Beware dynamic pricing dressed as “accessibility”.

Dynamic pricing is a form of price discrimination, commonly used by airlines and hotels, in which a firm changes its prices in response to shifts in demand. In recent years, it has been promoted in the nonprofit sector as a method to help arts groups fill seats, maximize revenues, and (drum roll, please) make programs more accessible. Evidently, it is already being used by many arts groups across the US. While I hate to be the one to rain on the dynamic pricing parade, I have concerns about this trend.

Let’s call a spade a spade. Dynamic pricing is a method for maximizing profits. The fact that an airline is willing to sell me a cheap ticket in January to some cold and cloudy city doesn’t constitute altruism on its part. Likewise, selling a cheap ticket for a seat in the nosebleeds, or to a show that isn’t moving, is not charity on the part of a nonprofit arts group when that seat would have gone empty at a higher price. I find it particularly odd that these lower priced tickets are said to be aimed at improving accessibility when organizations reserve the right to increase prices (higher than as previously advertised, even) if a show takes off at the box office.

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. A soup kitchen could probably earn greater revenues (which it could plow back into making more soup) if it allowed those who could pay more to buy heartier soup or raised the price of soup on really cold days. However, doing so would not be considered ethical because it would entail discriminating against those least able to pay and taking advantage of people when they need soup kitchens most.

One of the differences between a commercial firm and a nonprofit should be that the former will seek to maximize profits and the other will not do so, even if it could. A nonprofit is expected to leave money on the table. Of course, as Saint Paul Chamber Orchestra has begun to demonstrate, one need not leave it there forever; if well-timed and well-executed, it may be possible to lower ticket prices across the board and then solicit a voluntary donation of that “consumer surplus”. 

But above all, I worry about the long-term effects of dynamic pricing in the arts. Such models work best in industries in which consumers are unlikely to change their habits. Despite the ridiculously high price, I’m still flying home for the holidays. Arts patrons, on the other hand, have an increasing number of options when it comes to allocating their leisure time and dollars. Can the arts really afford to risk engendering the feelings of mistrust and frustration that airlines seem to breed by engaging in similar pricing shenanigans?

Wolf in Sheep’s Clothing image licensed from Shutterstock.com

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Comments

  1. Galina Pavlova says

    This is a very interesting issue, thanks for bringing it in!

    In Russia major performing arts institutions practice dynamic pricing and have been doing so for quite a while. The two things that they accomplish are apparently bigger profits and — since we’re talking about the customer’s side — a sense of scarcity. The latter may discourage the audience, because when you can’t plan in advance — and many people can’t, you decide not to try to buy tickets at all, because they are probably out of your budget and you are trained to think so by your previous experience of dynamic pricing.

    So, from a customer’s point of view, we are encouraged to buy in advance, if we can’t – we are frustrated because we feel being pushed out of the theater. Or, we’re less elastic and we decide to buy a $150 ticket anyway and overpay our optimal price of say $50 and expect the value of the show to triple to still be a fair payoff. And let’s hope we’ll feel it triples. Oh, not to mention the idea that the guy next to you might have a $20 ticket because he bought it 3 months ago. Also frustrating.

    Overall, does it add any accessibility? I agree with you that it doesn’t. It might work as an argument of “profit maximization to keep the theater afloat and therefore keep serving the community”, but it’s not an “accessibility = inclusiveness” argument.

  2. says

    Thank you for your insightful post. I agree that dynamic pricing is a tool to maximize revenue. After some thought–you raise an interesting concern–I continue to disagree about this being a questionable practice. Maximizing ticket revenue enables arts to be funded and then performed at a higher level.

    In my experience the performances that benefit from dynamic pricing tend to be cash cows rather than an organization’s highest artistic offerings. They may be the most popular classical pieces or operas, a handful of celebrity artists, the Nutcracker or a pops guest. Hats off to those few remarkable arts groups that have greater demand than supply for their central artistry.

  3. says

    I agree with you that dynamic pricing is problemmatic for nonprofit arts organizations. In addition to the ill will, it might actually backfire and further marginalize the art in cases where we are still trying to build up demand. Dynamic pricing works for airlines because nobody really knows what the original price was. Having a last minute fire sale on tickets for a show that just isn’t moving when the audience knows the original price makes chumps out of the people who paid full price AND says to the rest of the world, “nobody is interested in this.”

  4. Erik Jones says

    I’m not sure equating arts organizations to soup kitchens is a fair comparison to make in support of this argument. The latter serve a patron base made up *exclusively* of extremely price-sensitive individuals; the former do not. Put another way, price gouging a homeless person for a hot meal is obviously unethical; encouraging a well-heeled arts patron to dig a little deeper into his or her pocket for the price of a ticket by “taxing” him or her for waiting until the last minute to buy isn’t necessarily a bad thing.

