Tuesday, 8 November 2011

Dynamic Pricing

To recap:

Some shows sell out. This is lovely, but also difficult because in anticipation of this people rush to the phones and the website as soon as tickets go on sale, servers crash, phones melt, agencies fight to take allocations that they can then make guaranteed money from, touts buy tickets in advance and sell them on ebay, other touts buy tickets outside the venue and resell them and make the place look untidy.

Some shows don't sell out. This is a shame, because whatever the size of venue and level of performance, people put a lot of work into making things, and it would be nice if people came to watch. Also, every empty seat in the house is a missed opportunity; it would be better to sell it 50p than have it go empty, and even if you gave it away free the venue would still make money on drinks.

So here are the pair of statements guaranteed to annoy my friends who work in the arts:
1. Any show that sold out well in advance was too cheap.
2. Any show that did not sell out was too expensive.

For ticket in demand:

Firstly, all of the issues with the "aftermarket", as it is know (touts and fraud) come about because the venue or promoter is selling tickets for less than they are worth.

If Mr Punter really really wants to see a particular gig, or show, and is prepared to spend £100 on a ticket, when they were on sale from the box office at £50, and manages to acquire those tickets from a tout, then there is £50 that could have gone to the venue or the promoter or the performers - that instead has gone to a middleman whose only contribution was to join in with everyone else rushing the box office the minute the tickets went on sale. If those tickets had been on sale at a higher price, then fewer people would have wanted them, the on sale would have been slower, there might have been some left by the time that Mr Punter got out of bed, there would have been a smaller margin for Mr Tout to skim money from, and the venue/promoter/performers would have made more money. These are uniformly good outcomes.

For tickets with ample supply:

As Easyjet realised quite some time ago now, every unsold seat is a waste. You're putting the show on anyway, and if there are seats unsold 10 minutes before the curtain up, then you might as well sell them at any price as not. If, by dropping the last minute price from £10 to £5 or even 50p, you get one more person in, then that's a good outcome: more revenue, more audience, more bar take.

The objections
that I'm used to hearing, and expect to hear again, are:
1. Allowing prices to float to their market value would stop poor people from ever being able to go to the theater; or at least, good or popular theatre.
2. People who discover that the person in the neighbouring seat has paid dramatically less than them get cross and go and have a shout at box office staff and try and get some money back.
3. Letting some seats go very cheaply devalues the other tickets, and people start expecting them all to be that cheap.

Now, objection 1 is going to need a whole blog post of its own, on "Accessibility". The short response is that ticket price is the least of the barriers holding back the people that performing arts currently don't reach. The availability of cheap seats for some opera is not going to widen its audience; it just means that existing opera lovers buy up all the cheap seats first to save money. For cheap seats to make a difference, they need to be available as an impulse buy, because you might as well, and this isn't a possibility for a sold out show.

Objection 2 can be dealt with by observing that what you are paying for is not just the ticket; it is the certainty of having bought the ticket. If you are planning to take your wife to Phantom because you have taken her there every year of your married life, then you are going to buy that ticket as soon as it goes on sale and not run any risk of it selling out, and that is worth the difference to you. You wouldn't show up at TKTS on the night hoping for a half price ticket, because it would be devastating if there wasn't one. If ticket prices went up and down like airline fares, then the price you paid at the exact point in time you bought it was the right price for you, based on your need for definitely having a ticket, the risk that tickets might sell out, the risk that prices might go up, and the possibility that prices might indeed go down. Paying £50 for a ticket that someone else got for £10 does not mean you have been ripped off; it means that you valued knowing that you would have a ticket above turning up at the last minute and not being sure that you had one.

Objection 3 is the inverse of objection 1; instead of "Tickets would be too expensive", "Tickets would be too cheap". Certainly, someone who dedicated themselves to seeing lots of fringe shows picked at the last minute would not pay very much, and might start to regard a reliable west end spectacular as a waste of money. If they saw 50 fringe shows for the same price as one west end musical, they might well see 49 terrible wastes of time... and one amazing, magical, undiscovered gem more than good enough to make up for the rest. That's been my experience with fringe theatre, at least, and I'd heartily recommend it. Being able to take a chance on a random show because it costs less than a pint or two is qualitatively different from subsidised cheapseats at a big, expensive, popular sold out show.

