BakerRichards take us through what arts managers can learn from the best of what airlines are doing with top tips on dynamic pricing.
What can arts managers learn from the best of what airlines are doing?
Airlines invented revenue management so it’s no surprise that this industry has plenty of sophisticated strategies and techniques. By understanding some of the key ideas that underpin airline-style pricing, there are some interesting lessons for the cultural sector.
Rising prices over time
Probably the first thing you think about airline prices is that in general they go up as you get closer to take-off. So there’s no benefit in waiting to book. And the strategy works because everyone understands this fact.
Airlines are good at rewarding early booking, but in the cultural sector last-minute discounting is rather more prevalent. If customers expect great last-minute offers then they will wait to book. Without needing to change prices, you can effectively increase prices over time simply by avoiding last-minute discounts and introducing an early-bird deal.
Taking this a step further, what opportunities are there to emulate this pattern of price increases over time? There is certainly no ‘one size fits all’ answer. As we discussed in a previous article, because arts organisations offer experiences rather than commodities, and often need to consider artistic and social objectives, careful thought must be given to if and how dynamic pricing could be part of overall pricing strategies. Nevertheless, well-planned, transparent dynamic pricing can bring big benefits – some of our clients have now achieved seven-figure increments in income.
We worked with the MAC, Belfast to implement a simple dynamic pricing strategy that encourages early booking and allowed them to increase revenue while maintaining accessible prices. The core of the pricing strategy is that standard tickets all start at the same price and when sales hit planned thresholds, the price increases to the next pre-determined price.
As well as being simple to implement, it is also simple to explain to customers, which the MAC does with their price promise: “The earlier you book, the more you save”.
Differentiation and demand
Time of booking is not the only factor determining airline pricing. We are accustomed to cheaper flights at 5am than 5pm, or in January than in August to go to somewhere like the south of France, and so on.
The secret of an effective pricing strategy is differentiation and airlines do this on a number of levels, harnessing as many of the factors that affect demand for flights as they can.
Importantly, although the price of a flight changes over time, the changes are mostly driven by how prices are set up in the first place. When the cheapest ‘fare bucket’ sells out, then the lowest price for that flight will rise to the price of the next cheapest fare bucket. The airline can adjust the prices of the different buckets – and how many seats to offer at each price – in response to demand, but the structure itself means that prices will rise over time, even without extra input.
Airlines also sell a range of add-ons, such as checking in a bag or picking a seat, for which they can vary the price. Combining and adjusting all these variables means they can offer a huge range of price points to optimise revenue from each individual customer.
Without needing to reach the same level of complexity – or sheer number of different prices – arts organisations can (and do) use factors that affect demand to set a range of different prices. It is, for example, possible to set up price scaling (differentiation of prices within an auditorium) so that as demand grows, customers have to trade up into more expensive seats, thus effectively achieving ‘automatic’ dynamic pricing. Embracing complexity in your pricing allows you to maximise sales, increase revenue from customers who are willing to pay more for the best experience, and still promote accessibility.
While airlines have sophisticated pricing techniques, the main thing that makes their pricing work is that they’re really explicit about what they’re doing. Everyone knows that airline prices tend to rise over time and be higher for high-demand routes and times. When you search for the price of a particular flight, the airline tells you the price for each flight that day – and at least indicates how the prices compare to the days immediately before and after.
Differentiated pricing only works if customers can see there are different prices and dynamic pricing only works if you’re really up front with customers about what you’re doing. Communicating prices is key.
Minor Entertainment is one of the few arts organisations to display prices with an EasyJet level of detail. For ‘In the Night Garden Live’ you can see the difference in prices between performances, as well as live availability information:
It is still possible to communicate differentiated pricing when you have many prices per performance. The Royal Opera House website does this by giving the range of prices currently available for each performance:
Another great idea used by both Minor Entertainment and the Royal Opera House is the ability to filter tickets by price.
The Royal Opera House has this search box on the front page of its website. It’s a brilliant idea from a revenue management perspective because if you’ve got your pricing right then you want to help people find the price they’re willing to pay. From a PR perspective it is also helpful in combatting the perception that opera is too expensive.
Other organisations have also found ways to help customers find the prices and performances they want and the new Bridge Theatre has a particularly impressive example.
These basic principles suggest many small adjustments that cultural organisations could profitably employ to improve the effectiveness of their pricing. We explore what can be learnt from the way airlines promote loyalty in a further insight, Points make prizes.