Five Reasons to Set Prices Too Low
Massive demand for New York’s version of Comic Con has led to lots and lots of tickets being sold to the event in the secondary market. According to this article, tickets are going for as much as three times the original face price.
Let’s start with a statement of fact: The original price is too low. If you believe the market speaks, what it’s saying here is unmistakable. Comic Con expanded the floor space to let more people come and added another day, and yet demand has gone right over the top of all of that and driven people into the secondary market.
So objectively, rationally, the price is quite definitely too low.
But let’s not dwell on that. Let’s talk for a minute about why someone might actually deliberately set ticket prices too low. I can think of five reasons that might — under just the right circumstances — make sense.
• To create access: Some people just can’t afford to pay much, and so you set prices lower than they should be. The goal of this may be good (and critical to some, especially publicly funded organizations), but setting across-the-board low prices to achieve it is not the smartest move you can make. You can address price accessibility by creating accessible price sections or parts of other sections, lotteries and other techniques, without throwing the whole price structure out of whack. You can add barriers to make these less liquid in the secondary market, if you happen to have that problem. Heck, here at Goldstar or in other places, we can be helpful in that, too. This should not be the reason to underprice, because there are so many ways to achieve this goal.
• To “give something back” to fans or because you really just don’t care about the extra money: Kid Rock, Louis CK and a number of well-known country music artists specifically want to serve their fans with a low(ish) price for tickets. Kid Rock and Louis CK can comfortably “leave money on the table” because I just don’t think it matters all that much to them. They play to sold-out houses, make a lot of money and that’s a win. Others, who price low to serve their fans with a good value, constantly struggle with the secondary market snapping up those value tickets and turning them into high-priced secondary market tickets. For those people, I also think an across-the-board low price policy is not necessarily the best idea. You can create entire sections of paperless, high value tickets and still sell other parts of the venue, probably the higher value ones, at something closer to the true market price. This helps you fund the lower prices you want to offer to the economically constrained in your fan base, drives out most of the secondary market profits and makes those who want to pay you more to get a better ticket happy as well.
• To get publicity: It doesn’t hurt New York Comic Con that Forbes writes an article about how high demand is for their event. If they were writing it themselves, the kids would call it a #humblebrag. Remember, how sold out you are is a function of tickets available and price. You can say “X Event is hot,” but what you’re really saying is “X Event is hot at its current level of tickets available and price.” Quintuple the availability and double the price and X Event doesn’t seem hot at all. There once was a theater event in L.A. that traded for years on the fact that it was “sold out.” But what did that eventually and ultimately mean? A show with the early success they had should have and could have raised prices and moved to a bigger place, but instead they stayed small so that they could say they were selling out. It worked for a while, but the fundamental demand for the event never really grew. Still, if you get it just right, you can use a low price to get publicity.
• To create a secondary market: I know this sounds weird, especially when most artists who price low actually take an adversarial position on the secondary market. Still, if you want to find out how much your tickets are REALLY worth, experiment by pricing outrageously low, and then watch what happens in the secondary market. Of course, some events just aren’t likely to get the attention of brokers and secondary market players no matter what, but if this is a possibility for you, it’s like market research! Not sure what the absolute peak is for a ticket? The secondary market can help you find out.
• To close sales and move on: In the old days, concerts were pretty much just promotional appearances for record/CD sales. The act comes into town, plays one show at low ticket prices, sells out very quickly and everyone who couldn’t get in listens to the radio or buys the record/CD. Brilliant! That model broke down, of course, but the whole point at that time was to sell out and be done with it. Who cared about the ticket revenue when the recording revenue was 20 times more? I don’t think this comes up much these days, but I can imagine that from time to time, when the revenue of a show is not really important to a given organization, they’d just as soon sell the tickets quickly and move on. In that case, dropping the price would make a weird kind of sense.
What you’ll notice about most of these examples is that either they don’t apply that often, or they can be done more smartly and effectively in other ways besides across-the-board underpricing. In most instances, what makes sense is to understand demand, price in a way that captures some, but not all, of the value that people place on the ticket, and work to maximize Revenue Per Seat. Then, you use what the market tells you to grow demand more.
For most artists or organizations, where their future health and success is at stake, that’s the way to go.
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