In the previous post we set out the basic idea behind price discrimination: your potential audience has different maximum prices they are willing to pay for what you have on offer (their "reservation prices") and you want to find a way to get individuals to pay something close to their personal maximum, so long as it covers their marginal cost to you. Two-part pricing is a type of indirect price discrimination: everyone is offered the same deal when it comes to prices, and they choose options that reveal whether they have high or low … [Read more...]
A primer on price discrimination
My previous two posts dealt with different aspects of price discrimination, and since many future posts will cover the topic from various angles, I think it worthwhile to go over a few basic ideas and definitions. Marginal cost will be defined here as the cost to your arts organization of serving one more customer. It might be one more person through the turnstiles of your museum, one more person taking a seat for your performance or festival. For the examples just given, marginal cost might be very close to zero - it costs nothing at all to … [Read more...]
Voluntary price discrimination is not a new idea
Alyssa Rosenberg on crowdsourcing new movies: One thing that’s striking about the Veronica Mars Kickstarter is that you have to give at least $35, more than four times the cost of the average American movie ticket in 2012, to get a digital download of the movie. You have to give $750 to get a ticket to the premiere of the film in Los Angeles. An Andrew Sullivan reader says: What I find particularly brilliant about the Rob Thomas/Veronica Mars Kickstarter project is that the producers of a good have found a way to exploit certain consumers’ … [Read more...]
Discounts for the price-conscious well-informed consumer
A little more than a year ago, J.C. Penney's new management announced a change to its pricing strategy, in an effort to turnaround the troubled store - get rid of "nonstop promotions" and move to a simpler pricing structure. In the current issue of the New Yorker, James Surowiecki tells of the resulting fail: The biggest problem with [J.C. Penney CEO Ron] Johnson’s strategy is simple: he misread what Penney’s customers wanted. Doing away with constant markdowns was, on the face of it, sensible: instead of starting with a high price and quickly … [Read more...]
Self-publishing and the theology of free
Artsjournal.com links today to a story from Publishers Weekly at SXSW on self-publishing and the "theology of free." But what exactly is this theology? Called Self-Publishing in the Age of E, Deahl’s panel featured bestselling self (and now conventionally) published novelist Hugh Howey, author of the bestselling sci-fi series Wool, Erin Brown, a former St. Martin’s and HarperCollins editor and now an Austin based freelance editor, and literary agent Kirby Kim of William Morris Endeavor. It didn’t take long to get to core issues around … [Read more...]
Will the ACA cause prices to rise?
At Slate, Matthew Yglesias takes apart the argument by a Five Guys hamburger franchise owner that the Affordable Care Act (ACA, or "Obamacare"), with its requirements on employee health insurance, will drive up his prices. Yglesias says: no, if it makes sense to increase prices in light of potential increased profits, then that is so whether or not there are increased health insurance costs on the employer. Instead, he argues, the increased costs will simply cut into firm profits. Is that correct? Not quite. It is worth considering in a bit … [Read more...]
Tips, Charities and Businesses
This blog holds that arts managers can learn interesting things about pricing from non-arts businesses, and today I want to look at pricing of internet content. Preparation and presentation of content is not costless, and has to be financed somehow. It might be financed by the content provider herself, happy to do the work of writing a blog with no expectation of financial reward for the activity. Or it might be financed through bringing viewers to advertisers, or through a "tip jar", or through charging for full access to content, with only … [Read more...]
Why does the Indianapolis Museum of Art have Free Admission?
Preamble: I know what I don't know. Specifically, when looking at any arts organization and its menu of prices, I do not have insider knowledge of its current or potential audience, its donors, or its costs. So when I comment on the price structure of any specific museum or other arts firm, I do so only by asking questions, not by advising what it should or should not change. And with that cleared up ... Why does the Indianapolis Museum of Art have free admission? In her neighboring blog, Judith Dobrzynski describes the fiscal troubles at … [Read more...]
Consumer optimism at the gym and the museum
While at the gym this morning I got to thinking about ... what I pay to go to the gym. I have a membership, although the option of day passes is available to me. The rational thing for me to do at the start is to figure out how often I intend to go, and calculate which is the better deal, membership or day passes. I know that I am more likely to go more often with a membership because the monetary marginal cost to me (although not the cost in time) will be zero dollars per visit, and I should take that into account. But are people rational … [Read more...]
Why Is Dynamic Pricing So Rarely Used?
As technology has come available that allows performing arts organizations to adjust prices in light of demand, the question has arisen: is it appropriate for nonprofit theaters to employ dynamic pricing? See here and here for example. Let's consider the issue from a different angle: why is dynamic pricing so rarely used in the for-profit sector? For example, at my local multiplex cinema, I will pay $5 for a weekday matinee, $7.50 for weekday evening or weekend matinee, and $10 for a weekend evening. It doesn't matter whether the film I … [Read more...]