Money talks

In arts marketing, where making money is rarely our primary aim, it’s easy to fall into the trap of pricing by habit. We form an idea of what our customers are prepared to pay for each type of event, and then we go on from season to season adding 50p or £1 to prices, and our customers continue to behave in the same ways. But what if we could use price to change customer behaviour? This is what revenue management (RM) can achieve. It offers a technique for pricing more flexibly, which is even more important in a time of recession. Revenue management is a term most often associated with airline pricing, where it was defined by one of its pioneers as “the application of disciplined tactics that predict consumer behaviour at the micro-market level and optimise product availability and price to maximise revenue growth”1. In other words, it’s the process by which you maximise the yield from sales where there is high demand and stimulate sales where there is low demand.

Flying high
We’ve all seen how airlines like easyJet start prices low and then raise them as the flight books up. This encourages us to book earlier than we otherwise would, and then when availability is becoming scarcer, the airline gets a higher yield per ticket out of those who couldn’t or didn’t book early. This, of course, is exactly what theatres do when they offer an ‘early bird’ price. Indeed, RM in the arts is nothing new: charging higher prices at weekends than during the week, or higher prices for evenings than matinées are examples of the practice, and have been commonplace for years. Is there more, though, that we can learn? We actually have a good deal in common with airlines. Firstly, we have (to some extent) predictable, measurable patterns of demand. This is a prerequisite for RM, as your analysis of demand and customer behaviour needs to be accurate and detailed. We also have high fixed costs (e.g. opening the venue for X nights), but low incremental costs (e.g. the cost of selling each additional ticket), and we have scope for booking well in advance of the event. We also have a perishable product – an unsold seat for tonight can’t be put in the bargain bin tomorrow. This can be a disadvantage. Whereas it’s become standard that in air travel last-minute equals expensive, for theatre there is often an expectation of a low standby price. Standbys are a good revenue management tactic for selling seats that would otherwise ‘perish’, to the most price-sensitive customers, but they can also be dangerous, creating a culture of holding out for the discounts. This can undermine perceptions of what tickets are worth, so if you offer standbys, make sure there is a real risk attached (e.g. none being available from time-to-time).
Knowledge is power
The standby example is really about how the deal is communicated to customers, and this is key to successful RM. We can categorise RM methods as above-the-line (up-front) or below-the-line (behind the scenes). Above-the-line means that the customer is told when they will be charged a higher price, and what they have to do to get a lower one. easyJet’s pricing only works because we know what we have to do to get a deal. We wouldn’t book if we didn’t know that the price would go up next week. The Place in London took a similar approach when it adopted a pricing strategy focused on making earlier sales: across all repertoire it introduced Apex, Advance and Standard prices, which depended (primarily) on time of booking. These tactics work if the customer knows about them, and can choose to behave accordingly. Clear promotion is key. Below-the-line tactics are those not broadcast to the booker. This might include publishing the range of prices for seats in the auditorium, but then altering the seating plan as sales progress, so that you can match the seating plan to demand. If top-price seats simply aren’t selling, for example, you might make more seats second-price. We recently designed a system of dynamic seating plans for Kings Place which allowed sections of seats to be held off and then released at different prices. A complex system behind the scenes, but the customer doesn’t see that complexity. Money talks, but you need to make sure the message it sends is a simple one.