So, I will argue that ideally, the last ticket to the show will be sold at the last minute before the doors open, having been selling slowly and steadily since the moment they went on sale.

If tickets sell at such a rate that they will sell out weeks before the performance starts, then the prices could be raised, sales would be slower, the box office would have to deal with less of a spike, and more money would be raised, increasing revenue to the arts.

If tickets sell so slowly that the house is only a quarter full, then prices could be lowered, sales accelerated, more people would go on spec, the audience would be larger and have more fun, the bar would sell more drinks, and again, more revenue into the arts.

An effective dynamic pricing module would, therefore, look at the rate of sale per day (or per hour, or per minute, for more sensitivity but adjusted for time of day), and estimate the date and time that all the tickets will sell out. If that is before the performance start, edge the prices up; if it's after, nudge them down.

An exploration of why dynamic pricing hasn't happened to theatre, rock and pop, and other performing arts, when it was implemented across, e.g. the airline industry 10 years ago, to follow in a later post...


  1. Counter-example to statement (1): band prices tickets at a high price, fans rebel and boycott band. Counter-example to statement (2): not all tickets for a show sell, but would have done if there had been more advertising.

  2. There's a few things that strike me about this post.
    Firstly I think you're generally right; and that dynamically pricing tickets *should* generally be a "good thing" for all concerned.
    However there are a few exceptions, or difficulties, which I can see. These are mainly to do with the somewhat bizarre dealings which currently categorise the relationships between the venue and the promoter.
    1. How does a venue decide that it's simply not worth the staff, and general costs of opening the venue for a show when the price/interest level is a changing dynamic ? Obviously it's much harder to cancel a show as it approaches it's first night; however if you are always aiming for the "golden ratio" of price and interest then it's generally going to be a waiting game.
    Currently if the opening stampede is obviously weaker than expected the venue can just shrug their shoulders - cancel the show and see if another promoter can get bums on seats in the vacated timeslot.
    2. I think the complexities of the deals between venues and promoters (and onwards to deals between artists and promoters) would make the dynamic pricing quite terrifying to all involved. If you are guaranteeing the venue £X, and then your split is £Y - or worse - if that's your promoter's deal and your life-long acquired skill of juggling pole-cats whilst on stilts is earning you an even more complex split - then what would the effect of a computer dropping prices by 5% mean to you. At what point would you object, or hang on in case the hall got filled by these cheap-skates ?

    tl:dr; I agree it makes more sense. But current archaic practices would be difficult to adapt to it...

  3. @ Jon - well, if the price is set so high that the fans boycott it, then that's too high. But there is no reason why a fan who will pay double the face value to a tout or on ebay should balk at paying that amount straight to the band instead; surely it's better the money goes to the performers and not the middleman.

    It would be a very hard thing to do with static prices, to get them perfectly right, particularly as people's ideas of "value" change based on perceived scarcity. Someone who might pay £100 for tickets to a "sold out show" because they knew it was sold out might balk at paying £25 for the same show if they knew it hadn't sold out - because people are funny like that. Which is why proper dyanamic pricing will be necessary.

    I agree that some shows won't be full, even if free, for lack of marketing, or because they sound boring, or because they really are no good at all. But I can't help that.

  4. @martin_e - An exploration of why dynamic pricing hasn't happened to theatre, rock and pop, and other performing arts, when it was implemented across, e.g. the airline industry 10 years ago, to follow in a later post... =)

    Yes. Current ticketing business practices, rooted as they are in the movement of bits of paper and the concept of a "face value", couldn't handle dynamic pricing... but the airline industry was hardly more technologically advanced, had the same problems with abundance, scarcity, peaks of demand, the waste of empty seats, a business process based on "agents" - and they still managed to cut out the middle man and make it work.

    What we need is a new generation of ticketing systems that support dynamic pricing out of the box and are designed to operate without an agency in the middle...