations and individuals.

It is also a consideration in less well attended performances where too low a price might not provide enough incentive for people to attend. I have seen a decision to go from free to a $5 charge fill performances. If you are intentionally keeping prices low so a target audience can attend and they buy tickets but don’t attend, then the effort is as much as failure as if high prices dissuaded their attendance.

There are dozens of other factors that can account for the difference in no-show rates between Kokonas’ restaurants and performance venues. The social cachet of eating at a high demand restaurant that only seats about 90 being a significant one.

Even without considering the success Kokonas’ has realized, there are dozens of factors that make ticket pricing decisions very difficult for arts organizations. Still, it is always interesting to see how pricing is used to good effect and ponder what lessons might be derived.