1. artsknowledge
PO Box 5362
Portland, ME 04101
artsknowledge@gmail.com
415-283-9096
Can You Use Dynamic Pricing?
Dynamic pricing has already spread from airlines to the arts. Kara Larson cuts through the jargon
and explains how some arts organizations are making it work for them.
Dynamic pricing (also known as yield management) simply means changing prices to reflect levels of
demand. Airlines are the most familiar users of dynamic pricing. But the whole concept of raising prices when
demand grows is taking root in other sectors too: car rental companies, hotels, utilities, online retailers – and
now theatres.
Setting prices at appropriate levels before tickets go on sale is fundamental to maximizing revenues. But to do
this, we need to know enough to accurately predict demand for tickets, and this may not be as simple as it
sounds. For example, our projections of ticket sales volume for a particular production may well be based on
not exactly comparable events. We may be obliged to set prices a year or more in advance of performances
and things can change in the intervening time. Dynamic pricing offers the opportunity to re-set pricing
to react to errors in our predictions or unpredictable changes in the marketplace.
Many theaters discount tickets for performances that aren‘t selling well, adjusting prices to meet demand (or,
in this case, a lack thereof). That‘s dynamic pricing. But if we‘re willing to lower our prices when demand is
low, why are we unwilling to raise them when demand is high? I have worked for presenters who were
delighted to sell out some performances months in advance, but from a revenue perspective, selling out isn‘t
good news. If all the tickets sell out months in advance, it tells me the price was too low.
The practices (and results) of five typical US companies that currently use dynamic pricing are illustrated
below. Their schemes have several things in common:
• These companies don‘t publish prices (other than on their websites, which are constantly updated)
• They rarely raise the lowest available price
• They report few or no patron complaints
• They have weekly reviews of sales and pricing
• They report total season revenue increases of up to 4%
AND they differ in a number of ways:
• Some companies apply small price changes broadly across many performances, while others impose
quite large changes infrequently
• Some organisations spend just an hour or two a week reviewing pricing, while others have staff
managing prices nearly full-time
• Some adjust prices for specific seats or sections, others for all unsold seats.
2. Pacific Northwest Ballet, Palm Beach Opera,
San Diego Opera
Whether they came to it through the
advice of a consultant or discovered it on
their own, all three of these companies
use nearly identical dynamic pricing
schemes. They seek to top up revenue by
using total sales as a trigger to raise prices
in small increments. When a
predetermined percentage of total tickets
have sold for any given performance,
prices are raised by a small amount. Most
commonly, when 80% of any
performance‘s tickets have sold, the price
of all remaining tickets is raised by $5 (at
90% an additional $10 is added). Outcome:
this adds 1.5–2% to total season revenues.
Pittsburgh Opera
Similarly, this opera company uses total
percentages of house sales as triggers for
price changes – at 60%, 70%, 80%, and
90% of total house sold the price rises
10–15% across all available sections.
Outcome: this adds 1–1.5% to total season
revenue.
Carolina Performing Arts – a university-based
multi-disciplinary presenting series.
Carolina Performing Arts uses dynamic
pricing to ‗correct‘ mis-pricing, but tries
to do it sparingly, for only those
performances where initial prices or
projections were significantly wrong.
They‘ve built projecting models that
incorporate ‗speed of sales‘ curves for a
variety of comparable performances.
When the real sales curves begin to differ
dramatically from the expected, they
adjust prices until the curve comes in line
with expectations. Outcome: when dynamic
pricing was implemented for four high-profile
performances in summer 2009, this added 11%
to revenue for that event, and 2.5% to seasontotal revenue.
Can You Use Dynamic Pricing?
Arts Knowledge, llc
Alvin Ailey American Dance Theatre
Three seasons ago, Ailey worked with a
consulting firm to rescale the house and
implement a battery of revenue
management schemes, including dynamic
pricing. Uniquely, they build their seating
for each season, reserving rows of each
price section off-sale. After a period of
sales reveals trends in demand, these rows
are priced according to response, either as
part of the lower-priced seating block or
as part of the adjacent higher-priced
section, depending on which price band is
selling faster. Outcome: The impact of dynamic
pricing revenue is reported separately, but revenue
has risen sharply in the past two seasons and
managers estimate that a big chunk of the
difference is attributable to pricing.
Chicago Symphony
With an extraordinarily strong
subscription base, this orchestra‘s goal is
to make extra revenue while ensuring that
subscribers get the best possible prices.
