As attractions look for any edge to help them recover from the financial impact of a pandemic, many are considering moving to dynamic pricing. Some even started planning their switch during the coronavirus lockdown period and will be implementing dynamic pricing before the end of 2020. One of those going live with dynamic pricing sooner rather than later is Rick Johnson, Director of Finance and Administration for the Seattle Aquarium. “We made our decision to implement dynamic pricing before COVID-19 was thrust upon the world,” Johnson said. “Once that reality sank in, we felt that dynamic pricing was more necessary than ever.”
If the ascendancy of dynamic pricing in this moment is surprising, it shouldn’t be, because Everett Rogers predicted it back in 1962. OK, Rogers’ prediction wasn’t specifically about dynamic pricing, in which daily prices are continually re-evaluated by an algorithm based on the latest data. But his Diffusion of Innovation theory, still studied in the social sciences almost 60 years later, predicts the conditions that are needed for an innovation to spread. In 2020, all of these conditions are coming true at once for dynamic pricing.
Dynamic pricing for attractions was certainly a new innovation in August 2014 when I joined Digonex as VP of Product Development. Just a few months earlier, our client became the first attraction in North America to switch to dynamic pricing and was already seeing great results. To understand how their success could be spread to other attractions, we examined Diffusion of Innovation theory. We learned that there are five main factors that determine the rate of adoption of an innovation:
- Relative Advantage – This is the degree to which an innovation is seen as superior to what it replaces. It’s always been easy to illustrate the relative advantage of dynamic pricing. If an attraction has a static price that applies to every day, it is assuredly overpriced on some days and underpriced on others, compared to consumers’ willingness to pay. The truth that demand varies over time is already visible in attendance patterns; pricing to account for differences in demand over time seems too rational not to be a better approach.
- Compatibility with Existing Values and Practices – COVID-19 has changed practices in a way that makes dynamic pricing more compatible than ever. Attractions that didn’t even sell date-specific tickets before the pandemic are now requiring guests to purchase admission online, and to make a reservation for a specific date and Suddenly one of the biggest perceived barriers to dynamic pricing—getting guests to change their behavior and commit in advance to the timing of their visit when purchasing a ticket—has vanished, and a key condition of dynamic pricing has become “the new normal” to patrons.
- Simplicity and Ease of Use – Most of the major ticketing companies that serve attractions now have at least one dynamic pricing project under their belts. As a result, they’ve already built the integration capabilities that dynamic pricing relies upon. For the attraction, this means that the work of providing ticketing data to dynamic pricing algorithms and updating prices in the ticketing system can now be completely automated!
- Trialability – The term refers to the extent to which the innovation can be tested or experimented with before a commitment to adopt is made. Many attractions have taken the approach of proving the concept of dynamic pricing by starting with variable pricing—that is, charging different prices for different days, but with only a few price points and without continually re-evaluating prices. If an organization sees the benefit of having different prices for, say, weekends vs. weekdays, or peak season vs. shoulder season vs. off season, dynamic pricing says, “there’s more where that came from.”
- Observability – To what extent does the innovation provides tangible results? As part of his Diffusion of Innovation theory, Rogers coined a now-familiar term: “early adopter.” The early adopters of dynamic pricing have now been using it for multiple years, and the results are in. When Johnson learned of another aquarium using dynamic pricing and started investigating, he says, “What I heard repeatedly was that dynamic pricing added value, not just to admission revenue, but to improved customer satisfaction with the flexibility of plan-ahead pricing.”
When I started working with attractions on dynamic pricing six years ago only one, maybe two, of these five factors were in place. As a result, dynamic pricing still seemed “risky” to many. But in 2020—just in time to help attractions recover from a global health crisis—all five of them are present. If you’ve ever thought of implementing dynamic pricing for your attraction, there has literally never been a better time.