What Your Prices Say About You

USC economist Victor Bennett knew he had his work cut out for him, scheduled at the end of the day and competing with a panel with Ray Manzarek and others talking about The Doors down the hall.

But if the best way to one’s heart is through the stomach, he made a wise decision by opening his talk by explaining the Double Double Theory of economics, a reference to the In-N-Out Burger of Southern California lore.

It goes basically like this: The value of an item can be represented by how many In-N-Out Double Double burger purchases a college student is willing to forego for said item.

When it comes to concert tickets, that’s a lot of Double Doubles to give up. But it was a nice segue into a discussion of the economics of concert pricing.

“You probably didn’t come here to talk about the economics of cheeseburgers, but my guess is the reason you came is because you’ve had massive consolidation in your industry, you’ve got more pressure than ever from artists so that they can make money, because this used to be a loss leader for them but now it’s where they make money instead of from album sales,” Bennett said.

“So you’re really trying to do this job that you love and you’ve got to squeeze the blood out of a stone to do it. And pricing is a good way to start.”

Pricing isn’t about dreaming up a number and “trying to steal from people,” he said. It’s about splitting value between what people are willing to pay and what’s needed to run a business. And knowing who your customers and how much (or how little) they value the artist, the experience, the venue and the distribution of those factors within a market is paramount to deciding how to price seats.

“The industry norm has been kind of the whipping boy of what we’ve been talking about today, which is discounting. You start with a high price and capture a lot of value from the people who are willing to pay one price. You wait a week, you drop the price, you capture the value from those who are willing to pay for that, and then you do it again and so on. It worked well for the iPhone, right?

“It might have worked for Apple, but it’s not a good idea for concerts. Concerts are not iPhones. It’s not like people are saying, ‘I sure am glad I paid $65 for this ticket instead of $15, because I get to hold it in my hot little hand for a couple of extra months.’”

While Bennett said discounting is a bad idea for concerts, there is actually a good intention behind it, in terms of scaling prices. The trick is to apply different pricing, directed at different segments of a potential audience, with the idea of capturing as much value as possible without devaluing the product.

An example he gave is movie ticket pricing and matinees. By making it harder for most working people, presumably with higher incomes, to get the cheaper movie matinee price, the tickets can only be purchased before 5 p.m. That makes the lower price available to movie fans with presumably fewer means and not worth it for someone else to, say, take time off from work just get a lower ticket price. But everyone gets to see the movie.

“For every price, there are people willing to pay the price and people who aren’t,” Bennett continued. “Maybe you could separate them and offer the price they are willing to pay.

“I’ve seen shows where there are merchandise bundles, like a seat that includes a tour poster. People can choose how much they pay. They get more value and appreciate what you’ve done for them, but they’re also able to get in. It’s a nonlinear pricing model. How do you separate people and then choose the price to set for them?”

“Guts” play a role. So does experimentation. And so does careful market analysis.

Once a promoter knows what the particular market for a show is, she can price tickets for different segments of that market.

“Improving pricing is the simplest way to improve your bottom line. You know your market. Start with pricing, which is one thing you can change to get more for your business,” Bennett said.

“Discounting is not a good way to do it. It damages brands. It lowers the value of the show and the artists. Coming up with your own way boils down to thinking about what group of customers is hiding among others and figuring out how to offer them their own price.

“You can do that either by offering a lower price that people willing to pay more won’t go to the effort to get, or by adding value so you can charge a higher price.”


Pollstar Live 2011 Panel Index