As patrons understand that prices may
rise in future, they have even more
incentive to subscribe early. Subscription
sales are used to build projections of
single ticket sales, and regular evaluations
of remaining capacity reveal performances
and sections where price rises are
indicated (the amount of the rise is based
on the manager‘s intuition). Outcome: this
adds 1.5–2% to total season revenue.
by Kara Larson
PO Box 5362, Portland, ME 04101
2
artsknowledge@gmail.com
3. Practical Considerations
When to Re-Price
Although imposing price increases when a set percentage of the house is sold can result in some extra
revenue, I would argue that it looks a lot like locking the barn door after the horses are gone. If there is
genuine excess demand (economist-speak for buyer enthusiasm) for a performance, you‘ve let 80% of your
tickets go at a too low a price. You could have sold all (or most) of those tickets at the eventual higher price.
So how do we go about capturing the value of ALL the seats? One way is the method Ailey uses (above). It
allows seats to be assigned to prices as they sell. The drawback? It‘s fairly labor intensive to set up and
manage, and assumes a very flexible box office and venue set-up.
Alternatively, I recommend building ―sales curves‖ or charts of sales for comparable performances. Taking a
historical look at the speed of ticket sales in the run-up to performances will generally reveal patterns—set up
the charts to record ―T minus x‖ days (or the number of days in advance of the curtain) and set T to 100%.
Overlay several comparable performances and you will begin to understand how your current sales compare.
The advantage to this method? I have caught over-performing events at 30% or less of the house sold, and
been able to ratchet prices up to match the curves to ―normal‖—capturing extra revenue on most of the
house. (It has also revealed under-performing events long in advance of a crisis point, which is also useful.)
What Your Patrons Think
Many companies that have imposed some version of variable or dynamic pricing (I use variable here to
describe pricing that changes from the base price and dynamic to describe pricing that changes specifically in
response to demand) report that they have had NO complaints from patrons. My experience suggests that
this may be overly hopeful.
In many companies, the decisions about dynamic pricing are made at some remove from the box office
personnel who answer the phone. Patron comments and complaints often don‘t ―trickle up‖ far enough to
become part of the conversation. I have found two common responses to pricing changes:
1. Patrons can be anything from disconcerted to angry that prices don‘t appear in the brochure. Many
of us offer multiple performances at multiple prices, and our patrons often want to plan their
purchase at leisure using a price chart. Some comment that they cannot easily access the web site and
don‘t want to talk to a representative to find prices for everything they might be interested in.
2. And patrons who plan in advance often find that today‘s price is not the same as yesterday‘s price—
for instance, they checked the price before they had lunch with the companion they always bring, and
now several days later, the prices have changed.
In the change to dynamic pricing, we often treat patrons as the people who should be the last to know. We
hide our prices and expect the box office to provide information that many patrons prefer to read at their
leisure. What should we do?
Can You Use Dynamic Pricing?
Arts Knowledge, llc
by Kara Larson
PO Box 5362, Portland, ME 04101
3
artsknowledge@gmail.com
4. Transparency Is Key
In Print
Big brochure mailings should include price charts—but they shouldn‘t be permanent pages of the brochure.
Instead, prepare an initial price chart on a flimsy sheet, smaller than the finished brochure. It can be blown or
bound into the initial distribution. It MUST say, in glaring letters somewhere, something along the lines of
―prices guaranteed through DATE X only.”
For each successive round of distribution, a decision can be made whether to include, update or skip a price
chart. Your own campaign calendar will dictate the ―whens & hows.‖ You will add work and some expense at
the mail house, but you retain the flexibility to change prices as needed.
In Person
Box office personnel should be prepared to be transparent about pricing, too. They may not know in advance
when or whether prices will change, but they can explain to patrons that prices are subject to change, and that
to obtain the best price it‘s best to order now. Most patrons understand that the flexibility to wait until the
last minute to buy tickets comes at a price—but ONLY after we explain it to them. We need to explain that
the high prices we charge late-comers to popular shows enables us to present the art we put on stage, and
allows us to make tickets available at lower prices to students, the under-served, the unemployed, or other
groups we make allocations for.
Someday we may live in a paradise where art doesn‘t need to be paid for. Until then, on those occasions when
we are fortunate enough to offer unexpectedly popular performances, fair and above-board dynamic pricing
can help close the gap between costs and revenue.
Author: Kara Larson, founder & principal, Arts Knowledge, llc
Kara Larson is a seasoned arts marketing professional with a long track record of creating stable and sustainable growth in
revenue and audiences. Prior to founding Arts Knowledge she served as marketing director at Carolina Performing Arts, the
performing arts presenting series at the University of North Carolina at Chapel Hill. Previous positions were at San Francisco
Opera, the Glimmerglass Festival, Sarasota Opera, and The National Folk Festival.. She has also served as a Marketing
Mentor in the Kennedy Center’s “Arts in Crisis” mentorship program, assisting troubled performing arts companies with their
marketing needs.
Can You Use Dynamic Pricing?
Arts Knowledge, llc
by Kara Larson
PO Box 5362, Portland, ME 04101
4
artsknowledge@gmail.com