    Demand-based pricing and accessibility don’t have to be mutually exclusive concepts. If implemented intelligently and sensitively the practice really can benefit the organization while also opening up a greater number of seats and performances to more individuals. One way is to do away with the standard “rush ticket” model that most people use, in which unsold seats (if any are even left) are offered the hour before the show at a steep discount to people willing to come down to the theater and wait in line, and instead offer *all* the seats in the house at a discount months in advance and then gradually raise ticket prices as the performance date approaches. That way, the most price-sensitive patrons actually have a much greater selection of seats from which to choose.

  5. says

    The above essay brings up some important concerns about the practice of dynamic pricing, but after some thought, I believe its conclusions are skewed by some basic assumptions on how dynamic pricing works. If dynamic pricing is a form of discrimination, it discriminates between consumers who, out of their own free will, buy in advance or who buy at the last minute, rewarding those who buy early. Dynamic pricing is one way to respond to market forces. And just because prices are rising in certain sections of a hall does not mean that access to lower price tickets is eliminated. Quite the contrary, most organizations keep their lowest ticket prices low, and they are not generally affected by rising prices in prime, high-demand sections.

    It is true that when a show is in high demand that dynamic pricing increases revenue to the presenter, and I don’t see how that is morally reprehensible. I also think it is unfair to imply that an arts organization is being somehow uncharitable when it responds to the demand of its product. The organization can still serve its mission to the public, and likewise communicate to the public the value of its artistic creation.

    Non-profit does not mean that surpleses are disallowed. Should an organization generate a surplus, those funds are reinvested into the company’s work, and not distributed to individual shareholders. This is the primary difference between a for-profit and non-profit company. I believe it is a moral good for non-profit organizations to create surpluses, because this provides the capital required to strengthen their programs to the public, invest in personnel who create those programs, and therefore better serve the missions of those organizations.

    The soup kitchen analogy only goes so far, as others have now noted. The best arts organizations are always looking for partners to create levels of access for economically disadvantaged populations. Here in Portland, Oregon, a consortium of classical music organizations are about to launch such a program, in cooperation with the City of Portland and the social services sector. Dynamic pricing of regular seats to concerts has very little to do with creating access through such programs.

    Finally, I would argue that the model of dynamic pricing is working to help change consumer habits. We make it clear in all communications that the best seats are available at the best prices when you buy early. Arts organizations best serve their missions by creating the best art while mitigating risk so that their work is sustainable in the long term. One way to decrease risk is to encourage patrons to support the organization through early commitments to the production of its art, through ticket sales and admissions, apart from the also noble work of soliciting voluntary, non-compulsory donations.

  6. says

    Thanks to all for the comments! It’s great to hear arguments on both sides.

    While I recognize the limits of the soup kitchen analogy (Erik Jones is right, soup kitchens exclusively serve low-income individuals), I don’t think the point is entirely moot in the arts, simply because some (or even many) patrons are “well-heeled.” Charging more as a show becomes more popular strikes me as a distinctly commercial strategy. While that may be appropriate on Broadway, I continue to question whether it is appropriate for an organization with 501(c)(3) status, that gets tax breaks, and has a social mission.

    I would also be interested to see research on who the “winners” and “losers” are in a dynamic pricing model in the arts (if anyone knows of any papers on the subject, please post). Logically, it seems that you run the risk of paying more for your seat (than the guy sitting next to you) if you buy early for a show that ends up being unpopular (and ticket prices are later decreased to spur demand) or if you buy late for a show that is a box office success. Who are these types? And do we want to “punish” their behavior with a higher price? Is it any consolation to them to know that they could have bought a cheaper ticket if they had bought earlier, or later, if only they could have predicted that the show would, or would not, be popular?

    The potential for betraying the trust of patrons seems pretty high. Is this wise for an organization that relies on contributions and patron loyalty to be sustainable?

    • says

      The distinction between the 501c3 performing arts org and for profit ticket pricing is something that should be quantifiable. I recall when Rocco Landesman was appointed to his position in the NEA, one of his positions highlighted in traditional media was his beef with exactly what Diane is pointing out: the distinction (and unfair advantages) between Broadway and nonprofit performing arts providers (think Rockettes Christmas Spectacular vs. Nutcrackers).

      The pursuit of earned income is a particularly prickly topic now since most nonprofit groups are squeezing every last dime of revenue they can out of earned income but it would be wise to consider the long term implications of ticket pricing strategies and how the public perceives our value. After all, why should citizens vote for an arts tax if the organizations consistently raise prices at historic rates?

      I don’t think dynamic ticket pricing is a black and white issue. It’s merely a tool (albeit one most arts groups can’t take advantage of due to a lack of control over box office and ticketing software), nothing more, nothing less. But how that tool fits into mission defined strategy does matter and each group needs to consider those options before making decisions. As a consultant, I think there is a moral obligation to point these issues out to prospective clients.

      In a perfect word, every city that supports regular performing arts organizations will have something like Chicago’s Grant Park Music Festival; a free festival in a top notch venue designed to bring people from the community together. It would go a long way toward justifying much of what I think Diane is touching on with this comment.

