The Dynamic Box Office

Modern Box Office Airlines have been doing it for years. Ticketmaster (in its latest incarnation) recently jumped on the bandwagon.

Dynamic or variable ticket pricing is the strategy of altering ticket prices based on different variables.  (As noted in the comments below, "Variable pricing is setting BASE prices according to differences in performances' time of day, day of week, etc as in paragraph 2 (a midweek evening may be less expensive than a Sunday matinee, for instance). Dynamic pricing, on the other hand, changes prices after the initial on-sale in response to changes in demand over the sales cycle."  I use the term "dynamic pricing" in this article to discuss changes made to prices once the tickets have already gone on sale, altering FROM the base price.  Thank you for pointing this out, Kara!) These can include everything from the number of seats already sold at the time of purchase, the proximity of the show date, alternative entertainment options on the show date, anticipated weather, and any number of factors that the host deems as having an impact on ticket prices. It is perhaps a more realistic and “fair” way to price tickets, allowing the cost of tickets to reflect the actual supply and demand of the market. This should result in minimized dead-weight loss, which benefits but the consumer and the supplier. For performing arts organizations, grappling with decreasing advance-ticket sales and discounting options that gouge profit margins, dynamic pricing might be “just the ticket.”

Unlike regular discounting or promotional pricing, the dynamic ticket model would enable organizations to price each production—and even each performance--strategically and, perhaps, more realistically. Instead of offering incentive discounts, both the organization and the audience would be able to gauge expectations for a show based on the ticket prices. Declining ticket sales and decreased subscription renewals lead marketers to worry and wonder about the most effective way to promote ticket sales. A common “solution” is discounting, which leads to a host of other problems. Ron wrote this piece for Group of Minds outlining what the major drawbacks to discounting. Rather than reiterate what he has already presented so well, I will simply say that I agree with his concerns about this eagerness to discount in order to get butts in seats.  Considering these issues may make dynamic pricing a more attractive option for some.

A great example of the potential for dynamic ticketing is its recent use outside of the airline industry-- the newest Ticketmaster/LiveNation partnership is exploring the efficacy of dynamic pricing for sporting events. Last year, an article in Sports Business Journal did a great job outlining the way that dynamic pricing works at the San Francisco Giants’ AT&T Park.

There are a couple of key sentences in this article that I wish to address as they pertain to the performing arts industry:

  • “Advanced software analyzes market conditions and determines a pricing recommendation that team executives can either accept, deny outright or tweak.” That’s the kicker: advanced software. I know that the biggest question is always: how can my organization do this? Non-profit performing arts organizations already face challenges being short on staff; the responsibility and complication of daily ticket price changes could be a full-time job in and of itself.

Analyzing the results of the 2011 Ticketing Software Satisfaction Survey, most respondents indicate that box office systems are either custom-built, cobbled together, or some of the solid, inexpensive options available to organizations. I went through and sent inquiries to the organizations listed in Amelia’s overview of the ticketing software survey results, as well as some others that respondents are using.

Unfortunately, at this time, nobody seems to have an easy-to-use “dynamic!” function in their software that makes it easy for an organization to alter prices without sending an actual staff member in to change them by hand each day. But the conversation is building in volume, and a few companies expressed that they can either design such a component for their clients, are looking into offering dynamic pricing in the future, or would like to know more about the demand for this function before they pursue including it in their products. (Just before posting this, I received the following from ProVenue: “We have no dynamic pricing customers in the UK as yet, however we do in the US. Please click on (this link) for details. We are looking to release in the UK sometime in the new year.” (I learned that ProVenue is part of the company that provides this model to the Giants. How accessible this component is for budgets that may be more modest than those of the Giants, however, is a question that I have yet to get a response to.)

  • “(S)hould a game get rained out, standard refund and exchange policies would apply. But if a fan pays a premium price to see a particular player, such as a starting pitcher, and that player doesn’t play, there is no refund.” This quotation makes me smile, because in the performing arts, understudies are just part of the game. It does beg the question, however: what if someone paid a price bump because of a certain headliner, and that artist’s understudy performs that night? Does the ticketholder get a refund of the difference? We are all familiar with understudies and what that can mean.
  • Perhaps the most universally applicable part of this article is the section “What’s the payoff?” As it outlines, “Dynamic pricing structures can provide significant cost savings for fans over original list prices for lower-demand games, and for teams, provide another means to help fill seats, generate additional concession revenue and potentially upsell that fan into a larger, future purchase. And for higher-demand games, dynamic pricing provides teams a revenue maximization tool to capitalize better on that heightened fan interest.” So actually, dynamic pricing could give us in the performing arts a real understanding of how our work is valued. We make a lot of guesses, some educated, some not, to try and figure out what the “best” price is for the work that we produce. Could dynamic pricing remove some of the mystery, and help us maximize both the number of tickets sold and the revenue generated?

Some may balk at the idea, as Diane Ragsdale does in this article on dynamic pricing in the non-profit sector. She quips, “Let’s call a spade a spade. Dynamic pricing is a method for maximizing profits….Suddenly increasing ticket prices in response to high demand, and selling ‘premium’ seats priced as high as people are willing to pay, strike me as questionable practices in a nonprofit organization.” What will it take for people to stop associating “non-profit” with “NO profit”? She likens dynamic pricing in the non-profit performing arts sector to soup kitchens charging for certain perks. What an unfortunate and offensive comparison. Non-profit arts organizations are businesses, regardless of their tax status or their primary sources of funding, and selling tickets is a fundamental component of what they do. Certainly, there are organizations whose missions might preclude them from dynamically pricing their tickets (e.g. “free art for all”), but there are others for which dynamic pricing could help generate more revenue (not a bad thing) and bring in more audience. As Lori Kleinerman of the Goodman Theatre remarks in her compelling talk on the Goodman’s use of variable and dynamic pricing, “We are aware of our civic responsibilities as a not-for-profit institution, so it’s important that we are accessible while still optimizing our income.”

There are many ways to apply dynamic pricing within the performing arts sector, and with more use some things may become evident.  It is possible that it is a practice best suited for venues that do not scale their houses, or best applied to the “nose-bleed” sections, or only effective for the blockbuster shows. Of course, the key word there is “possible.” As we lament the decline of ticket sales, the loss of revenue when we discount with programs like Groupon and LivingSocial, and the oh-so-onerous epidemic of last-minute-ticket-buyers, why not consider dynamic pricing as an alternative model for revenue generation?  After all, we may be “non-profits,” but that doesn’t mean that we aren’t subject to the supply and demand curves that drive for-profit business economics.