Several Non-Opinions About Ticket Pricing

Photo Credit: Brand New/UnderConsideration

Photo Credit: Brand New/UnderConsideration

For this series, we’ve reached into the vault to share a few pieces that are still relevant today.

• Tickets to live entertainment and arts, like everything, respond to market forces. Whether you or I like it, love it or hate it, nobody gets to defy gravity. The physics of supply and demand are not a switch that gets turned on or off. Except at the point of a gun.

• The nature of the market is extremely complex. It’s at least as complex as the human mind, but probably more, as it’s the collective result of lots and lots of human minds. When a person walks through a grocery store, he or she makes a series of incredibly complex choices, and most of them are not fact or logic based. If you could simply pull every item out of a shopper’s cart at the end of a grocery shop and explain, really explain, why they bought each item, you’d be a genius.

• People don’t always wish they could pay less. Oh, that’s what they’ll tell you because to say otherwise means they’re stupid, but the reverse is actually very often the case. If it’s not, please explain why anyone would ever buy bottled water in the U.S. or Europe. Then there’s the famous story of the shopkeeper who left his jewelry shop in the hands of his assistant for a day or two to go on a short trip. He was frustrated with a certain type of merchandise and wrote a note to his assistant saying, “This case x 1/2,″ by which he meant reduce the price by one half. When he got back, the case was empty, but it hadn’t been sold for half; it’d been sold for double because the assistant misunderstood the note. Price, as economists say, is a signal of value, and sometimes a higher price makes people happier with their purchase. Sometimes.

• Dynamic pricing has been shown to increase overall revenue by about 5%. There are studies, and I’ve got a couple of them of real-world implementations of dynamic pricing, and that’s been the most common result. Partly it’s because the organizations involved aren’t doing dynamic pricing to the max because they “feel bad” when prices go too high or too low, but mostly because dynamic pricing is a helpful tool but only part of an overall set of decisions about pricing. By contrast, a good scaling project would tend to increase sales by at least that much if not more.

• Dynamic pricing moves prices down as frequently as it moves them up. At least, it would if people didn’t feel the need to “fix” the results of the dynamic pricing algorithm.

• A price below the “market clearing price” creates scarcity. Do this thought experiment with me: Imagine a local gas station did a one-day promotion where gasoline was a $1 a gallon. What would happen? Lines around the block and not enough of the $1 gas to match the number of people who wanted it. Why? Because the price has been lowered well below the price that the market would naturally bear. That’s how the concert industry used to run: a small number of very low-priced tickets so you felt lucky to be able to buy one at all, and, much more likely, you felt unlucky because you couldn’t buy one and toddled off to the record store to settle for second best. Gee, what a great system. (OK, that last sentence is an opinion.) And remember that whenever there’s scarcity, it’s always the in-the-know, the well-connected and already-involved who get in on it. Getting new people involved requires it to be easy to start.

•  The vast majority of people who might potentially buy from you are not aware of your price changes. Sorry. They’re too busy having lives to notice that the rear mezz is now $45 instead of $42. In fact, I read a study once (I’m sure many of you might have, too) that said people at a Chicago theater couldn’t even accurately report what they had paid for the seats they were in.

• The vast majority of people who might potentially buy from you are not aware you exist and are, therefore, completely unconcerned about  and unaffected by your pricing. Sorry. Price changes, in the short term especially, just impact your true loyalists, and even they aren’t that affected.

• If you give people something they really love, they’ll barely care what they paid for it. OK, this is an opinion in that I can’t back it up with facts except to say that rarely do you see a person coming out of a down-to-the-wire Game 7 of the N.B.A. Finals grousing about what they paid to get in.

Related:

 Variable Versus Dynamic Pricing

“The Lion King” + Dynamic Pricing = No. 1

Sometimes People Prefer to Pay More

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