Pricing as a Strategy to Encourage Early Purchasing Behavior

In my earlier post, I wrote how I have observed that consumers have become ultra late purchasers this past year, while hypothesizing that with the state of the economy, most light to moderate users were waiting on a review to make a purchasing decision. Following that post, I received a lot of comments and e-mails asking how one could counteract this trend. I noted to the concern of some that we were shortening our advertising campaigns because we were finding no correlation between the amount of advanced advertising spends and the amount of advanced sales. This is not to suggest this course of action is for everyone, but I do believe it is wise for us.

I further believe that we should start looking more at pricing as a strategy to encourage early purchasing behavior. The traditional approach of discounting performances early in a run is one method of attack, but I would suggest looking at what happens after a show takes off. If consumers are waiting for a great review before purchasing, then we should capitalize on that as much as possible. Several arts organizations have experimented with demand based pricing. This isn’t a new idea, but I believe that we are just now starting to perfect it.

Demand based pricing provides an incentive for early purchasers--they will be “insured” against a spike in ticket prices if a show receives a fantastic review and takes off. Late purchasers who wait until a review hits, will have to pony up significantly more than those who leap before the review. Just as patrons learn that some companies do fire sales on shows that aren’t selling well, they will soon learn that they either purchase early or pay a premium for waiting for the review. There simply is no incentive for late purchasers to buy early if they can get a relatively good seat at the same or similar price point as an early purchaser.

This will require some educating on our behalf. Sales offices (noticed that I didn’t say box offices) in responding to complaints from customers should take the opportunity to cross and up sell – “Our prices increase with demand. With a favorable review, the demand for a production increases significantly causing prices to go up. I am sorry that has resulted in a higher ticket price for PRODUCTION A, but I know you will also be interested in PRODUCTION B because it is very similar and has an amazing cast. While purchasing today for PRODUCTION A, we can lock in the lowest available price for PRODUCTION B with the best available seats if you would like, guaranteeing that you will be protected from any increases in the future. And remember, subscribers are always protected against any fluctuation in price due to increased demand. I wouldn’t be doing my job if I let you paid any more than you absolutely had to. I know that you will enjoy both PRODUCTION A and PRODUCTION B so let’s take care of both today.”

Pricing should be a fluid variable. If we cannot encourage early purchasing behavior by running advanced advertising, maybe we can do it by capitalizing on those who insist upon purchasing late.

Buying Trends and the Impact of Reviews

To say that this has been an odd year would be a drastic understatement. A little less than a year ago towards the end of September, I remember working with the leadership and board of Arena Stage on an action plan to address the stock market crash and the, at that time, anticipated economic crisis. It seemed we had an incredibly daunting task ahead of us -- exactly how does one forecast and prepare for an economic crisis on the scale that none of us have ever experienced before? At the conclusion of our fiscal year, I am happy to report that Arena Stage had an exceptionally strong year, both artistically and financially. Our success has afforded me the time and opportunity to look back over the course of the year and analyze some of the patterns we saw to learn from them as we embark upon the next fiscal year.

From an overall observation, I started to notice two things that struck me almost immediately after the market crash in September: late purchasing behaviors became common place, and many of our would be patrons put a much higher importance on reviews in making a purchasing decision. To confirm what I thought were changes in patterns, I input sales data into an excel spreadsheet which produced the graph above. Starting from six weeks out and then going through the week that most reviews hit, I tracked our weekly sales for all eight of our mainstage productions. A dominant pattern appeared--sales remained constant for almost every show until the opening week, and then several took off almost exponentially after reviews hit.

Because we had several very short runs for a couple of our productions (2.5 weeks and 3.5 weeks), I created marketing plans that started advertising campaigns much earlier than normal, in an attempt to secure significant advanced sales. But even with robust advertising expenditures, audiences weren't willing in most cases to plop down their money until the show opened or they read a great review.

Takeaways:

1. As I don't see an end to the economic crisis anytime soon, I expect this pattern to continue next year, so I am not going to waste valuable advertising dollars on advanced campaigns as this graph shows that despite those expenditures, patrons still waited. Instead, I am going to shorten the campaigns, and spend significantly more over shorter time periods and concentrate on pushing reviews. This most likely will mean where before we had about a 50/50 split (50% of advertising dollars spent before opening and 50% after), next year we will look at a 30/70 split (30% spent before opening and 70% after).

2. In this blog just a little more than a year ago, I was arguing that traditional reviewers were becoming less influential with the addition of citizen based reviews and user generated content. However, when the crisis hit, many patrons began looking for a "sure bet" when spending their very limited expendable income. So reviews became even more important than they previously were, and certain reviewers became more influential as several media companies cut their reviewers, leaving only maybe two or three major critics in a large metropolitan area. From the graph above, you can see at least four examples of shows that took off after the reviews hit. Also by concentrating more advertising dollars for after a show opens, you can put more money behind pushing exceptional reviews.

Overall:

I thought I was going to have several heart attacks this year as sales patterns for individual shows were completely different from previous years. So much so that there were a couple of times that I was forecasting that a show would miss its goal by a significant margin only to go over goal by the time the show closed. I am sure that I must have seemed a little schizophrenic to certain board members, but forecasting during this climate was exceptionally difficult. I will say however that I was very proud that our reforecasted income model that was developed in October was almost spot on. We ended the year with a 1% variance off where we forecasted we would in the box office. Next year, I will probably continue to have the minor heart attacks, but I now know what I am up against--extremely late buyers who are very sensitive to reviews. They say that knowing is half the battle, so now we have to shift our tactics to address our new reality.