  7. says

    Being non-profit does not mean we must live in a bubble, isolated from the world of market forces. Our funders are impressed when we show that we are able to create more access for disadvantaged persons because other patrons are actually paying for their tickets. If we charged full-market rate for all tickets, we would be looking at ticket prices twice that currently charged. In the end, when dynamic pricing helps balance the books, we don’t go out of business.

    The research from TRG and others shows that there is very little push-back by audience members when dynamic pricing is employed. Just as with passengers on airplanes, arts patrons are highly unlikely to lean over and ask the patrons seated next to them what they paid for their seats. They could have received discounts through any number of channels: as subscribers, winners of an auction item, respondents to a special offer through a radio, online or other promotion, or even the now (in)famous groupon.com offers. Or they may have come to the door at the last minute and paid top-dollar for excellent seats in a sold-out section. In all these cases, the patrons have assigned real value to their experience in the hall. If non-profit arts organizations are expected to discount deeply the offers they make to the public, why is it not possible to raise prices?

    Prices in the first place are set according to the market (that is, their relationship to pricing of similar arts in a city or region), and in that sense are already arbitrary, relative to the real cost of artistic production. It should be said that if a program is not selling well, good marketers will not offer a deep discount to the general public; rather, the organization offers those discounts to people who are perhaps new to the art form and need a lower price point to try something new. In that case, everyone wins: new patrons get a good deal to try something out for the first time, and existing patrons would approve because it shows entrepreneurial spirit to gain new patrons in a creative way. The organization wins by increasing its base of patrons and reaching out to new audiences.

  8. Julia says

    I don’t think dynamic pricing is unethical. It’s confusing, sure, and may have unintended negative consequences in the long run, but in and of itself is not unethical. What I DO feel is unethical, is the arts organizations that practice it dressing it up as some kind of benefit to the community. It’s clearly a way to maximize profit and I, for one, don’t mind them being up-front about it.

    As others have pointed out, the only difference between a non-profit organization and a for-profit one is where the excess revenues go. If the money the arts organization makes ends up going towards increasing the quality of the artistic output, or even to allow the practice of discounting tickets to continue, I’m fine with that.

  9. says

    Finally a voice in the wilderness calling out against variable pricing. The school of thought that arts organizations need to be run like a business is hurting the field of non-profit arts presenting. Even the trend in for profit businesses is moving away from traditional business forms while in the arts we hold on to the old model. The most successful companies of today have very non-traditional workspaces, flex-time, creative time away from desks and a sense of ‘we are in this together’ with the consumer – all the things the arts can easily provide. The airlines are not exactly the business model we should be following anyway; Horrible service, bankruptcy and years of government protection…

    The non-profit presenter is first and foremost a community asset that public wants to feel good about and ‘own’. With honest and up-front pricing strategies for performances, allowing and celebrating the social aspect of going out to see and discuss art, and embracing community events when the hall can be open for free for people to just come in and look around should be our base model. With community ownership comes a willingness to give in many ways – not just money for a ticket.

  10. says

    This is a terrific discussion. I appreciate your original post, Diane, as I think that most of us who work in the not for profit arts world wish, at heart, that we could actually provide everything we do for free. That would be my utopia — free arts experiences for all, all the time. Although…consumer behavior also shows that that which is provided for free is usually not highly valued in our culture (witness the attendance rate of those offered comps).

    I think my fellow arts marketers, above, have done a great job in pointing out the validity of dynamic pricing. I particularly agree with Erik’s comment (and Mark’s related one) that ultimately our goal should be to encourage early sales with the lowest price available, and gradually ramp up prices the closer to performance we get. If we are living in a world where subscription is less reliable, and we are still as reliant as we are now, or more so, on ticket income, we need tools to have a better sense of what income we can expect for any given show, and driving earlier sales with pricing incentives is one tool; and that is, after all, largely what the model of subscription was based upon. Purchase season tickets, save money. And, at least in our case, we keep our low end prices fixed no matter what, even while putting pressure on the remaining inventory with dynamic price increases.

    I would add one more point to this discussion, however, when it comes to the ethics of the practice of dynamic pricing, and our obligation to our missions as non profits receiving public and private contributions. I can’t speak for all art forms, or all arts organizations, but even at the top price we charge for a ticket to one of our productions we are not recouping the actual value of that ticket from the patron, if the value of a ticket can be considered the cost of mounting that production divided by the number of seats available for sale. We could sell every seat in our theater at top price and still not cover the costs of running our company and putting on the level of production our audiences expect, and support. So I would argue that our tickets are always subsidized (and our colleagues in Britain are more honest with their nomenclature, calling non profit theater “subsidised theater”) by the contributions we receive from corporations, foundations, government and, primarily, individuals, even when they are sold at our highest price.

