Revenue / 03.08.23
Dynamic Pricing: JCA’s Alexander and Vatic’s Kelly Talk Tech
Teddy Durgin
In part one of our two-part series on dynamic pricing, we interviewed Digonex CEO Greg Loewen on everything from the evolution of the technology to its use pricing major sports and entertainment events. With part two, we decided to interview not one, but two industry professionals to give more insight into how dynamic pricing works and where things are headed as pandemic fears continue to dissipate and people return to attending live ticketed events both big and small.
Sean Kelly
As a reminder, dynamic pricing is the practice of adjusting ticket prices during the sales cycle according to demand and consumer willingness to pay. Prices can be adjusted up or down, according to sales trends. Sean Kelly is founder of Vatic, a leading provider of dynamic pricing tools to performing arts and ticketed venues. He says, “The challenge we are facing in the U.S. right now is that folks are skeptical of data when it doesn’t line up with their personal experience. But the very reason that we ought to follow the data is that it challenges our preconceived notions of what price ought to be. We created Vatic because there’s no way to win an argument about what people feel a price should be. Because when you are talking about feelings, everyone is right. How they feel is how they feel … The lightbulb moment for me when I created my first pricing model back in 2009 was that the strength of data from thousands of transactions was going to be much more impactful than even the most educated guess.”
Jamie Alexander
Jamie Alexander, Director at JCA Arts Marketing in Chicago, says the need for dynamic pricing has come into great focus post-COVID: “After the pandemic, we have seen less demand in general for performances which means there are fewer instances of those runaway hits where demand outpaces expectations. We, therefore, have fewer opportunities for dynamic pricing. However, we have also seen some changes in patron behaviors at many organizations, which is where dynamic pricing has been most helpful post-pandemic. For example, several organizations report weekend matinee performances performing better than Saturday evenings post-pandemic. So, we’ll use dynamic pricing to raise prices on the matinees to reflect this new trend in demand.”
“Folks think that dynamic pricing is just about raising prices,” Kelly says. “But that’s not how we approach the work we do. Our goal is to understand what patrons think an event is worth, what its true value is to them. That’s very different from traditional approaches to dynamic pricing. The end result is the right price so that you can be sure you haven’t overcharged and ended up selling fewer tickets than you could have … or being underpriced and feeling like you’ve left money on the table.”
Does human intuition and experience still play a role in pricing strategies and decisions for different events, and to what extent? Kelly says, “Let’s start with intuition. You know how Bruce Springsteen ended up with $5,000 tickets? Someone’s intuition. It wasn’t data or algorithms. Despite what the promoters said, it certainly wasn’t dynamic pricing. There was no underlying logic, no math. It was just someone in a room who thought, ‘Hey, I bet we could charge $5,000 for these tickets.’ When we start with a new client, we go back and analyze the past two to three years of pricing. And for clients that have been self-managing their pricing, we often see that they’ve achieved pretty good growth on their average ticket price, usually double-digit. And that’s going to feel like a huge success.”
He continues, “But when we look at true revenue growth, year over year, we find that this has only gone up, on average, 2%. How is that possible, that you could grow your average ticket by 15% but only see a 2% growth in true revenue? The answer lies in the risks of following your intuition about what the right price is. They had followed their gut on how to increase the average ticket price but hadn’t considered that they might be too aggressive, and the result would be that they would sell fewer tickets. Intuition is important, but it has to be validated with hard data.”
Alexander acknowledges that while most pricing decisions are data-driven in today’s world, there is still an “art to pricing.” “Pricing is ultimately a communication piece. It sends a message to your potential audience. In that way, you have to decide who you want in your audience and set prices that will send an effective invitation to that audience. Do you want to be perceived as a high-end company with a luxury feel? Or do you want to be perceived as accessible and welcoming? The answers to these questions — and many others — will determine what prices you offer and how you position your prices in your communications.”
Both professionals discussed the biggest way that pricing and pricing strategies have evolved since they first started in the business. Alexander says, “The most obvious way it’s evolved, in my career, is that — for U.S. arts organizations — dynamic pricing isn’t a controversial topic. It’s a widely accepted practice.”
Kelly struck a similar note. “I think we are currently in a renaissance of pricing where the arts are realizing that they’ve been seriously undervaluing themselves for years,” he says. “Just as it is in our personal lives, it’s important to have an accurate appraisal of what your value is. The arts are incredibly important to their patrons. We see that so clearly now coming out of the pandemic, where the arts could easily have disappeared from the cultural landscape as the patrons opted to sit on the couch and watch Netflix. But that didn’t happen. They came back, not as quickly as anyone would have liked, but they did come back. And when they were particularly excited about an event, they were quite happy to pay a premium to ensure they got to have that experience. Arts and entertainment are finally understanding their worth, and that’s very exciting.”
Both interviewees, though, say their respective firms have had to alter certain business practices these past few years in response to such changing times and challenging market conditions. According to Alexander, “We are offering more services to help organizations integrate strategic insights and recommendations from the research into their strategic planning and operations. To that end, we’re offering Marketing Services to ensure that organizations leverage insights from data in their day-to-day operations to meet their goals.”
Kelly says Vatic has come to think of itself as much of an arts company as a technology firm. “Certainly, there was a dark night of the soul during the pandemic where everything had been shut down for so long, it seemed there wouldn’t be a need for companies like ours. There was a lot of time spent thinking about what was really important for our clients, what they would need coming out of COVID shutdown. And, as it turns out, spending that time in deep contemplation was hugely beneficial. Because we were ready to help them when performances restarted. It was a period of extreme volatility. Organizations were getting back to performing, but also still dealing with recurring outbreaks, canceled performances and fluctuating capacity restrictions. All of those things have a huge impact on what price you should charge. And at the same time, you still have bills to pay, so the answer can’t be to just drop all of the prices through the floor. You have to figure out where there is opportunity to bring in a bit more revenue. I’ve never been so proud of the work we do than I was in those early days of spring 2021. The lessons we learned then are helping arts organizations who are just now beginning their recovery.”
The exit question was put to both executives as it was put to Loewen in part one. Where are we headed? What do you see as the “future of pricing?” Kelly was first to answer: “I think folks, especially now, are coming to the realization that pricing really matters, that you cannot afford to have what you charge for a ticket be a foregone conclusion, that the days of managing it all by yourself don’t really work anymore. It’s not just the need for automated pricing decisions, although the speed to market aspect of the work we do has never been more crucial. But it’s all of the other analysis that goes into setting the right price. Vatic has the ability to rescale venues effectively, analyze starting price to maximize revenue right out of the gate, [and] optimize subscription pricing so that you can keep pace with inflation. It’s really about having a pricing champion who focuses solely on that one aspect of your business.”
Alexander concludes, “We also foresee an increase in — and a necessity — for Radical Pricing practices. This means leveraging pricing as a tool to create inclusive experiences with accessible invitations. It could mean moving away from traditional practices — where the ‘best seats’ are most expensive and the ‘worst seats’ are least expensive — to models where accessibly priced tickets are sprinkled throughout the auditorium or ‘pick-your-price’ options are available. We foresee organizations getting more creative about how to meet their revenue goals while being welcome to all audiences.”
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Tags: Revenue , Dynamic Pricing