Pricing is one of the most sophisticated tools available to arts managers, yet, encouraged by press coverage, debate rarely extends beyond the level of top prices. Tim Baker explores the range of possibilities for varying a pricing structure.
In a funding climate that increasingly requires arts organisations to thrive, rather than just survive, yield management – the process of maximising income from ticket sales – is becoming ever more important.
Many people, many prices
Even the most obscure arts event will potentially attract a range of attenders with widely differing experiences and attitudes. Audiences have different lifestyles, varying motivations for attending and different levels of disposable income. The interplay of these factors, multiplied across different artistic product offerings, means that different people attach a different value to different arts experiences and will therefore be willing and able to pay different prices. Consequently, it is important that arts organisations offer a range of prices to reflect different value associations.
Many organisations charge a single price and in many circumstances, particularly in jazz, world and popular music, this works extremely well. However, this approach restricts the ability of an organisation to increase its income, because only two options are available; selling more tickets or raising prices. An appropriate range of prices, combined with promotional discounting and concessionary rates, massively increases the range and sophistication of options available.
EasyPricing
Airlines provide the most often quoted example of yield– or revenue– management and EasyJet is the best known for its approach to pricing. Its customers benefit by booking their seats early, as seats get more expensive as the date of the flight approaches. Indeed, EasyJet has made a virtue of this open pricing structure.
Most airlines use some form of yield management, including differentiating prices according to ‘class’ of travel. The whole concept was developed by airlines to maximise income by having optimal availability of different price offerings at all times. They do this by building a constantly evolving model of demand that enables them to predict demand patterns and then adjust according to variations.
This level of sophistication is difficult for arts organisations because currently there are no box office systems capable of managing this process. However, if we strip the concept of yield management away from its airline connotations, there are many ways of applying it to the arts context.
Supply and demand
Fundamentally, yield management is about adjusting the supply of tickets to reflect patterns of demand in such a way as to maximise income. The ultimate example of this approach is to publish a set of prices but hold back from allocating actual seats until the event has sold out. This approach creates the flexibility to sell as many top-price seats as people are willing to buy. Many arts organisations will find this approach difficult to accept, not to mention implement; but at the same time, it does raise all sorts of possibilities.
The truth is, most arts organisations have been practising yield management for years. There’s nothing new about ‘early bird’ discounts (the equivalent of EasyJet pricing); and Standby or Rush seats are an attempt to optimise income at the other end of the sales cycle, by increasing the supply of lower priced tickets (although its indiscriminate application can seriously undermine perceptions of value).
Another simple way to employ a dynamic approach to yield management is by establishing quotas for all discounts. This will mean, for example, that generous discounts can be offered to particular target groups in order to guarantee accessibility, but the impact on yield can be controlled by limiting the number of seats available and/or then releasing more seats for sale depending on the strength of demand.
Increasing income
Although these simple tactics can be applied almost anywhere, for organisations on the mid-scale and upwards there is significant additional revenue to be generated from a much more sophisticated adjustment of pricing variables.
One of the main ways of managing supply is to adjust the price and number of seats available in different areas of an auditorium. When the City of Birmingham Symphony Orchestra (CBSO) moved into Birmingham Symphony Hall in 1991 they priced a very complex auditorium in an entirely rational way. However, over the years the regular audiences ‘learned’ the hall, its acoustics, sightlines and other seating quirks, and over time effectively re-defined the best seats in each price break. This had the effect of gradually reducing yield. Over a series of projects since 1999 we have been undertaking Price Demand Analysis for CBSO to understand their customers’ perspective and re-price the auditorium accordingly.
Number crunching
Although it requires the sourcing, coding and analysing of box office data, which is anything but easy, Price Demand Analysis is essentially very simple. It aims to measure the relationship between the supply of seats in each area and price bracket and the audience’s demand for those seats. The findings from the analysis enable adjustments to be made to the relative pricing of different areas of the auditorium and the number of seats in each area. In the case of the CBSO, it brought about the introduction of a new intermediate price level between their former top and second highest prices, taking them up to a total of seven different prices.
Without moving the top price, changes to pricing structures improved their yield per ticket by over 7% – valued at more than £80,000 in the first year. What’s more, the re-pricing has achieved a structural shift in patterns of price demand which means those improvements in yield continue to be seen year on year.
One of the most interesting findings from the CBSO projects was that price demand varied for their different concert series. Patterns of demand for their Friday ‘Pops’ series and Christmas concerts were significantly different from the main season. Audiences for these concerts were infrequent concert-goers attending for a special occasion and as such were less discriminating about the finer points of acoustics, and more likely to look simply for the best seats available.
This exemplifies how different seating layouts can be applied to different groups of performances. If the understanding of demand is sufficiently sophisticated, each individual performance can be priced differently. An even more dynamic approach would allow for these price breaks to be further adjusted while the performances are on sale, in response to emerging patterns of demand.
Other applications
In theatre, having different price schedules for matinee and evenings, and for weekday and weekend performances, is commonplace; but it is rare for a scientific approach to be taken to determine which performances are priced differently, or the variables that need to be adjusted between those performances.
Take pantomime, for example. Schools performances are priced at a lower level than most other performances, and ‘peak’ performances are charged at a premium rate. By adjusting the number of performances in each of their schedules and maximising the number of peak performances, Oxford Playhouse generated significant increases in its overall pantomime income without putting prices up. A detailed analysis of demand led to a much more sophisticated allocation of performances as well as adjustments to the performance schedule to better reflect patterns of customer demand.
The basic tactics of yield management have many applications in the arts and these are implemented with varying levels of sophistication. Analysing patterns of demand and arriving at the best yield management strategy is a complex process, but for larger organisations, the revenue improvements achievable can be very significant indeed.
Tim Baker is a Director of Baker Richards Consulting,
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