  11. says

    Thanks for the ongoing comments (in particular, Mark, for continuing the dialogue). I appreciate the diverse points of view on this topic. In reading up on dynamic pricing on Target Resource Group’s blog (thanks for the post). I found the following statement in a blog entitled “Demand Vs Loyalty – No Contest”

    “Demand Based Pricing is all about improving per capita revenues – the average price paid for a ticket. … Most buyers – especially the most loyal patrons – see or feel minimal impact. The Dynamic Pricing plans that adjust prices after tickets go on sale and when demand exceeds expectations typically impact the most transitory of audiences – the last minute buyer who has no idea of or interest in the range of prices previously offered. And, TRG’s research indicates that these folks are likely to never be seen again – regardless of the price they pay … For these buyers, the price is simply what they agreed to pay, fair – or not. And rational or irrational, they make the same judgment that all of us make every day as we move through our consumer driven society.”

    This strikes me as a rather cavalier position for an industry that’s been experiencing declining demand and high levels of churn. If you take these comments literally, the author appears to be saying that it’s OK to charge “unfair” prices to people if they don’t seem to be the types that will turn into loyal patrons. Call me crazy, but perhaps fair ticket prices for newcomers, and an invitation back sometime in the not-too-distant future (perhaps even with a discounted ticket as an incentive), would make it less likely that they are never seen again?

    It’s important that we don’t conflate dynamic pricing with “scaling the house” (setting fixed prices based on seat location), varying ticket prices by day of the week (lower on Tuesdays, for instance), charging more for value-added perks like valet parking or a meal with the ticket, and access pricing strategies aimed at providing incentives or accommodation to targeted constituencies (newcomers, seniors, students, families, & others with low incomes) as part of a mission to educate and be accessible. I recognize the good sense and value in the aforementioned practices. Dynamic pricing is something quite different from these practices.

    I don’t deny that nonprofits can and should accrue surpluses to be put back into the organization. And reading TRG’s blog I see statements which seem to indicate that dynamic pricing, in the short term, can, indeed, bring significant revenues into an organization. I will end by saying that I hope that the news on dynamic pricing continues to be good over time. I am no expert on this topic; but based on what I’ve read about the long term effects of dynamic pricing in other industries, I worry that nonprofits may end up paying a price for having adopted this practice.

    You can read the entire TRG post at: http://trgarts.blogspot.com/2010_06_01_archive.html

    I’ll let others have the last word on this one … thanks again for the thoughtful posts!

  12. says

    As someone who has implemented dynamic pricing in several organizations, I’d like to make a few relevant points:

    1) We all price dynamically already: Whenever a performance isn’t selling well and we discount it, that’s dynamic pricing in action.

    2) We discriminate among potential patrons in lots of ways already: When we set prices lower than the market will bear, we discriminate on the basis of time (in favor of our “insiders” who snatch up the best tickets and leave late-comers out of luck). When we require patrons to stand in line for tickets, we discriminate on the basis of place (if you can’t be there, you’re out of luck). Why is it necessarily a bad thing to discriminate on the basis of price?

    3) We may be giving too much credit to initial prices: We set the prices of performances in the first place based on our understanding of the demand for them (or the amount of money we could charge that would result in a full house). Why do we imagine that that price is the “right” one, and that any change is therefore “wrong?”

    4) Taking advantage of extra revenue supports the mission: We fund our arts through a combination of ticket revenue, individual giving, and corporate/governmental support. Any extra revenue from any of those sources supports our bottom line and funds those mission-driven activities that are harder to fund.

    5) Dynamic pricing shouldn’t take advantage of people: Some people are able and willing to pay more than others, and dynamic pricing helps enable them to do so. Any pricing policy that considers patrons disposable is self-defeating; responsible organizations don’t gouge “throw-away” one-time patrons. BUT it is possible to re-set prices fairly to be in line with demand.

    6) Dynamic pricing shouldn’t function as a “fire sale”: There are more effective ways of getting rid of excess inventory. If any organization finds itself discounting frequently (or, frankly, raising prices frequently), they may not fully understand demand in their market and should probably spend some time on a new projecting model.

  13. Clayton Lord says

    At Theatre Bay Area, we’ve been trying to work out a system for simplified dynamic pricing that could be used by small arts organizations to respond to demand without the gargantuan effort it currently takes (even at large organizations, many of which do it by hand each day). Our reasoning, here, has something to do with maximizing profits, but also has to do with affecting the way that arts consumers think about consuming our theatre companies’ art.

    For me, the big “win” of dynamic pricing is the shifting of buyer behavior back towards more advance ticket purchases, shift buyers away from high-demand nights, and right-pricing of shows that are currently undervalued. Depending on how you look at it (and both are valid, I realize) this either equates to “penalizing” late buyers and/or buyers on popular nights or towards “rewarding” early/light night buyers. I don’t see this as an overly arduous proposition, nor one that in anyway drives a company away from pure-hearted nonprofit-ness (any more than denying a latecomer instant access to their seat which, yes, is partially about decreasing interruptions during the show but is, I would argue, at least partially about training patrons not to show up late).

