Case Study: Marketing for the Experience Industries
1. What types of price discrimination practices are available to event marketers (An economic guide to ticket pricing in the entertainment industry).
House-scaled seating arrangement whereby front seats generally cost more than those situated further away. As per the guide “The practice of scaling the house, however, varies quite a lot from performance to performance both within and across industries and across time.”
Another type of ticket price discrimination is terms of offer discounts. The discounts are given under various circumstances which are prejudiced. For example, early buyers are occasionally given advance-purchase discounts, coupons are sent to chosen segments of the markets, price discounts are offered to students and senior citizens, and some tickets are vended at discounted price on performance day.
Price compression is also a type of price discrimination whereby price dispersion seems to devalue quality dispersion because prices are often ‘sticky’ over time. Early customers pay the same price as those who have to wait to get a ticket. In addition performances that are always sold-out for long periods do not increase prices. Similarly, badly performing shows do not reduce prices. Hence, better quality performances create more profits not because customers pay more but because these performances have longer runs so that they sell more tickets overall. This type of discrimination is also seen in cases where charge are set to meet what the market can bear hence work on the basis of a profit maximizing assumption. (Harold 2011)
2. Briefly discuss the social dimension of ticket pricing (An economic guide to ticket pricing in the entertainment industry).
Ticket pricing has a social dimension. For instance, customers often go to an occasion after talking to their friends, some customers go solely to trendy events that have a history of success and still others only go to shows in groups.
In Harold V. (2011), “Locay and Alvarez (1993) used the observation that people usually go to the movie theater in group as a departing point to study the pricing of complementary good.” The charges of an entrance fee can be below marginal cost to draw social groups while a price for complementary goods is above marginal cost because they have market influence over persons who are guided by their group’s choice.
3. Briefly explain how capacity constraints might impact pricing decisions in the context of events. (An economic guide to ticket pricing in the entertainment industry).
As per Harold V. (2011) the demand for tickets is typically uncertain and since tickets are perishable goods and loose all value after the performance starts then their impact on pricing is detrimental. The costs of holding large inventories to take care of high demand can be quite high. Choosing venue capacities that may turn out to be too small is a better response to these constraints hence, capacity constraints may bind. Peak load pricing deals with situations where demand varies but supply cannot be adjusted in real time to respond to changes in demand. When demand varies in a predictable way, peak load pricing predicts that prices should be increased in periods of high demands and decreased in period of low demands.
4. What is ‘yield management’ and what difficulties might there be in employing it in the arts/events area? (Call it a Tenner – The role of pricing in the arts)
Yield management is a dynamic approach to pricing which involves laying down a variety of price classes which are opened and closed according to a comparison of definite sales against a forecast. It is essentially about increasing yield by varying prices or price ranges which can mean increasing higher prices at a slightly faster rate, while still maintaining low prices elsewhere. (Harold 2011)
The difficulties that might be there in employing yield management in the arts include effect on ticket pricing as a result of a latent conflict between access objectives and revenue optimization, it is too time consuming. In addition, art demand is unreliable yet Yield management can only be profitable with strong market demand and implementing a successful the strategy is costly for art events.
5. Briefly explain how you might monitor the effect of pricing on audience behavior/patterns of demand (Call it a Tenner – The role of pricing in the arts)
According to Harold V. (2011) Effective monitoring involves recognizing problems and opportunities that point to the call for reassessing elements of a strategy used. The basics are:
Sales analysis whose key statistics are mean price, gross yield and percentage discount. These values can then be analyzed against sales by a number of variables such as production genre, year or day of week. Correlations between price, sales and income can be observed and thus identify price sensitivity.
Discount analysis enables monitoring uptake of sales promotion and concessionary discounts and is done using discount codes. Analysis involves monitoring uptake of specific concessions or sales promotions and scrutinizing distribution of demand for different discount forms for different events.
A sale by price band is also a basic in analysis which involves analysis of sales by price alongside sales and discount.
Customer behaviour basics for pricing include purchaser retention rates, incidence of attendance, group size and particulars of which events they attended.
6. Discounting is a useful means of price differentiation. Briefly explain the discounting practices that are available to an event marketer. (Call it a Tenner – The role of pricing in the arts).
Discounts that are given away at last-minute are based on the assumption that consumers are price-sensitive and appreciate a price tailored to them. It is believed that organizations have a specific obligation to their consumers to keep prices low. (Harold 2011)
A dual-pricing policy is discount practice where the organization has two different prices for different groups of people such as adult and children.
Harold L. Vogel (2011). Entertainment Industry Economics: A guide for financial analysis Cambridge University Press. Cambridge.