#TBT: Two Ways of Looking at Premium Pricing

Happy #TBT. To celebrate, we’re sharing an oldie-but-goodie post from Jim: Two Ways of Looking at Premium Pricing.

Would you pay $1,750 for a folding chair?

Before you say “no,” imagine that it came with the ability to sit in it in the first row of a Bon Jovi concert. And you got a bunch of other cool Bon Jovi stuff.

Still no?

Well, sure, that’s what a sane person would say, but the point of selling such a package is that some people are insane, at least when it comes to the stuff — almost always entertainment — that they love. It’s difficult to explain why such a seat package is worth $1,750 to somebody, but if it is, then it is.

There’s a worthy debate about whether or not prices have gotten too high for “premium” seats, but those are just quibbles. The real point is that there’s “imaginary value” in tickets that’s very real.

In fact, you could say that any value at all, from the very first dollar, in a ticket is imaginary. What is the inherent value of being able to sit in a room for a couple of hours and witness something? It doesn’t feed or clothe you. It doesn’t cure your cold. It doesn’t get you someplace you need to be. In fact, the minute it’s over, the experience is completely gone, except in memories and souvenirs.

So remember that when someone says that prices are too high for a given show. They are too high when people aren’t buying them. Period.

Sorta. Premium prices can be used a couple of different ways (and probably more that I’m not thinking of): First, they can be used to capitalize on a surge of general interest in an event. If Barry Bonds is about to hit a record-breaking home run, most people will be more interested in being at the game where that’s likely to happen than they would have been otherwise. Imagine an old-fashioned applause meter. The idea is that the crowd is applauding louder for things they like more. The first type of premium pricing is akin to this: The crowd is more into your show in general, so you charge more. Fair enough.

But the second one to me is far more interesting, and that is creating more ‘imaginary value’ for the people who are more devoted to your team/show/performer/venue/whatever. Instead of looking at the applause meter, look at the crowd. Even when the needle hits the red, not everyone is as enthusiastic as everyone else. In fact, if you pointed the applause meter at just certain individuals in the crowd, you’d see they weren’t that enthusiastic at all.

Likewise, even if the applause meter weren’t in the red — in fact if it were quite anemically in the black — you’d be able to find pockets of people within the crowd that were going wild. If you had an applause meter just for them, it’d be pegged, just like the picture above.

How do you think these dino-rockers like Bon Jovi still have vibrant careers? They’ve managed to collect the small portion of the crowd cheering the loudest for them into one place. They haven’t had a hit since the Bush administration … the FIRST one.

But even among the Faithful, there are more and less faithful (and of course, faithful and loaded versus faithful and not-so-loaded). Here’s a little thought experiment: Picture an applause meter on the entire country, measuring interest in Bon Jovi. The big clappers are the ones going to the concerts. Now, imagine you put all those people together in one place, all mixed together. They’re all fans, but they’re different. If you walked through that group with a Geiger counter-like device that detected interest in Bon Jovi, you’d find that while everyone gave off that ‘tick-tick-tick’ sound, some people were making that instrument scream.

Should you do something special for the person who named her first son Jon, her second son Bon and her third son Jovi? (I mean, other than refer her to a good therapist?)

My answer is yes. You should give and get more. You should offer something special and, sometimes, get more in return. That doesn’t always mean a $1,750 ticket. In fact, I’d go so far as to say that very, very few acts or performers can or should try to push it that far because while it’s a good idea to offer more and get more from one’s most loyal, it’s also important for them to feel that they’re getting good value, even if they’re paying a lot. It’s quite possible to overreach, and many have recently.

But don’t overcorrect. Remember when Josh Freese created those incredibly innovative and hilarious pricing packages for his new album? Some of those tiers (like the $75,000 package that included homemade lasagna, a limo ride with him to Mexico, and a five song EP about the buyer) were probably never really meant to be sold, but the point was made: If someone was really a nut for his work, he really would deliver.

It’s not necessary to go that far, but a lot can be done with just a few innovative things. Your passionate people want more and will pay for it. The question is how to give it to them in a way that not only makes money but also draws them even closer to you. This means not pushing it as far as you possibly can price-wise, because if you do, you’re maximizing today’s revenue, but probably not building trust and loyalty for the future. If a person feels they’ve paid dearly for something, even if they like it, they’ll remember that feeling.

If they feel like they got a good value, even if they paid a lot for it, they’ll remember that feeling too, and then they’ll want more.

UPDATE: This is NOT how you do it at all. Here’s a snippet, from an email by a guy who actually bought the Bon Jovi VIP ticket: “So I fly in, get to the arena for my VIP treatment and for the next few hours, was treated like s**t by everyone from arena staff to band staff to Jon Bon Jovi’s brother.” Remember, it’s give more, get more, not get more, give as little and as grudgingly as possible. Obviously, who knows what specifics of the guy’s story are true, but if true, it illustrates exactly the wrong kind of attitude toward premium products.

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