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Guest Commentary: Seat-o-nomics
Harry Truman famously expressed a desire to consult only with "one-armed economists". Our 33rd President wasn't fond of counsel that began "On the one hand, this…" and was followed by "On the other hand, that…" Truman wanted straight talk without equivocation.
So, here is a bit of economic straight talk from the data vaults of TRG Arts. Forget everything you learned in that Econ 101 class you took in undergraduate school. You can also forget what you learned at Business School. It doesn't apply to tickets.
Conventional wisdom holds that higher prices reduce demand. For instance, in the consumer universe of unlimited hamburger availability, McDonald's will sell many at $1.00 and many fewer at $10.00. And, at $100, demand goes to zero.
But, supply and demand curves do not apply to the world of selling tickets.
Those curves depend upon an "open market" of goods and prices. Corn, wheat and hamburgers are sold in huge open markets. There are vast numbers of buyers and sellers who are free to compete for the exchange of goods and services.
Price subject to desire.
This condition of competitive freedom does not exist when selling tickets.
For example, nonprofit organizations are run by volunteer boards who set, approve or use their clout to influence prices — prices that these same board members pay when they attend the performances presented by their organization. That's just one reason why the best seats are frequently undervalued.
Another is arts managers' false sense of what the market will bear. Their gut tells them to keep prices down even when their own sales histories demonstrate that prices could go higher.
Then there's commercial ticket pricing. Invariably, price is based on the top price a producer or presenter wants to get regardless of who or what is onstage or when and where the performance takes place.
The box office monopoly is dead.
Until recently, tickets were exclusively sold through a primary ticket office controlled by the venue or the producer/presenter. This single portal created a near monopoly.
Today, too many arts organizations, especially in the commercial world, have ceded management of their seat inventory to outsiders. That's why it's so easy to get a cheap ticket from discounters online or a hot ticket online from resellers. Organizations that rely on ticket brokers may be "moving seats" but without regard to the loss of value — both in revenue and patron relationships.
Where can I get another Madama Butterfly tonight?
In conventional economics, the issue of "substitute products" impacts price and demand. You can bet that when McDonald's runs a $1 burger promotion, every other fast food chain down the road is going to scramble to match or respond to the price change. That's what competitive freedom promotes: the ability to gain a share of the increased demand.
In our industry, if you want to see Madama Butterfly this weekend, the only substitute in town is likely to be a baseball game or DVD from Redbox. It is the rare community that offers dueling operas every night of the week.
Most arts organizations exist in a world of few if any product "substitutes". Choices simply aren't readily available and therefore have no impact on price.
Arts consumers don't buy a price.
Simply put, price seldom impacts demand in the arts.
If price were a significant deterrent to attendance, this fact would come screaming out of the data. In fact, decades of study have shown that price may affect choice of seat, not whether or not a patron will buy a ticket.
Most organizations perform in scaled houses. There are a wide range of price points offered for every performance, typically ranging from very expensive to downright cheap. Without exception, the most popular seat locations are the most expensive. There are, of course, arts consumers who gravitate to less expensive seats, but demand always is hotter at the top. Waiting lists for the best seats grow proportionally with price increases.
The hardest seats to sell? Those priced at a moderate price point. It's not about price — it's about the emotion that surrounds the perceived quality of the seat location.
Programming always matters.
It's programming, not price, that most impacts arts consumer demand. A performance of the Beethoven Symphony No. 9 will always outsell an All-Scriabin Festival. That’s not to say an all-warhorse season is the answer. Every program finds an audience. Large or small, that audience will pay the asking price to occupy seats for the programs they want.
The art of pricing right is correctly anticipating (and exploiting) when customers perceive a scarcity of seat supply or anticipated increase in ticket price. Then, the demand curve moves in presenters' favor. The belief that a ticket is hard to get or unavailable will always drive up both demand — and prices.
If you want to test the theory, try to buy a ticket for tonight's performance of The Book of Mormon on Broadway.
Rick Lester leads TRG's counsel on patron behavior trends and their impact on patronage and revenue generation for organizations and communities. His pioneering work in demand management and pricing have become industry best practices. Rick's presentations on pricing, arts consumer behavior, and thriving in a tough economy are regularly featured in conferences nationwide. Early career success leading the marketing programs for the Cincinnati Symphony and The Cleveland Orchestra led Rick to senior leadership positions in the orchestra field. In each organization, Rick helped achieve records for both earned and contributed revenues. Before he founded Lester & Associates, Rick also was a freelance consultant to orchestras as well as state and national nonprofit organizations. He served as a member of the National Endowment for the Arts' Panel for Policy Review, the Pew Charitable Trusts, and the Cleveland Foundation. He holds an MBA from Queens University and a BA in political science from Drury University. He currently serves on Drury's board of trustees. He also serves as Distinguished Visiting Professor of arts management at SMU in Dallas.