DYNAMIC PRICING: THE TOOL
In last week’s article, we learned to shift our thoughts about pricing models.
We learned that pricing defines audience more than anything else. Ticket price and ticket sales are not as rigid or related as we think. A certain flexibility exists.
We learned that trust, value, and price are the important considerations in a ticket buying decision. If delivering trust and value well, then the price is not much of a concern for buyers. Focus on creating an outstanding experience rather than dropping the price.
We learned the important factors to our revenue are exposure, conversion rate, and price. Our limitations are the people that know about our event. Focus marketing to those that directly benefit from our event and conversion rates will increase.
A scarcity model leads to price dropping. A better model is one of endless customers. This model frees one to focus on marketing and providing value.
Finally, we learned to use a data-driven tool we call the sales curve. Today we bring the models and the sales curve together in a dynamic pricing model.
There are many different forms of a dynamic pricing. They work best when something is in demand – earth shattering I know. For example certain sports teams – opposing the local team – are in more demand than others. Certain concert seats are in more demand than general seating. Hotels and airlines see demand as the date nears or availability decreases.
Most likely your demand is time-based and experience shows a spike as we near the date. This is why sales curve data is so critical and such a powerful tool.
GOOD BALANCE WINS
Experience reveals two main complaints related to dynamic pricing. First, it pisses customers off when the pricing models are not transparent. Early birds want to plan.
Second, you will receive complaints when someone misses a threshold by a short period of time. Solve both of these complaints with transparency.
Plan your project well to balance price freedom with transparency. Customer expectations are important.
Reserve the freedom to increase pricing as demand dictates. Announce clearly when pricing will increase, but balance this by not revealing how much.
Collision Las Vegas increases pricing each Thursday but does not state how far they increase in price.
Another technique extend cut off dates. Note, you can extend dates and maintain trust, but do not curtail them.
Guarantee early bird pricing until a certain date. But balance this by reserving the right to extend early bird pricing. We can see evidence of this method with the Indy Big Data. They had an early bird deadline of April 1, 2015.
Guess what event is a little behind their expected sales curve. We can see they extended the early bird deadline to May 6.
I like that they have not decreased pricing. I like that they have been transparent. Trust is obviously important to Indy Big Data.
KISS – A MANAGEABLE MODEL
Now you understand how to balance trust with pricing freedom. Choose the model that you think will work best for your event. I start most organizations with the following simple model:
-Use a three-tier model of Early Bird, Regular Rate, Late Booker.
-Benchmark your event against your competitors and set your Regular Rate. Display the Regular Rate next to the Early Bird rate.
-Set the Early Bird as ~80% of the Regular Rate and guarantee it for a set date. This isn’t about revenue yet. The Early Bird tier gives data to see where we are on the sales curve. Reserve the right to extend this tier in case we priced the Regular Rate too high.
-Display a Late Booker tier. Don’t announce how much or when, reserve freedom for revenue optimization. This tier will bring the more revenue if demand is there. Don’t be afraid to get aggressive.
Don’t underestimate the effort required to manage a dynamic pricing model. A warning, all involved will have strong opinions.
Take a page out of the project managers book and plan this ahead of time. Project managers know to get as much of this out of the way beforehand. This will leave you free to deal with unforeseen problems that always arise.
Be smart. Don’t assume dropping the price will fix a bad sales cycle. We have learned to protect pricing at all costs. Focus on marketing and, if anything, extend early bird pricing.
Conversely, it’s nice to sell out an event 30 days in advance. But, do realize this is a lost opportunity. Knowing the dramatic demand increases in the last 25% of the sales cycle indicates pricing was too low.
Increase pricing into demand if you are above expectations. This often happens in the last part of the sales cycle. Extend time thresholds and increase marketing if you are below expectations. This often happens at the beginning of the sales cycle.
Be sure to involve your team. This is often done with a quick round table meeting. Keep this simple and bring this list to the table. Be sure to be specific on the actions taken. Leave little open to interpretation and use the sales curve.
CONCLUSION AND SETTING EXPECTATIONS
Understanding the principles we’ve outlined, most of your effort should go into improving value. An increase in value will attack far more people. Once you are confident in the quality of your event it is time to optimize.
Comparing a traditional pricing model and dynamic models is tough. If your metric is whether we made more money or not then you’re doing it wrong. There is no way to split test this stuff.
You should now realize the advantage of a dynamic system is a better relation to demand. You can increase revenue by 10-25%. You are unlikely to double revenue. But, you will be far more in tune with the market.