You know how certain retailers – particularly those who sell appliances and electronics – will claim that they’ll always give you better value than their competition? That’s an example of dynamic pricing in action: they will decide which products they think will sell best and be most profitable and adjust the prices to make them more appealing to customers.
Arts organisations tend to use airline pricing as their guiding principle. Most of us are familiar with how the price of a flight tends to fluctuate: it’s more expensive to fly during the day on a weekend or bank holiday and to book your ticket close to your planned departure date, and cheaper to fly in the early morning or late evening on a weekday and book well in advance.
Mind you, airline pricing isn’t exactly simple to apply in other contexts. Once you consider factors like the emotive value of a performance and the view from different seats, dynamic pricing for the arts industries gets a lot more complicated. Nevertheless, larger event organisations have begun to adopt dynamic pricing over the years, and smaller companies are following suit.
Testing pricing models with Firestation Arts
In 2015, Ben built Monad’s dynamic pricing systems as part of an experimental NESTA-funded project spearheaded by Firestation Arts, with the support of the Economics Department at Royal Holloway, University of London. You can see the findings in greater detail here.
The experiment worked like this: over the course of a season, three dynamic pricing models were tried out. A baseline was set, and one of the following changes would be made:
- Rising prices – prices started 15 to 25 percent below the baseline, and gradually increased to 25 or 50 percent more come the day of the event.
- Moving prices – prices fluctuated between a discount of up to 15 percent and a surcharge of up to 50 percent.
- Price crash – in addition to the moving prices scheme, a randomly generated flash sale lasting 30 minutes would offer a 75% discount.
The rising prices model is the most popular form of dynamic pricing in both the arts and travel sectors, and it proved to be the most effective during this particular trial, too. This model is the easiest to implement and explain – after all, most people who’ve booked theatre tickets in the last few years have also booked travel or a hotel at some point.
The explaining part is important. Arts organisations in the UK are wary of dynamic pricing because they worry that their customers will feel cheated if their ticket costs more as time goes on. As it happens, our findings showed evidence to the contrary:
In any case, organisations can avoid disappointing audiences by making it clear that prices are going to increase over time, because this leaves that decision in the customer’s hands.
How can small arts organisations implement dynamic pricing?
You might not realise this, but you’ve probably already implemented a form of dynamic pricing if you charge a fee for membership in exchange for early access to event tickets: you’re altering the offering and/or the price as time goes on and specific conditions are met.
A dedicated dynamic pricing strategy needs to work with your membership scheme and not conflict with it. You could do this a number of ways – for example, by offering bundled extras like drinks vouchers to members only, by exempting members from the gradual price rise, or by adding a special early-bird price for members when early access bookings open.
It also needs to work with the rest of your pricing structure and take into account any other discounts or special offers you advertise. Dynamic pricing won’t work if you slash prices on the door, for example, because the incentive to book early is gone. It’s also less likely to have an impact if you’re the only organisation of its kind in your area and you have something of a captive audience.
How can my organisation use dynamic pricing to inform future decisions?
To some extent, dynamic pricing depends on strong and accurate sales forecasts, which means it’s important to collect as much data as you can. As you monitor your pricing strategies, you’ll be able to glean some particularly useful data points, including:
- Which type of shows sell fastest
- Which seats sell first
- Which customer demographics are most likely to book early
- What your ticket sales cycle looks like, i.e. when sales rise most sharply and when they plateau
You can use these to inform:
- Your programming, and how best to balance faster and slower-selling events
- How to lay out your seating plan by price
- How to target and pace your marketing strategy
- What to look for as a trigger for raising prices, and whether it’s best to do so steadily over time or in response to specific surges in sales volumes.
Dynamic pricing is most useful for maximising your profit on a show-by-show basis, and it helps to be wary of using it to justify broader changes to your organisation’s overall fee structure. For example, if you’re hosting a touring comedy show that attracts an unusually high number of visitors, that month’s sales figures will not be representative of a sustainable pricing model.
Have we sold you on dynamic pricing? Contact Ben to find out if it’s suitable for your organisation. He’ll be able to activate it, talk you through the setup, and advise you on which of our integrations can help you build your data bank and improve your forecasts.