    It’s so touchy to talk about “training” audiences, because it sounds condescending, but if you think about it we go through our lives getting trained to do things and it’s not condescending, it’s just part of learning about an experience. I know that (counterintuitively) I’m not supposed to stand at the bus shelter to get my particular bus, but instead at the light post halfway down the block, because the bus driver blew by me the first time I stood in the wrong spot — so I learned. While I get the whole argument about making the arts less accessible iin order to make a buck (and I would never argue that dynamic pricing is about increasing accessibility – that’s just silly), I would argue back that perhaps dynamic pricing, in the right hands, can be about encouraging your audience to branch out, or think about you earlier, or support your work on a night they might not normally go. None of those, in my mind, are especially bad things to be instilling in your audience (neither for the audience itself, nor for the company that is benefiting from the new training).

  14. says

    Following is an excerpt from my book: “Arts Marketing Insights: The Dynamics of Building and Retaining Performing Arts Audiences,” wherein I address some problems I identify with with the activity of raising ticket prices as a performance approaches:

    Some organizations have borrowed the airline model of raising
    prices just before a popular production begins or toward the end of a
    run. However, there are several reasons why this is not a good idea.
    First, people have busy schedules and should not be financially punished
    for waiting until shortly before the performance to buy their
    tickets. People should be motivated by the potential scarcity of tickets
    for a show they really want to attend, not by price hikes. This mindset
    is better not only for a current show but for future ticket sales as
    well. When a future production is of interest to people who have just
    seen a current show’s price rise, they may assume that prices are rising
    for the future show also, even if this is not the case. The result is that
    fewer tickets will sell.
    In the airline industry, where ticket price increases close to the
    travel time are the rule, people typically do not travel on late notice
    by choice, especially for leisure travel. Similarly, no one has to attend
    a concert. People are likely to choose not to attend rather than pay
    more. People may be accustomed to airline pricing, but for other
    scarce, perishable items such as a table at a popular restaurant, prices do not go up as availability becomes scarce.
    When arts marketers do charge a premium price for an event, they
    should ascertain that they are offering a product and benefits of premium
    value to the customer. Marketers must be sure that customers
    leave with both the tickets that they wanted and the sense that they
    were treated fairly.
    A practical problem from the organization’s perspective is that with
    revenue management, managers are unable to publish their ticket prices
    in their season brochures. Without even a range of prices offered in advertisements,
    some people are not likely to take the next step and call
    the box office or check the Web site for more information. Besides,
    variability leads to uncertainty; uncertainty may reduce interest.
    For the most part a focus on changing ticket prices over time for
    the same seats and same shows is a distraction for the marketing manager
    from what really matters to the patron: not price, but value. The
    marketing manager must create a total experience that the customer
    finds attractive. Customer segment pricing pricing is a common and effective
    approach for varying ticket prices.

    • Lee S says

      I agree with the affordability for customer acquisition strategy. The problem with dynamic pricing is that the performing arts industry has been married to it way too long in the wrong way, and is managing customer acquisition and retention backwards. New patrons are not being acquired at the same rate as older patrons who behaved differently, and sustained the “Subscribe Today” ideology for decades. While consumers today tell us they want the power of choosing content, schedule, and other factors, arts organizations are still trying to force the subscription model as their customer acquisition strategy. Subscriptions are actually a loyalty/retention marketing strategy, period.

      The performing arts could take a harder look at the museum field. Museums boast staggering audience figures compared to performing organizations, most often because at many museums, admission is FREE or very nominal. Particularly of interest are special exhibitions. Special exhibitions, arguably the museum’s “annual season,” are strong drivers for customer acquisition. If museums only showcased their permanent programming, they would tend to stagnate and fail. The first-time visitor that pays an affordable, competitive $10 admission to see a special exhibit is likely to wander through galleries featuring other ‘programming’ in the permanent collection and could, and do, find the entire museum to be a richly rewarding experience worth visiting again and exploring further! An acquired museum patron may begin to be cultivated by becoming a member of one of a dozen specially designed entry-level membership programs, each providing value to its audience segment accordingly. Several years later, some of these members advance to become high-level museum patrons, board members, and exhibit sponsors. They are essentially paying for privileges such as advance invitations to gallery openings, curator talks and tours, gala dinners, or even help acquire art or sponsor museum programming. But it all begins with a low-cost admission that is accessible to everyone in town, and more attractive to visitors as well.

      In the performing arts, the acquisition strategy is staggeringly more expensive. The senior veteran patrons are given the deepest discounts for the most standard access: attendance. The similarity is stronger when you note that renewing subscribers receive priority seating, and those who also donate (and most subscribers eventually become donors) are often granted special benefits such as post-concert receptions with guest artists and invitations to CD release parties, and more.

      The value of an arts performance is as Mastercard says, “priceless.” A low single ticket entry price does not diminish the quality of Beethoven, Tennessee Williams, or Balanchine no more than a low museum admission diminishes the quality of seeing Monet, Matisse, or Picasso. But a basic entry price for all could level the playing field for customer acquisition, and expand access to the art.

