Dynamic Pricing: The Toolbox You Need for Extra Revenue – Part Two

In Part One we covered the philosophy of dynamic pricing and introduced some concepts and tools needed to use dynamic pricing in your organization. If you missed the first blog post you can click on this link: Dynamic Pricing: The Toolbox You Need for Extra Revenue – Part One.

In this second part, we are going to introduce an example of how you can use dynamic pricing by:

  • Building a dynamic pricing model
  • When to engage in dynamic pricing
  • How to measure the effect of dynamic pricing
  • How to use dynamic pricing in different scenarios

Building a Dynamic Pricing Model

There’s a Yogi Berra quote that says, “You’ve got to be very careful if you don’t know where you are going because you might not get there.” In dynamic pricing, if you don’t build a model of when you are going to increase prices and by how much, you are never going to get there. You will also be more likely to apply dynamic pricing haphazardly, leading to confusion in your box office and with your patrons.

A Dynamic Pricing Model

% to Capacity
47.50% 0% 0% 0% 0% 0% 0% 0% 0%
52.50% 0% 0% 0% 0% 0% 0% 0% 0%
57.50% 0% 0% 0% 0% 0% 0% 0% 0%
62.50% 0% 0% 0% 0% 0% 0% 0% 0%
67.50% 0% 0% 0% 0% 0% 0% 0% 10%
72.50% 0% 0% 0% 0% 0% 0% 10% 15%
77.50% 0% 0% 0% 0% 0% 0% 10% 15%
82.50% 0% 0% 0% 10% 15% 20% 25% 30%
87.50% 0% 10% 15% 20% 25% 30% 35% 40%
92.50% 15% 20% 25% 30% 35% 40% 45% 50%
Days Prior to Event 0 1 2 3 4 5 6 7

In the table above there are several things going on. The Y-axis is the capacity of the theatre. The X-axis is the number of days leading up to the day of the event. Now, this is where the booking curve that we covered in Part One becomes important. Your booking curve is going to tell you how quickly your tickets for a particular event are selling. Using the booking curve, you can project when a certain capacity of the theater will be sold. Based on the number of days out and the capacity sold, then the table will tell how much to increase the price.

Setting the percentages in the table should be based on the event you are selling, the capacity of your theater and your booking curve projection. Over time, if you track your booking curves for each event you will begin to see patterns in buyer behavior that will assist you in developing better booking curve projections.

An important note: In the model above, a sell-out was defined as 92.50% of the total house. Remember to choose a sell-out percentage that allows your box office to account for last-minute ticket exchanges, house-seats for special patrons and other VIPs.

How to Measure the Effects of Dynamic Pricing

Measuring the incremental revenue in dynamic pricing is simply a function of tracking the number of tickets sold and the difference in revenue from the base price to the adjusted price. Here’s an example.

If the base price of a seat is $25 and we sell 100 tickets, then the gross revenue is $2,500. If, through dynamic pricing, we adjust the base price of the ticket to $27.50 the resulting gross revenue is $2,750. The net incremental revenue is $250, the difference between selling the seats at the higher price. The point is that in order to achieve significant incremental revenue prices don’t have to rise too much or too quickly.

How to Use Dynamic Pricing in Different Scenarios

Many of you may be thinking that dynamic pricing may be great, but since most of my shows don’t sell-out I can’t use it. Here are a couple of other ways to use dynamic pricing:

  • Take a look at your theater inventory. I’ll bet there are seats that are more in demand in your theater than other seats. You can demand price by seat selection.
  • Take a look at your subscriber base. You can choose to reward your early renewals with a lower price and for those who renew late, you can price the subscription slightly higher.
  • Think about pricing your new subscribers at a different price then your renewal subscribers.

A Few Final Thoughts

  • If you are going to practice dynamic pricing, I would suggest that you remove the ticket prices off your tickets. You don’t need them as you can always look up the ticket order in your Ticketing system. The customer doesn’t care what they paid either.
  • Try messaging to your customers that subscriptions and single tickets prices “Start at $$.” By doing this you will give your organization the flexibility to dynamic price without having your customers push back at your organization when prices do change.

Dynamic pricing is an effective way to realize incremental revenue that will assist you in growing your business. We are living in a world where dynamic pricing has become a regular part of the customer purchasing process. By taking advantage of customer buying behavior you will be able to create the economic flexibility that dynamic pricing can offer your organization.

 

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