If price has lost its power, what does that mean for arts organisations who continue to face financial challenges with increased costs and reduced demand, asks David Reece.
I came across an article recently with the headline “From FedEx to airlines, companies are starting to lose their pricing power”. My news algorithm then quickly me pointed me to another article, reporting a similar story in the spirits and luxury items market.
It comes as no surprise that many cultural organisations have also lost their pricing power. There are exceptions, which grab headlines because of the eye-wateringly high top prices on offer for some West End shows but, as SOLT reports, between 2019 and 2022 average ticket prices have actually fallen in real terms.
What’s the bigger picture for 2024?
According to a recent macroeconomic report from the Resolution Foundation, “2024 will be messy, as expected cuts in Bank rate will boost spending, but be offset by rising mortgage payments for many as more fixed-rate deals expire, and falling savings rates remove a rare source of income growth for many households”.
There was some recent good news as consumer sentiment - an economic indicator measuring how optimistic consumers feel about their finances and the state of the economy - continued to rise in January (though it remains in negative territory).
With low consumer confidence and tight household budgets, discretionary spending is increasingly scrutinised. Consumers are not reluctant to spend - both entertainment and travel were up 12.3% and 14.1% respectively in December - it’s just that they are buying ‘safe’ choices where they are sure of the value they’re getting. The shift from buying things to buying experiences should be a positive trend for the arts industry.
The power of programming
Take the rise and rise of Panto sales over the last few years. Birmingham Hippodrome recently broke its attendance record with Jack and the Beanstalk as did Southampton’s Mayflower with Snow White and Norwich Theatre Royal’s Sleeping Beauty. And many more theatres have enjoyed recent success.
The power here is very much with the programme. High levels of demand not only provide more opportunities but also build momentum. And success breeds success, which is carried through the organisation and rubs off on the audiences, making them more inclined to spend on food & drink and merchandise.
Does it encourage them to come again? Maybe, but it’s very dependent on the appeal of the show and the perception that value comes with the guarantee of a good time. This is less about risk taking and more about safe choices.
At the other end of the scale, “devastating” financial pressures have forced some theatres to overhaul their programming with the Young Vic, Hampstead Theatre and the Royal Court in London have all highlighting difficulties in their latest annual accounts. What these theatres have in common - and what makes them different from those with record- breaking box office successes - is the level of perceived risk in their programming.
Typically, theatres putting on new writing and unfamiliar work draw much more heavily on existing, repeat, loyal audiences. If they can’t attract new people, the loss of this audience - either from not coming at all or reducing their frequency/spend - has a significant multiplier effect on ticket sales. Programming loses its power.
These theatres must re-establish their core audiences and rebuild their brand which takes time and does not bring immediate box office success. The disruption and changes to audience behaviour since the pandemic have broken their model.
The power of price
If people are spending less - or about the same, and getting less - is price the answer to bringing people back? Can lower prices drive demand? Lower prices tend to drive demand for things already in demand that don’t need lower prices. But there is a more strategic use for lower prices that can drive longer-term customer loyalty.
IKEA is a great example of a company that uses low price to its advantage. As inflation eases, it has cut prices. IKEA’s strategy is to provide home furnishing products that are affordable for everyone. Their price cutting is strategic, and it’s worked. Sales are up 11.9% and UK profits have more than doubled.
Lower prices don’t undermine IKEA’s value because its value is centred on affordability. Does the same apply to the arts? Probably not. If you lower prices for high-demand products with limited supply, you miss out on revenue opportunities. And lowering prices for low demand products doesn’t generate additional demand so also results in lost revenue. What’s needed is a realistic assessment of the size of the market you’re targeting and an adjustment in capacity in line with that demand. Price only has power when demand outstrips supply.
The power of people
All of which brings us to the power of people. Without people to spend, there’s no business. The more people you engage with your offer, the better, but unless you’re Taylor Swift there’s always a finite market.
Recognising this doesn’t mean stop doing certain kinds of programming because the market is small. In fact, the opposite is true because it’s empowering to understand that by putting on X, you know the market it’s going to appeal to and how much they’re willing to pay, and you set realistic expectations as a result.
A good segmentation model is useful here (so long as it’s not just seen as a marketing tool). To get the most out of segmentation, the conversation needs to start at the heart of the organisation and be part of every decision. Customers are everything and, if it’s only the marketing department thinking about customers, you’ve got a problem.
Segmentation is fundamental to product, which does not mean your programming should be determined exclusively by your customers. But it should be informed by an understanding of what different types of customer are looking for, what they value.
Knowing your market for X is Y allows you to set expectations and plan accordingly. There might be opportunities to increase that market by converting other segments, but each offer should have a core audience that you can easily speak to and who will immediately see the value of your offer. Other segments might take more convincing, which gives you an opportunity to be creative, experiment around the edges, test and learn, try new things and contain the risk that comes with inevitable failure.
Ultimately, power needs to lie with the organisation and comes from knowing exactly who you’re talking to when selling your product where programming, price and people fit together in equilibrium, so you know this programme at this price appeals to these people.
David Reece is Deputy Chief Executive at Baker Richards.
baker-richards.com
@BakerRichards | @davidnreece
This article, sponsored and contributed by Baker Richards, is part of a series sharing insights into how organisations in the arts and cultural sector can achieve their commercial potential.
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