      If all remaining non-premium seats at an opera house were opened for free or only $5-$10, how many more performances would have packed houses, providing at least some opportunity to engage new patrons with additional programs, memberships, and more? An empty seat with a $70 price tag is a lost opportunity forever. Those who wish to pay the premium and buy the entire season in aisle seating would do so at first opportunity, and would likely want to become more deeply involved on a voluntary basis.

      I hear the argument. If patrons know that all admissions are going to be $10 to the theatre, will they refuse to purchase in advance for the best seats? I think they would, especially if you add value beyond just the seats. Arts organizations have a host of value-added benefits at their disposal, many of which are already tied to their annual fund or membership program. The effective dynamic pricing solution would pit the risk of prime access against the immediate call to action. There would be no guarantee beyond an established deadline to own the prime seats for the entire season, for less than they are worth to such a patron.

      Yes, the performing arts would have to creatively change the way patrons are developed in creative ways, but I would argue that more corporations and foundations and individuals would donate more to make performing arts more accessible to a broader audience, with the reward of added value for increased support. The resulting paradigm could probably make concerts sell out in hours or days.

      Any marketing professional understands that customer acquisition is of paramount importance in the marketing strategy. Development professionals understand that a small first gift can be an entree to bigger gifts and maybe even a major gift from capable, engaged donors. The repeat rate of first-time ticket buyers at many performing arts organizations has also historically been positive, even impressive, with targeted marketing efforts. But letting unsold, standard-scale seats vanish into lost revenue because of the notion that discounting them would diminish the “value” of the experience is a short-sighted argument.

      The comparison to dynamic pricing in the airline industry is hardly a valid argument. If airlines were handling customer acquisition and retention so well, why are most consistently on the verge of bankruptcy, charging added fees for baggage handling and exchange fees and more? The most successful airline in the United States, consistently profitable, is the bargain-based Southwest Airlines. They understand that low entry-pricing and outstanding service can build passionate loyalty and healthy profits. The comparison to a nonprofit arts organization really ends there.

  15. michael rohd says

    At Sojourn Theatre, since we were founded in 1999, a priority has been that noone would not see/paticipate in our work because they couldn’t afford a ticket.

    Pay what you can, low prices, and hosted/funded projects at festivals and residencies with no admission charge have helped us work toward this goal over the years in ever changing ways.

    Lately we have been exploring Premium tickets in the following manner-

    Our last project was ticketed at 10-15$.
    Anyone could choose to pay 25$, online or at the box office, and know that in doing so, they were creating the opportunity for others to see the show at the lower ticket prices. We ask our audience/constituents to value the economic diversity of their fellow arts consumers as a real ‘value-add’ to their experience; that when they pay a premium ticket price, they are not just ‘doing good’- they are creating for themselves an opportunity to be amidst a ‘rich’ spectrum of experiences, and therefore creating for themselves an even more satisfying event in which they participate.

    This idea came from our audiences, and many people bought these Premium tickets.

  16. says

    We moved to a demand based pricing strategy in 2008 and I was initially concerned about a quick bang for the buck approach and concerned about my loyalty programs and strategy. Wht awe have found is that over time we have built a marketplace that buys tickest nuch earlier, and is even more loyal, Our subscripytions are rising significantly and we are experiencing 90+% renewals. The wonderful result is that we have fuller houses on a regular basis and that our increased revenues have gone on to fund 6 commissions in the past three years of which 3 have made it or our stages and we have funded $2M building renovation.

    This is not all demand based pricing but the increased revenues and strong subsriber base has resulted in an increased donor base and enageed audience.

    Howard Jang
    Arts Club Theatre Compnay – Vancouver. Canada

  17. says

    Hey Diane. Great to have you in the blogosphere! Great stuff. And you should be thrilled with the active comments you’re already receiving.

    I love the post, but want to flag one assumption you state toward the end:

    ”One of the differences between a commercial firm and a nonprofit should be that the former will seek to maximize profits and the other will not do so, even if it could. A nonprofit is expected to leave money on the table.”

    To my mind, the commercial firm is designed to maximize profit, and the nonprofit firm is designed to maximize *mission*. In many cases, nonprofits can be much more effective in delivering their mission if they are smart about when and where to maximize income in thoughtful ways. Managing amenities like valet parking, bar service, catering, corporate events, as profit-generating ventures, for example, creates resources to invest or improve more mission-central efforts like programming and ticket pricing.

    Sometimes, cultural managers should absolutely maximize yield, and shouldn’t be ashamed to do so. But, they must do so in the context of what best advances their mission in meaningful ways. And, of course, they should do so with respect and integrity toward the people they seek to serve.

    • says

      Thanks for posting a comment, Andrew – I agree with your points. My statement that nonprofits are expected to “leave money on the table” stems from my understanding that when nonprofits charge high prices they risk being perceived as commercial firms in disguise and that such perceptions can make it more difficult for them to raise donations. But I take your point on the “maximize mission” distinction–it’s a good (ahem, better) way of distinguishing the purposes and doesn’t imply that nonprofits should be chastised for earning revenues.

