Guest Commentary: Is your pricing strategy working? Guest Commentary: Is your pricing strategy working?
When it comes to pricing ticketed events, what works? For nearly two decades, TRG Arts has answered that question for hundreds of non-profit arts... Guest Commentary: Is your pricing strategy working?

When it comes to pricing ticketed events, what works? For nearly two decades, TRG Arts has answered that question for hundreds of non-profit arts and culture organizations. About four years ago, TRG also began working with a number of commercial entertainment clients, mostly Broadway productions.

Although non-profits and commercial entertainment presenters/producers serve very different missions, both face the need to get the most from every ticket sold. Maximizing revenue is frequently a life or death issue. Everyone is familiar with the fragile business model of a non-profit. But the tight operating margins and pressures to re-coup production costs of a commercial event are no less challenging.

The key driver for both non-profit arts and commercial entertainment is demand, a completely situational factor that varies by market, organization, time of year, time of day, and of course, programming — what’s on the stage or in the exhibit space. To maximize revenue, the pricing strategy should anticipate and manipulate demand for an event or exhibition.

Demand may be a complex cocktail of factors, but its impact can be easily measured with readily available data: unit ticket sales and their associated revenues. To get a big picture assessment on demand, we prepare an assessment of per capita revenue to determine if a client’s pricing strategy is on track, off base, or leaving money on the table.

The simple formula for calculating per capita revenues is:

Per Capita Revenue = Total Sales Revenues

Total Unit Sales

We examine per capita revenues for individual performances, a series of performances or an entire season. Per capita revenue can also measure group tickets, single tickets or subscription/membership purchases.

What’s the ideal situation for this analysis? TRG looks for a positive correlation between per capita revenues and the total number of tickets sold (unit sales). We hope that as unit sales grow, the demand for tickets and the scale-of-house plan combine to push patrons into increasingly expensive seats. Sadly, most typically scaled houses produce the opposite — a situation in which demand pushes patrons into cheaper seats.

This upside-down business model is usually the result of a combination of factors:

Inventory Management: Who really manages the inventory of tickets? In too many situations, the public determines which tickets are sold and which are not, creating house fill patterns that work against the best interests of the venue.

Purposefully creating a plan for the public release of ticket inventory, combined with a skillfully crafted scale-of-house (or, in the case of an exhibit, when viewing times are set), ensures that the venues drive per capita revenues up as the venue fills. The house also fills so that embarrassing gaps are avoided. While many marketers are fascinated by the magic of dynamic pricing, the real money is being made through the use of inventory management.

Discounting: A culture of discounted ticket prices has overwhelmed many communities. The art of the deal now drives many marketing and pricing strategies — frequently subsuming rational thought and strategic purpose. That said, no individual marketer or organization can single-handedly change the world. Controlling how tickets are discounted and setting a discount rate that fits within a broader inventory management structure can allow one to play the discount game and win.

Secondary Market: In the commercial world, everyone focuses on the top price for an event. Ironically, this fixation is illusionary. The typical Broadway show currently has a top price of about $135 (plus a few premium seats at $250). The average price paid for a Broadway show? Less than $90. In fact, the majority of the tickets sold to Broadway shows in New York are now discounted!

What’s clear is that the top price for the best seats is almost always too low (check out the prices for “The Book of Mormon” or “Wicked” on a secondary exchange site like StubHub.com), while our studies indicate that the rest of the house is overpriced (as discounts on sites like BroadwayBox.com or Playbill.com illustrate).

The secondary ticketing market is right-sizing the relationship between supply and demand every night — and doing so at the expense of the primary box office marketplace. The secondary market is not a bad place. Its goals are just different, and its business model is based in a firmer grasp of the reality of price and value.

When scrutinizing your own pricing strategy, per capita revenue can act as a valuable diagnostic tool. The facts you need are readily available via your sales histories to anticipate demand and maximize revenue. More importantly it can lead you to recognize and remove barriers to profitability.

Rick Lester leads TRG Arts’ 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. His thoughts on industry trends are featured on Analysis from TRG at http://trgarts.blogspot.com.

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 TRG predecessor Lester & Associates, Rick also was a freelance consultant to orchestras, as well as state and national non-profit 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 serves as the Senior Adjunct Professor at the Meadows School of the Arts at Southern Methodist University in Dallas.