Dynamic Pricing in the Cultural Sector in Europe
Baker Richards is conducting a survey and debate about the hot topic of dynamic pricing in the entertainment sector. The results will be presented by Tim Baker at the ETT – Europe Talks Tickets conference in Amsterdam in November.
Take the survey here.
We would like as many responses to the survey as possible so please spread the word to anyone who might be interested within your network and use the hashtag #dynamicdebate on social media.
To kick off the debate and stimulate thinking, Tim Baker has written a paper (below) summarising the key issues. You can also join the debate as it develops in our Thinkaboutpricing LinkedIn group.
Dynamic pricing is maturing
Might ‘Dynamic Pricing’ be coming of age in the cultural sector? There is plenty of relevant evidence about implementation and impact in the US across a wide range of commercial and not for profit organisations, and growing adoption now in the UK and Europe. Is it time to learn and understand from that experience?
Sometimes just talking about ‘dynamic pricing’ as a concept gets an almost visceral reaction, as if it was somehow immoral. Yet the arts and entertainment industry and many sporting fixtures have been premium pricing, packaging and discounting for decades, and they are all tools in dynamic pricing. Dynamic Pricing is probably not right for all cultural organisations but it does potentially have an increasingly important role to play in helping to maximise income and optimise volume of ticket sales, especially in a world where many are seeking ways to replace declining public subsidy.
Is ‘dynamic pricing’ immoral?
Is this question only coming now because the funding cuts from austerity force a greater emphasis on earned income, and we worry about changing our sales policies and adopting hard commercial techniques? The argument is specious. We have been willing to upset advance bookers for years, reducing prices after they have booked, charging different prices through different channels, with different booking fees, and for high demand events we have offered premium seats and tolerated the secondary market. Dynamic pricing could be said to retain the income margin the scalpers otherwise take. And we all know venues where clever Box Office Managers have always moved price breaks and tweaked seating plans in the light of demand for seats.
You still hear some people describe dynamic pricing as somehow underhand. Ryanair has often been criticised as a company that misleads with its pricing (and they are now changing their practices), so it is worth noting that it is not dynamic pricing per se that can undermine a sense of trust – dynamic pricing is fundamental to British Airways and they were recently voted top of the list of Consumer Superbrands 2014. It is important to be clear about your policy and what you do. It needs to be part of the communication strategy and fundamental to the encouragement to book in advance and book early.
Should Prices go down as well as up?
Most airlines have one golden rule when it comes to pricing: never use dynamic pricing to reduce prices. Customers quickly learn to wait and the result can be encouraging a last minute culture which is extremely damaging. However, if there is strong demand at low prices and price resistance at higher prices, it is possible to increase the amount of inventory available at lower prices. If you need to stimulate greater demand, then discounting can help to improve the value equation – as long as the discount is clearly ‘fenced’, for example by imposing restrictions such as channel or time of booking or imposing quotas. Remember too all those tools of carefully targeted discounts communicated only to closed market segments, such as young people qualifying for social discounts, and other mechanisms such as StandBy Tickets or the ENO’s Secret Seats, to make sure that people can buy tickets at lower prices without cannibalising your basic pricing.
Should ‘dynamic pricing’ be automatic?
You will hear talk of algorithms analysing sales patterns and changing prices automatically. This is not necessarily right for our sector. Our events are not commodities (and thus unlike the hotels, airlines and other commercial sectors where automatic algorithm-driven dynamic pricing is used), but usually live events with many intangible benefits, and with very different sales patterns according to the venue, the artists, the show, time of year, and so on. Detailed monitoring of sales movements is essential if you are to make sense of the sales patterns and dynamically change prices. But human intervention is needed.
Who should be responsible for dynamic pricing?
Some Box Office Managers have been applying dynamic pricing manually, knowing the tricks for their auditorium. In most venues it is an onerous and time-consuming task to monitor all the sales movements for a series of -performances across a range of different shows, so quite properly pricing management tends to fall to the Box Office team, who usually have the local knowledge about what is going on to avoid some of the pitfalls.
But who makes the strategic decisions about dynamic pricing? Senior management need to approve the policies and dynamic pricing increments need to be planned in advance. Thus strategy creates the parameters to be applied in day-to-day tactical decisions that inevitably need to be delegated. We don’t always see the necessary dialogue between sales staff and senior management which this kind of activity requires; more than one ear needs to be close to the ground listening to what is going on.
There is a danger of an incremental creep up in prices that an organisation had not intended, if dynamic pricing continues unmonitored, and unforeseen public benchmarks of price are established. Regular monitoring is essential for quick reactions, but detailed evaluation is also essential to reflect on the strategic impact.
Is dynamic pricing always ‘extra’?
Surely when we first set the prices we optimise then for what we forecast can be charged, allowing for all the variables of our more intangible events. The point is that ‘dynamic pricing’ is our response to demand that is different from our forecast, and the sales patterns indicating that we can earn more income or need to feed demand at a lower price. Again we have to beware an incremental creep up in prices that create a “new normal”, and in some cases leads to escalation in the sales targets beyond reasonable forecasts, which can in turn lead to unrealistic targets for future events. It is not the case necessarily that our original forecasts for sales were wrong, so sales targets need to be kept realistic, and dynamic pricing gives us the tools to take extra income when demand clearly shows we can.
More recommendations for reporting – we need to monitor for when a venue’s sales are different than anticipated, so we can take action to dynamically price. This means tracking sales against a predictive model based on comparator events so that we can know at any point if we are ahead or behind where we’d expect to be.
Doesn’t ‘dynamic pricing’ disrupt gross potential?
Yes it changes how we must think about gross potential. Venues and their producers and promoters need to discuss and agree how dynamic pricing is to be applied both in terms of the ticket prices, in the splits in the deal, and the calls on income. You must still make reasonable and realistic forecasts of prices and income, and dynamic pricing is only going to bring extra income if demand proves higher than expected. Producers and promoters are going to need to agree that venues are given an incentive to apply effective dynamic pricing and make sure the venues can retain a healthy share for their efforts.
Dynamic Pricing and CRM
Many venues and agents complain about audiences booking later and later, and some see last minute reductions in prices as increasing this tendency. It upsets the people who booked in advance – usually your most loyal and enthusiastic customers – and it undermines the value of what you offer. The advertised ticket price is no longer the real price. One could argue that it is immoral to put prices down after people have started buying tickets. Properly communicated, dynamic pricing becomes an incentive to book early.
Dynamic pricing also needs to dovetail with customer relationship strategy and can play a key role in helping develop loyalty. Avoiding dynamic pricing can, for example, be used as another benefit of membership and incentive for loyalty. Scores of organisations in the US have proven that it is perfectly possible to maximise income while also maximising membership and even donations – indeed higher spend on tickets often correlates strongly with higher contributions.
So what do you think? Are you already implementing some form of dynamic pricing? If not, do you think there’s a role? What is holding you back? Can you afford not to?