An incentive abased approach to theatre ticket pricing

If it is true that Brisbane theatre audiences tend to buy their tickets in the same week that the show is on, then this presents a problem for the theatre producer looking for surety of audience and financial stability.

Seemingly like everyone else, I’ve recently watched Freakconomics and their conversation on incentives got me thinking about what incentives might be pushing patrons to act like this.

There seems to be a few of big ones right off the bat:

  1. Stalling for time gives you options. Including the option of not spending any money at all, the option of going to the movies, going out for something to eat, even staying at home and watching a bit of Bondi Vet.
  2. People don’t like planning ahead. The exception to this is if it’s something we’re looking forward too, but even then we can be pretty slack. It’s all a stressful and icky. Especially if we’re trying to get other people involved or make a fun evening for a loved one. Besides, isn’t the ultimate night out one that just seems to happen without any forethought?
  3. Regular theatre punters don’t really like to punt. They like to know something will be good before they go. So if they can hold off on tickets until their mates tell them how good something is, then why not?

Okay fine, but are there incentives to buy sooner?

  1. Reserve a limited number of good seats. The older patrons especially like these as that way they can see and hear what’s going on.
  2. The show is likely to sell out. This is actually kind of cool. And as a theatre goer there are very few real moments of dread other than those where you realise you’re going to miss a show because it’s sold out. I tell you it makes you get your tickets sooner next time.
  3. Cheaper tickets. Some people will likely know they are going to the theatre anyway, so they might as well book early and get a season pass with associated cost benefit.

Well, the first of these is pretty straight forward. Reserved seating.

The second. Exciting. More sold out shows create greater interest in going to the theatre, and greater demand for buying tickets earlier. Problematically as a producer you need past successes of sold out shows to leverage off to make this work.

The last seems to have the most potential. Offer someone a cheaper ticket and they might well book sooner. And conversely charge someone more to see a show when they’re buying at the last minute. It’s the now well tried, the later you leave it the more expensive it gets system, which is to say, an elastic model of pricing.

Can you imagine it?

Theatre houses using a pricing structure similar to that used by airlines, music festivals, conventions, public transport or well, just about everything else except theatre and cinema.

Would there really be protests and pickets?

Perhaps.

I mean, fixed pricing has been around forever. Orbach (2007) gives some reasons behind its use in cinema.

  1. Perceived fairness.
  2. Unstable demand.
  3. Cost of administering variable pricing. Those initial set up costs, and all that explaining to the consumer about the new way of doing things, and besides how are you going to figure out what to charge for different stuff?
  4. Regulatory environment between distributors and exhibitors. Everyone wants their slice of a nice constantly sized pie.

Okay. Great. The question for theatre is, are these valid reasons to keep a fixed ticketing system when an incentive analysis suggests flexible pricing might work better?

Lookingglass theatre in Chicago recently looked into just this with Ravanas and Colletti (2010) researching their audiences expectations of what they would expect to pay for different seats and different sessions.

To assess what value customers placed on attending a LookingGlass performance, Colletti used the Price Sensitivity Meter. This technique helped define a price range patrons were willing to pay for specific tickets by asking them four questions:

  1. At what price would you consider the ticket to be too cheap to be of value?
  2. At what price would you consider the ticket to be expensive but worth considering?
  3. At what price would you consider the ticket to be too expensive to consider?
  4. At what price would you consider the ticket to be a bargain?

Colletti sent this questionnaire to a representative sample of Lookingglass patrons, and plotted the answers in a frequency distribution chart, with price as the abscissa and the percentage of answer as the ordinate. The price at which the curves for questions one and two intersect is called the point of marginal cheapness. The price at which the curves for questions three and four intersect is called the point of marginal expensiveness. These two points define a range of acceptable prices for the ticket.

Albeit nerdy, this is actually really cool stuff. You sort of get this statistical representation of what your audience think the tickets are worth. Whether they think they are getting a bargain, or being ripped off.

Well, what did they find?

A switch to a flexible pricing structure based around seating location and attendance time led to an increase in revenue of almost %10 over their previous fixed pricing structure.

The reality is of course that nearly all theatres to some kind of flexible pricing. What makes this study by Colleti so damn cool is that it provides a method and a toolset to understand exactly how that pricing should be flexible.

References

Orbach (2007) International Review of Law and Economics 27 (2007) 129–153

Ravanas and Colletti (2010) first published in the International Journal of Arts Management, Volume 12, Number 3, Spring 2010.

  1. Anonymous left a comment on Jan 29, 2011 at 2:33 pm

    Fascinating concept. We had not thought of it, but we may build variable pricing into the ticketing system that we offer. In fact variable pricing within sections may be real useful.

Comments

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: