Dynamic Pricing In The European Concert Industry

Nicolás Galindo – León de Greiff Hall at National University if Colombia
What are the cheap seats?

Dynamic pricing is increasingly being talked about in the European events industry. And while it works more straight forward when considering seated events in concert halls, it can also be applied to festivals. But is the success of flexibly priced tickets in other industries enough to consider it for the live business?

To find out, Pollstar met Viktor Novak, analyst and co-founder of HostelProfessionals, at Eurosonic Noorderslag in Gronginen. Pollstar also spoke to Andras Berta, who took a closer look at dynamic pricing as part of his work for the European Marketing and Communications Group (EMAC).

Hostel and hotel websites have been relying on dynamic pricing for decades, in order to maximize profits, but, mainly, to ensure full occupancy. In the most simple terms, dynamic pricing describes the adjusting of prices of goods to the demand for these goods.

Berta raised the question of whether concert promoters or festival operators should really be happy about the fact that their event sold out months in advance. After all, this could also be an indicator of bad pricing or aggressive ticket brokers bulk-buying inventory and putting it up on the secondary market.

Many industry professionals point out that the very existence of a high-priced secondary market was proof that the face-value price for a ticket had initially been calculated too low. Opponents of dynamic pricing point out that this is an inaccurate depiction of causality, since concert tickets are highly emotional products – as opposed to hotel beds or flight seats, which can be replaced, even if that means booking at another hotel or airline.

If the proponents are correct, dynamic pricing could take the wind out of the sails of the secondary market, as it ensures that highly sought after tickets are sold for a higher amount in the primary sale already. This would make bulk-buying less attractive for large-scale ticket brokers, and the increased revenue would go to the promoters and artists, where it belongs.

Novak said the most important, and hardest, task in order to find the right pricing, was to forecast customer demand. He was confident that the events industry had far better data on its customers than, say, the hostel industry, to succeed at it. “Collect as much data as possible. Data are the dots. Connect the dots and you get a trend. And a trend will give you an idea about the future,” he said.

Ticket prices could be adjusted accordingly, to find the right balance between occupancy and pricing. Novak had a case study with to demonstrate his point. The study assumed a promoter that had 20,000 seats to sell in three different seat categories. The event’s analysts figured out the demand and calculated which seats would sell at a given ticket price of €20. At that price, even some of the worst seats were sold.

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The analysts then did the same calculations with a higher price of €30, and found out that while the worst seats wouldn’t sell, the best seats would still sell out.

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A better occupancy, and more revenue, was achieved when combining both prices, offering some seats for €20 and others for €30.

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Still, the occupancy only reached 55 percent. So they introduced an even cheaper price for some tickets to raise the occupancy to 100 percent.

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“The more you can measure your demand, the more you can differentiate your prices,” Novak said. In theory, there is no limit to the amount of differentiation.

Opponents of dynamic pricing raise the issue that customers aren’t used to this kind of model. That they would get angry, if they found out that somebody paid less for a ticket, even though they bought it later (which could be the case for events that sell worse than expected). Critics also state that many promoters are reliant on their early-sell-out cash flow to finance their event.

The proponents have answers for both criticisms: Customers would get used to paying different amounts, sometimes more, sometimes less than other concertgoers – at one point, airlines and hotels weren’t sure how their customers would react neither. And, as Berta pointed out, promoters could first test the model with a certain category of tickets, such as the Glamping tickets.

Promoters could cap the maximum price even when using a flexible system. They could thereby avoid coming off as greedy, while still preventing some secondary market activity. What is more, Novak argued, promoters who cared about their business and customer relationships wouldn’t ridiculously overprice seats, suggesting that they could make the worst seats even cheaper than they are currently being sold for. Promoters could create a special category of more affordable tickets for young people with little budget, which is also what airlines do.

As far as the planning-stage cash flow is concerned, promoters could look into alternative means of financing. Investors may be interested in providing the capital if the return on investment is substantially increased by pricing tickets dynamically.

Novak also addressed the fact that people, including many festival promoters themselves, are quick to interpret the wish for maximizing profits as greed. He emphasized, however, that the extra cash would, in most cases, be used to improve the event, and added that the main reason to look into dynamic pricing was not to maximize profits, but to maximize occupancy.

Some promoters are already playing around with it. Ticketmaster’s Platinum offering is a form of dynamic pricing. Alter Art in Poland uses dynamic pricing on the current Cirque du Soleil tour. The ticket info for customers reads:  „Dynamic prices that change along with number of tickets sold. Buy earlier, pay less! Dynamic prices is a system whereby prices for different shows and levels are derived from the demand for each performance. Consumers receive the most benefit buying early and getting the lowest prices as well as the best seat availability. Conversely when booking late, more popular performances in greater demand may reflect a higher priced ticket. Overall, Dynamic Pricing provides the consumer with greater choice on the price they wish to pay. 20 percent discount for kids aged 2-12.”