  18. Patrick Lennon says

    “Logically, it seems that you run the risk of paying more for your seat (than the guy sitting next to you) if you buy early for a show that ends up being unpopular (and ticket prices are later decreased to spur demand) ”

    You are right that this would risk hurting patron loyalty. But you are wrong to call out dynamic pricing for this reason. I don’t know of a single non-profit company whose dynamic pricing policies include lowering ticket prices if a show isn’t selling well. We already do that with last minute discounts, and part of the point of dynamic pricing is to change that. Instead we set the ticket price low, and increase it as demand increases. If demand doesn’t increase, we don’t drop the price. If your sales are so low that you think an across the board price drop or “fire sale” will boost demand, your prices were too high to start with. I’ll bet that if your sales are that bad, the show is just bad, and a drop in price won’t help.

    Here in Seattle, several companies have adopted dynamic pricing in various forms, and have seen great success – sold out houses early in the run, with tickets sold at 25-75% of normal ticket prices (can you deny that that is increased accessibility, if you buy early/go early in the run?), and sold out houses later in the run, with tickets sold at 100% (or more, for popular shows) of “normal” ticket prices. An increased spectrum of people are able to afford tickets, and the company covers the nationwide drop in donated and government funding with increased program revenue.

    Rather than dynamic pricing being a wolf in sheep’s clothing, I think you’re crying wolf about something without learning about how companies are actually using it.

    • says

      Patrick – thanks for your post. I do have some familiarity with this practice, though, as I have said, I am not an expert. I have heard and read the way organizations and consultancy firms have discussed dynamic pricing for a couple years now. No surprise, different organizations have different policies or strategies that dictate how and when they increase or decrease tickets. My perception that dynamic pricing was resulting in organizations both raising ticket prices in the case of high demand and lowering in the case of the opposite was confirmed from reading a couple quotes in the article I cited in my blog.

      “The actual ticket price may be lower — or, in some cases, higher — than the one printed in their season brochures,” and “Demand can, in some instances, increase prices; [...] In other events, audiences may find prices dropping.”

      While I acknowledge that I may be in the minority with my point of view, I continue to be concerned about the framing of dynamic pricing as a method for increasing accessibility (again, see the article for an example of this). I see it as a method whose goals are filling seats and maximizing revenues.

      My goal in provoking a discussion was to better understand how others are thinking about dynamic pricing: Are others in favor? Any opposed? Having success? Any regrets? Does anyone else agree that it’s strange to call it a form of accessibility? Etcetera.

      I am really glad so many people (including yourself) have taken the time to comment and share experiences, and to see such a diverse range of responses. I am enjoying the debate and gaining new insights. I hope others are, as well.

  19. Michael Wilkerson says

    This is a great conversation, though the distinction between capacity utilization to serve the community and the arts organization vs. the more “evil” form of dynamic pricing is a bit lost on me. My concern remains that because we CAN sell tickets at high prices, we do. And maybe we should instead set price targets that really offer affordable arts experiences and fund-raise accordingly to get there. That’s a tall order, but I think it’s more honest and fair than charging top dollar and then creating a few artificially cheap seats in the name of community access and democracy. More systematic inquiries are needed about the real barriers to access, which include ticket prices, commuting costs, parking costs, child care, etc, as monetary barriers, and lack of knowledge about what to wear and when to applaud, etc, as cultural barriers.

    A complex discussion!

  20. Ryan Butts says

    I think that the key comparison with the airline industry is that the dynamic pricing works because the other means to travel that far are very inconvenient. While the performing arts can offer a unique experience, it still remains incredibly inconvenient when compared to other forms of entertainment. I agree with you, Diane, when you say that arts orgs may be risking some future perception with patrons for a short-term budget fix. Reading all of the comments here, it is definitely a sticky issue, but I can’t, for the life of me, imagine that complex pricing algorithms is a direct path to increased fans. Everyone loves Apple products, but they’re the same price, whether you buy them at Walmart or in the Apple Store itself.

  21. says

    Hi Diane, great post, and great debate stimulated as a result. I’m coming to this rather late in the day as a result of a hectic travel schedule, to find that most of the arguments have already been well rehearsed.

    However, my main comment would be to question your original premise: who on earth is claiming that dynamic pricing is intended to promote accessibililty? It is, as you suggest, about increasing income, which it does both by maximising yield through increasing prices and optimising volume of sales by decreasing prices… and to that extent I guess some could claim it increases accessibility (although I would seriously question whether accessibility to most arts events is principally a function of price). But dynamic pricing doth not a pricing strategy make. It is just one aspect of pricing, and even, just one aspect of revenue management strategy.

