Testing the Waters with Dynamic Pricing

dynamic pricing entertainment testing waters

Come on in, the water’s fine. (Photo credit: Ikonoklastfotografie)

Starting out with dynamic pricing is a bit like learning to swim. Remember when you were little and wanted to jump into the pool for the first time, but you just couldn’t bring yourself to do it? Your parents or friends would start you out slowly…and as you learned to swim, you would gradually progress into the deep end. And then you were ready to dive into the deep end, and it was great!

Live Nation President and CEO Michael Rapino recently called for more aggressive pricing in the entertainment industry, including dynamic pricing. “We have to start pricing the house to match the market”, he said, because “we’re only scratching the surface of the opportunity for the artist.”

He’s correct that primary market prices often fail to capture the true value of tickets that is only realized on the secondary market. But what if promoters just can’t bring themselves to jump into the deep end with dynamic pricing? Is there a way to wade into it cautiously, without diving in headfirst?

In fact, there are several good ways (but also some bad ways) to test the waters. Here are some that we have recommended to clients:

  • Use dynamic pricing for just one or two shows at first

    Pick one or two cities on a concert tour, and price all tickets dynamically in those cities only. For the best experience, select markets where your act has performed on tour before, so that dynamic pricing can use the data from prior shows to most effectively predict ticket demand for the new shows. In this way, get the full experience of how dynamic pricing works, but without committing to using it over an entire tour.
     
  • Use dynamic pricing, but make few actual price changes

    Go through the process of setting up shows to use dynamic pricing, and become familiar with process of reviewing algorithm-generated price recommendations, but without making frequent changes. Such an approach helps tour and venue staff become comfortable with the implementation details, but without the process being too noticeable to the public.
     
  • Use dynamic pricing, but with strict limits on price changes

    While limiting price changes may leave revenue on the table (perhaps the market could bear even higher prices), this approach introduces the idea of dynamic pricing to the public, but in a way that feels more “safe” from consumer backlash (of which there is rarely any, when dynamic pricing is communicated well, but that’s a different blog post).
     

We’ve heard other suggestions of ways to start slowly with dynamic pricing, but some of them don’t make sense. For example:

  • Use dynamic pricing only in certain sections of the venue, while using traditional pricing in the other sections.

    It may sound reasonable to say, for example, “let’s use dynamic pricing for the left side of the house, and standard pricing for the right side of the house, so that we can see which performs better.” However, such an experiment doesn’t take into account the consumer. If the seats on the left are no better or worse than those on the right, then whichever side has the lower-priced tickets is going to be preferred. Dynamic pricing would have no incentive to increase prices if all that means is making prices on the other side of the house more attractive. On the other hand, lowering prices might generate more revenue from the left side of the house, but only by attracting buyers who would otherwise have bought seats on the right at standard prices. So this kind of test doesn’t actually prove anything.
     
  • Use traditional pricing when a show goes on sale, but then switch to dynamic pricing after sales slow down.

    Dynamic pricing works best when allowed to manage prices over the entire on-sale period. By itself, dynamic pricing isn’t a tool for creating demand, but rather a tool for taking fullest advantage of whatever demand exists. If demand slows down, it means only that most of the opportunity to profit from demand-based pricing has already passed.
     

Without dynamic pricing, promoters are left to guess at the right price for a ticket, and let the secondary market sort out its true value. But why shouldn’t the full value of that ticket be realized by the artist—who creates the value—instead of by resellers? So start wading into dynamic pricing, and progress gradually to the deep end. The water’s fine.