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TRG Blog: Analysis from TRG Arts


3 Inventory Must-Dos to Improve Dynamic Pricing

Rick Lester | May 15, 2013 8:10 AM
Chairs set up for a performance at Walt Disney Concert Hall.
Chairs set up for a performance at Walt Disney
Concert Hall. Photo by Dave Herholz via flickr.
I received an email last week from a client who presents touring Broadway shows. The client needed a fast answer about potential prices for a mega-hit show he hopes to add to the schedule next season. 

“Can we possibly charge more than $160 for several hundred tickets to every performance?” he asked. “Can a price that high work in our city? Can dynamic pricing get us that far?”  

 “Sure.  Why not?” was my quick reply. Then I needed answers to a few questions:
  • Would nearby markets get the show first?  
  • Can the show be included on subscription series?  
  • Will the price table provide appealing price points that connect the top price with the bottom?  
  • Do the incentives of the discount plan encourage the right behaviors? 
Finally, the most important question: Who will control our ticket inventory?

Ultimately, data and numbers will rule. But the best pricing strategy is only successful when a great inventory management plan drives it.  This plan must optimize ticket yield (per capita revenues) for every ticket sold—not just the most expensive.  Inventory management also must guide when, to whom, and at what price point every ticket is offered for sale. Without a plan, the patron—not the manager—takes charge of ticket inventory.  

Three fundamentals of revenue management will make or break your prices—dynamic or otherwise. 

1. Inventory management is the juice that drives your scale-of-house plan.

 You must recognize that one fuels the other. Your scale-of-house plan provides the structure for revenue management and balances three important strategic issues: 

  • How many price points will be offered for each performance, 
  • How many seats will be offered at each price point, and 
  • Where will these seats be geographically located in the venue? 

A scale plan cannot, by itself, be responsive to changes in sales patterns or unexpected changes in demand. Dynamic pricing was created to bridge this gap between original scale plans and actual demand. 

Managing inventory allows tickets to be withheld from the market until a moment of maximum advantage, enabling flexibility of response to the real demand for tickets. It sets a launch pad for prices to rise even faster. 

2. The marketplace always acts in its own self-interest.

You must recognize this consumer behavior in your inventory management plan. Without fail, ticket shoppers want the best seats in the house—and then seek the cheapest price for that location. This may not be rational, but it is real. Great marketers learn to make offers that feed irrational demand-driven patron behavior that pushes per capita revenues higher with each purchase.    

Venues that release their entire ticket inventory all at once aren’t getting it right. A single on-sale date allows patrons to satisfy a wide range of idiosyncratic preferences. But unmanaged seat selection leaves empty seats that may be impossible to fill.  

This becomes especially troublesome when those unwanted, now-empty seats are located in highly visible areas. This absence of fannies in seats influences the perception of success. Anything less than the appearance of a full house is both embarrassing and costly. It prevents the heightened sense of demand necessary for prices to dynamically move higher.

Good inventory management insures that seats are sold in the ‘right’ order. Only then will every performance look and feel like a full house while making sure that our price points work for us, not against us.

3. Inventory management supercharges dynamic changes to price.  

You must develop inventory strategies that change price as demand changes and deploy them from the moment tickets go on sale forward.  

Dynamic pricing works best when your patrons perceive that tickets are hard to get. The key goal of inventory management is to create and reinforce a perception of ticket scarcity. That process begins at the start of the sales cycle.  

Too many organizations look at price variance reports and miss early revenue opportunities or mask problems. I recently wrote a post on the risks of looking only at the lift gained from the change in price. Ultimately, it fails to identify any problems with the original pricing plan.  

A smart inventory management plan is the blueprint for controlling every sale—from first to last. It also establishes the parameters for dynamic pricing late in the sales cycle. Managers using best practices for inventory management need only occasional dynamic price changes. Their inventory tools are doing the heavy lifting, taking better care of patrons, and, as a result, making more money.

Should our Broadway presenter make an offer to land that blockbuster show? Yes, absolutely, but only with the right inventory management tools in place long before the show goes on sale.  







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Contributors


Jill Robinson
Joanne 
Steller
Amelia Northrup-
Simpson