Thursday, July 30, 2009

Pricing as a Strategy to Encourage Early Purchasing Behavior


In my earlier post, I wrote how I have observed that consumers have become ultra late purchasers this past year, while hypothesizing that with the state of the economy, most light to moderate users were waiting on a review to make a purchasing decision. Following that post, I received a lot of comments and e-mails asking how one could counteract this trend. I noted to the concern of some that we were shortening our advertising campaigns because we were finding no correlation between the amount of advanced advertising spends and the amount of advanced sales. This is not to suggest this course of action is for everyone, but I do believe it is wise for us.

I further believe that we should start looking more at pricing as a strategy to encourage early purchasing behavior. The traditional approach of discounting performances early in a run is one method of attack, but I would suggest looking at what happens after a show takes off. If consumers are waiting for a great review before purchasing, then we should capitalize on that as much as possible. Several arts organizations have experimented with demand based pricing. This isn’t a new idea, but I believe that we are just now starting to perfect it.

Demand based pricing provides an incentive for early purchasers--they will be “insured” against a spike in ticket prices if a show receives a fantastic review and takes off. Late purchasers who wait until a review hits, will have to pony up significantly more than those who leap before the review. Just as patrons learn that some companies do fire sales on shows that aren’t selling well, they will soon learn that they either purchase early or pay a premium for waiting for the review. There simply is no incentive for late purchasers to buy early if they can get a relatively good seat at the same or similar price point as an early purchaser.

This will require some educating on our behalf. Sales offices (noticed that I didn’t say box offices) in responding to complaints from customers should take the opportunity to cross and up sell – “Our prices increase with demand. With a favorable review, the demand for a production increases significantly causing prices to go up. I am sorry that has resulted in a higher ticket price for PRODUCTION A, but I know you will also be interested in PRODUCTION B because it is very similar and has an amazing cast. While purchasing today for PRODUCTION A, we can lock in the lowest available price for PRODUCTION B with the best available seats if you would like, guaranteeing that you will be protected from any increases in the future. And remember, subscribers are always protected against any fluctuation in price due to increased demand. I wouldn’t be doing my job if I let you paid any more than you absolutely had to. I know that you will enjoy both PRODUCTION A and PRODUCTION B so let’s take care of both today.”

Pricing should be a fluid variable. If we cannot encourage early purchasing behavior by running advanced advertising, maybe we can do it by capitalizing on those who insist upon purchasing late.

8 comments:

Jodi Schoenbrun Carter said...

Wow talk about being on the same wavelength...here is the link to my demand based pricing post http://tinyurl.com/lud9xc

Anonymous said...

Demand pricing is all well and good if there is indeed demand. The theater I work for planned to only discount tickets for the first few weeks of the run of our summer production. However, we found that despite great reviews, fabulous word of mouth, and a hilarious show; our tickets were simply not selling for full price. The only way we can get our houses over 50% is by discounting. Our solution has been to discount only our least expensive seats (giving us a better margin on the discount). The discounted seat sales are going well; but we are still seeing a trend where tickets are being purchased week of and day of, rather than weeks in advance. It has been a very challenging summer to say the least.

Tim said...

The implicit fact is that the theater is not "entitled" to advance sales (like in the days of the [dreaded] theater-party audience). You have to earn them, and the "float" and security that comes with them. With demand-pricing, you'll then have the problem the airlines do of adjacent seats comparing what they paid, and one of them being irritated. You'll also increase problems with scalping, which isn't even seen as that anymore, it's "eBay arbitrage". To get my purchase: offer a no-fee day, and don't ask me to pay to obtain my physical ticket.

Chad M. Bauman said...

Tim,

I believe you will find several studies and examples of institutions who have implemented demand pricing, and have not encountered any problems with people compariing their ticket prices. Several Washington DC companies have used demand pricing, and none of them have experienced this problem to date.

Anonymous said...

I agree with Tim. On some level this is a customer service and bookkeeping nightmare. There is also another point that what works in DC, may not work in other markets or venues in the same market.

Anonymous said...

I also agree with Tim...how on earth can your finance dept track income, fees, etc. And who's to decide if a review is worthy of a 20% increase, 30% increase, etc. What if, despite a good review, tickets still aren't selling? Do you then have a half-off sale...is it half off the original price or the new price?

Plus, while it may be good customer service to talk up CUSTOMER A, you've also got CUSTOMERS B, C, and D waiting on hold getting irritated and hanging up while A is getting a 5-min explaination on 6 different pricing structures. This could be solved with more staffing, but who has the $$ for that?

Chad M. Bauman said...

There are best practices in place for most if not all of these concerns. Maybe that will be my next blog post, or if you have specific questions, feel free to e-mail me at cmb255s@hotmail.com.

A very basic form of demand base pricing looks at percent paid capacity. Once your percent paid capacity exceeds a given point, then tickets increase. Thereby it isn't an arbitrary decision, but a data driven decision.

I would also make the argument that the box office is a sales office. If you don't have enough sales associates to properly cross sell and up sell, then that is a problem, and actually I would recommend investing in hiring more sales associates. If done properly, they will more than pay for themselves. Cross selling and up selling should be a central part of your business plan, not just an added bonus.

Kevin said...

There's a good basic idea here, and the resistant posts are unsurprising, considering it's a new (or at least rare in our industry) sales model. The main question to me, is how do we implement this approach in such a way that we don't alienate our ticket buyers who encounter it for the first time. I'm opposed to discounting, as it leads to an expectation, and would much rather start with a lower ticket price that goes up as needed. But we have an audience base that is used to discounting and doesn't expect to see prices rise.

I believe Writers Theatre on the North Shore (north of Chicago) uses this approach successfully. They have a small space and frequently sell out long runs.