    If an organisation is serious about accessibility it should have a pricing policy to assist in that aim. In the UK, confusingly, we call this a ‘Concessions’ policy, in the US it might get called ‘Social Discounting’. This usually includes standing discounts for young people, sometimes for seniors, and for disabled people (although this opens up whole other issues, not least to do with legislation in the UK… we will shortly be publishing a new advice note on this subject on the free pricing resource http://www.thinkaboutpricing.com). It also usually includes discounts for people on low wages and this is where many organisations could look more carefully at how they are setting these prices. Commonly all concessions or social discounts are bundled together, typically offering a fixed discount off of headline prices. However, while a £10 discount on a £50 ticket might be considerd generous for most senior citizens, it is not going to make any difference at all to someone on minimum wage or, especially, existing on social security, for whom just £10 is probably beyond their means. So, if you are serious about accessibility for people who survive on genuinely low incomes, you need to get genuinely serious about what that price needs to be. And that being so, it is perhaps unsurprising that organisations need to use some dynamic pricing tactics in order that they can offer accessible prices while still protecting their income.

    Warming to my theme now… that price is only one part of accessibility. For most, in a sector where the monied few are the principal consumers, accessibilty is more often to do with education, social barriers, geographical or physical inaccesibility, or, most importantly (lack of) perceived value in the experience being offered. Suggesting that it is price that puts people off could be seen as an easy option, rather than addressing these much more difficult barriers that have implications for the way that arts organisations are programmed, presented and managed. And… on this side of the pond, where most arts organisations are subsidised by the state, using taxes that are paid by all to support activites that are principally enjoyed by the few, I would suggest that we have a moral responsibility to maximise income from those who are able AND WILLING to pay for their – expensive – cultural pursuits. And if dynamic pricing can play a small part in a pricing strategy that achieves this, then all the better.

    • says

      Tim, thanks for taking the time to read the blog and comments and share some reflections. You are, of course, an expert in this area and it’s terrific to have you weigh in. You make excellent points. While it is surprising to me, as well (hence, the blog) I have found that (perhaps in an effort to make the practice more agreeable to funders and donors?) that dynamic pricing is framed by some as a method for increasing accessibility. Even in the article cited in my initial blog, the presenter featured in the article says of the practice: “It’s all about making the performing arts as accessible as we can, to the largest possible audience …”

  22. Pablo Halpern says

    This interesting debate is eluding a more fundamental underlying issue: the sustainability of not for profit performing arts organizations. We all know that in the current economic landscape (some call it the “new normal”), not for profit arts organizations are struggling. Public financial support is going down (more dramatically so in the UK, if that is any consolation), raising funds from the corporate sector has become much harder and also, as a result of the new economic conditions, foundations and their endowments have suffered significant mark to market losses.

    In this context controversial tools such as dynamic pricing are here to stay. Dynamic pricing is not use to increase profits as in the corporate sector. The increase in revenues is used either to finance operational and non operational costs, or as retained surplus to be reinvested in institutions and its missions. In an ideal world, not for profit art organizations should be mostly financed by contributed income in order to free the artists and/or the producing organizations from financial pressures. But it is extremely uphill these days to change the balance of this equation.

    It is too soon to tell what the long-term effects of dynamic pricing will be. It may well end up educating audiences to by tickets in advance. Or it might alienate audiences which will end up rejecting any model of strategic pricing. But we do know that some performing arts companies, by using dynamic pricing, are increasing their revenues without diminishing the size of their audiences. Additionally, they are better positioned to pay their bills.

    This is no time for purisms. We are in survival mode. Unless a magical financial windfall falls on our laps, things will not be as we would like them to be.

  23. says

    While this is an old post – it got recirculated recently because of a blog by L. Corwin Christie which got picked up by Cott Mail yesterday. I felt compelled to comment.

    The comparison between the performing arts and a soup kitchen is wrong because the two do not have the same financial structure. A soup kitchen or nonprofit social service receives revenue exclusively from donors in order to serve food to those in need. A performing arts organization receives revenue from a combination of fundraising and earned revenue. While the percentages vary, the vast majority of nonprofit performing arts organizations rely far more heavily on fundraised revenue than earned revenue.

    Equally wrong is the statement that a successful performing arts organization can or should use dynamic pricing in order to maximize its profit (or more correctly, its surplus). I’m sure that we can all agree that a successful organization is one that maximizes its audience. Dynamic pricing facilitates the diversity of prices available; by definition, it is the raising of prices for higher demand tickets and the lowering (or discounting) of lower demand tickets. This practice allows all prospective patrons to choose the price point that they feel provides value to them, which directly results in a larger number of ticket buyers. As audiences grow and prices more closely match the value that audiences perceive, overall earned revenue will grow.

    The idea that successful nonprofits have an obligation to leave money on the table is ridiculous! The only difference between a commercial firm and a nonprofit is that the surplus/profit achieved by the nonprofit does not need to be shared with investors. A successful nonprofit should use the increase in earned revenue to do any number of things: produce more challenging and/or expensive art, make select programs more accessible to those who cannot afford to experience performing arts or for art education, leverage the increase in earned revenue and audience growth in order to grow fundraised revenue, invest in staff, pay for a capital expense, or fund its endowment.

    As a community, we should embrace dynamic pricing because it is powerful enough to actually change consumer habits. The future for successful nonprofits is a greater patron base that attends more frequently and the resources to produce greater art that we can today!

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