By Jim McCarthy Oct 18, 2010 0 comments

Closing the Barn Door BEFORE The Horses Leave

The following post is by Kara Larson who, along with Barry Kahn, is one of the people I consider to be the smartest and most experienced in thinking about dynamic pricing.  Different from Barry, Kara’s experience with dynamic pricing is as a marketer for various performing arts venues, including Carolina Performing Arts (University of North Carolina).  So, with no further delay, take it away Kara:

People have very strong reactions to the words “dynamic pricing.” It strikes some as a dastardly way to take advantage of our poor defenseless patrons, and others as a lifeline to additional revenue that might finally balance the budget. It is neither. It is simply a tool.

Dynamic pricing should not be used as the lazy organization’s method of correcting prices after the fact. If you consistently over- or under-estimate the number of people interested in what you’re offering, you need to go back and work on your method of projecting attendance and revenue. For the purposes of this post, I assume that we are dynamically pricing UPWARDS. In this case, dynamic pricing should be a way of reacting to unexpected demand. I suggest that the things you really need to know about dynamic pricing include:

Excess Demand
If you don’t have more demand than you have tickets, don’t even think about dynamic pricing. The sole trigger for dynamic pricing should be solid data that tells you that, at your current prices, you will sell out far in advance of the event. If, at your current pricing, you will sell the last seat on the day of the event, you probably do not have enough excess demand to justify dynamic pricing.

Transparency
Please ignore the little voice that says that no one will notice, or that people are used to prices changing. For the sake of your comfort and your customers’ trust in you, be prepared to simply and non-defensively explain the change. There are reasons (having to do with the revenue’s support of your programs and ultimately the health of your organization) for implementing dynamic pricing. If you are not prepared to explain those reasons, the public will simply assume they’re getting shafted.

Methods
You can, if you try, find a simple way to create a manageable, effective method of implementing dynamic pricing. You may, if you have the time and staff to spare, create a fully-customized system that requires full-time attention. Either way, there is no organization incapable of doing some form of dynamic pricing. If you do regular box office reports, you have the intelligence you need to get started.

When and How Much
• There are those who say that their “trigger” for starting dynamic pricing is when 70% (or 75% or 80%) of the house is sold. Stop and think for a moment. If, for any given event, demand outstrips supply, then by the time that trigger is pulled, you’ve already lost the possible extra revenue on 70+% of your seats.
• There are many organizations that add $5 or $10 to the price of every ticket when a trigger point is reached. If you truly have excess demand, what makes you think that $5 will change that?

In order to benefit from dynamic pricing, you must find a way to do enough demand analysis to find out early in the sales cycle when a price change is indicated (the earlier the better). And the data in that analysis should be sufficient to find the price at which those coveted tickets start selling more slowly, without stopping sales. If you can’t easily do this analysis yourself, ask for help (preferably from me). But don’t settle for $5 x 25% of your seats, when you could have $35 x 55% of your seats (or more, or less, depending on your demand…)


How Much Is Too Much?
You are charging too much when the tickets stop selling.


Kara Larson is founder & principal of Arts Knowledge, an arts marketing consulting firm. She has implemented and advised on dynamic pricing for arts organizations across the country and written articles on pricing that can be found at Think About Pricing. She has previously led marketing at arts non-profits including Carolina Performing Arts, San Francisco Opera, and the Glimmerglass Festival.

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