By Jim McCarthy Oct 5, 2010 12 comments

Several Non-Opinions about Ticket Pricing

1.  Tickets to live entertainment and arts, like everything, respond to market forces. Whether you or I like it, love it, or hate it, nobody gets to defy gravity.  The physics of supply and demand are not a switch that gets turned on or off.  Except at the point of a gun.

2.  The nature of the market is extremely complex. It’s at least as complex as the human mind, but probably more, as it’s the collective result of lots and lots of human minds.  When a person walks through a grocery store, he or she makes a series of incredibly complex choices, and most of them are not fact or logic based.  If you could simply pull every item out of a shopper’s cart at the end of a grocery shop and explain, really explain, why they bought each item, you’d be a genius.

3.  People don’t always wish they could pay less. Oh, that’s what they’ll tell you because to say otherwise means they’re stupid, but the reverse is actually very often the case.  If it’s not, please explain why anyone would ever buy bottled water in the U.S. or Europe.  Then there’s the famous story of the shopkeeper who left his jewelry shop in the hands of his assistant for a day or two to go on a short trip.  He was frustrated with a certain type of merchandise and wrote a note to his assistant saying, “This case x 1/2” by which he meant reduce the price by one half.  When he got back, the case was empty, but it hadn’t been sold for half; it’d been sold for double because the assistant misunderstood the note.  Price, as economists say, is a signal of value and sometimes a higher price makes people happier with their purchase.  Sometimes.

4.  Dynamic pricing has been shown to increase overall revenue by about 5%. There are studies, and I’ve got a couple of them of real-world implementations of dynamic pricing, and that’s been the most common result.  Partly, it’s because the organizations involved aren’t doing dynamic pricing to the max because they “feel bad” when prices go too high or too low, but mostly because dynamic pricing is a helpful tool, but only part of an overall set of decisions about pricing. By contrast, a good scaling project would tend to increase sales by at least that much if not more.

5.  Dynamic pricing moves prices down as frequently as it moves them up. At least, it would if people didn’t feel the need to “fix” the results of the dynamic pricing algorithm.

6.  A price below the “market clearing price” creates scarcity.  Do this thought experiment with me: imagine a local gas station did a one-day promotion where gasoline was a $1 a gallon.  What would happen?  Lines around the block and not enough of the $1 gas to match the number of people who wanted it.  Why?  Because the price has been lowered well below the price that the market would naturally bear.  That’s how the concert industry used to run: a small number of very low priced tickets so you felt lucky to be able to buy one at all, and, much more likely, you felt unlucky because you couldn’t buy one and toddled off to the record store to settle for second best.  Gee, what a great system.   (Ok, that last sentence is an opinion.)  And remember that whenever there’s scarcity, it’s always the in-the-know, the well-connected and already-involved who get in on it.  Getting new people involved requires it to be easy to start.

7.  The vast majority of people who might potentially buy from you are not aware of your price changes.  Sorry.  They’re too busy having lives to notice that the rear mezz is now $45 instead of $42.  In fact, I read a study recently (I’m sure many of you did too) that said people at a Chicago theatre couldn’t even accurately report what they had paid for the seats they were in.

8.  The vast majority of people who might potentially buy from you are not aware you exist and are therefore completely unconcerned about  and unaffected  by your pricing. Sorry.  Price changes, in the short term especially, just impact your true loyalists, and even they aren’t that affected.

9.  If you give people something they really love, they’ll barely care what they paid for it.  Ok, this is an opinion in that I can’t back it up with facts except to say that rarely do you see a person coming out of a down to the wire NBA Finals Game 7 grousing about what they paid to get in.

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    12 Comments

    • Dave Charest

      Jim,

      Thanks for this post.

      Opinions are great. But at a certain point that’s all they are and they need to move beyond and into the realm of being tested. Because then you can make decisions on what actually happens rather than speculation.

      And that’s where better decisions come from in my book.

    • 99

      Um. So. This whole list is of opinions, supported by anecdotes and literally one, actual verifiable fact, right? I mean, that’s the joke, right?

    • Tony Adams

      “At least, it would if people didn’t feel the need to “fix” the results of the dynamic pricing algorithm.”

      That’s a huge problem with how many arts organizations operate in general.

      In most lines of business, you get better or die. You don’t send out an emotional appeal to be saved. You find a new line of business. Maybe someone else comes in and does it better than you, maybe not.

      Prices aren’t set in the backwards way that arts orgs tend to set them. “This is how much we’re gonna spend, lets figure out how we can make that much.” Prices only go one direction if you fix it that way.

      There’s little way to really test it, because orgs never let prices or capacity drop without ‘fixing’ the formula.

    • isaac

      I think some of this is helpful, and some of it is beside the point and some of it is very much opinion and not fact. But I’m sick of arguing today, so I thought I’d respond to #9….

      If we were to apply #9 to theatre, the “modest solution” is to have people decide what they should pay to see a show after seeing it. I’m pretty sure we don’t want to do that. We’ll claim it’s “audience honesty” to blame, but the truth of the matter is we don’t really want that kind of feedback as to what our work is worth to people.

      Does anyone know of a play where people did this? The closest I can think of is Mike Daisey’s THE LAST CARGO CULT.

    • Jim McCarthy

      The only one that’s an opinion of mine is 9. (In retrospect, I should have drawn tighter lines around 7 and 8, too. Those are quasi-opinions in that I don’t know they’re true for everyone. Thanks for indulging my overstatement. 🙂 )

      1, 2 and 3 are pretty uncontroversial statements of some broad realities. To assert that the market’s not complex, for example, seems like saying water is wet. If you wanted proof, you could simply point to the massively increased number of products and distribution channels available to consumers as compared to any previous point in history.

      4 and 5 are simply me reporting on information that I’ve seen, and they’re not my opinions. You may doubt the truth or veracity of the underlying work, but they’re still not my opinions.

      6 is supported by about a century of scholarship in economics and taught in Econ 101 typically.

      7 and 8 have been and could be demonstrated in a number of given ways for any given venue, but you’re right. I can’t prove it for every venue, so it’s a bit speculative in that regard. Duly noted.

    • Aaron

      I think 7 and 8 are far more true than any of us like to admit.

      Isaac, I’ve heard of other “pay what you think it was worth” experiments, but I can’t recall the specifics.

    • Damon Runnals

      In response to Isaac, my theatre company, Swandive Theatre, albeit a small theatre company in Minneapolis MN, has run two productions in which half of the productions have been “Pay What We Are Worth” the audience sees the show and pays exactly what they want after the performance (including the choice of nothing).
      We run all our Friday and Saturday shows with a fixed cost and have an equal number of shows as PWWAW. Our numbers show so far that the average ticket price (I know Jim I shouldn’t be using average ticket price) is only $1-$2 less on those nights than on nights where we have fixed ticket price.
      I find the idea of letting people choose the value of the evening on their terms both interesting and refreshing.
      We plan to continue the experiment with our next production this coming March.

    • Jim McCarthy

      That’s right, Damon, but I’ll let it slide this time. 🙂

      That’s a very cool experiment by the way. Have you ever calculated the Revenue Per Seat versus normal on that?

    • isaac

      Damon,

      That’s fascinating. Hopefully I’ll be able to catch a swandive show (on one of those nights) while I’m living here.

      I wonder tho… would a larger theater ever try something like that? How many peopel see a show at the guthrie and think it was actually worth $60.00? How many people will think the Marcus Gardley show at Arena is worth $95-120 (plus a service charge!) after seeing it?

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