Call it a tenner The role of pricing in the arts Illustrations and cover by Joe Magee Joe Magee is a Bristol-based artist and film-maker who began his career as an illustrator, becoming a regular contributor to publications such as The Guardian, Libération and Newsweek. His short films and animations have been shown at film festivals including London, Edinburgh, Tampere and Cannes, winning several awards – including a UK Film Council Best Film Award. He also makes new media works and cultivates a print-making practice, holding regular exhibitions of works which combine traditional and digital processes. www.periphery.co.uk [email protected] Call it a tenner The role of pricing in the arts Edited by Richard Ings The editor Richard Ings is an independent writer, researcher and arts consultant. He is the author of a range of publications on the arts, including Funky on your Flyer, a report on young people’s access to cultural venues (Arts Council England), Connecting Flights: Debating Globalisation, Diaspora and the Arts (British Council), Creating Chances: Arts Interventions in Pupil Referral Units and Learning Support Units (Calouste Gulbenkian Foundation) and From the favela to our manor: Translating AfroReggae (People’s Palace Projects/Queen Mary, University of London). He has also published scholarly work on American photography.

The contributors Robert Hewison is a professor at City University, London, where he teaches in the Department of Cultural Policy and Management, and an associate of the think tank Demos, where he contributes to the development of cultural policy. An authority on John Ruskin, he has also published several books on 20th century British culture, notably The Heritage Industry and Culture and Consensus: England, Art and Politics since 1940. Angela Galvin is the chief executive of Sheffield Theatres, where she was previously marketing and development director. Since 1996 she has initiated a range of high-impact and sustainable pricing and marketing strategies that have built and diversified audiences for creative work on and off stage.

Tim Baker is a director of Baker Richards Ltd (www.baker-richards.com), a company dedicated to helping cultural organisations maximise earned income and attendances through more effective analysis, marketing, sales and pricing. Tim has more than twenty years’ experience in the sector, and has worked on over two hundred projects across Europe. Paul Kaynes is chief executive of Audiences Central, the West Midlands audience development agency. He has worked in marketing roles at mac (Midlands Arts Centre) and the Alexandra Theatre (both in Birmingham), Warwick Arts Centre and the RSC. For ten years he was a tutor on the Theatrical Management Association’s Druidstone course, and is chair of Warwickshire-based Motionhouse Dance Theatre.

Beth Aplin is an information and knowledge management specialist. She has spent sixteen years working with a wide range of arts organisations to help them select, implement, review, refine and evaluate their systems. She trains, coaches, consults and acts as a ‘critical friend’ in customer care, better management practices, change management and project management.

Chris Lorway is currently the director of programming for Luminato, Toronto’s pre-eminent festival of arts and creativity. Prior to this he was at AEA Consulting, where he worked with wide range of institutions including Carnegie Hall, The Edinburgh Festivals and San Francisco Opera. He is a regular instructor for the Clore Duffield Leadership Programme. Chris holds a Masters in Arts Administration from Columbia University. Geren Raywood began her career in opera production and is currently a management consultant working in both the corporate and cultural sectors. She holds a bachelor’s degree in theatrical production from Boston University and a Masters in Arts Administration from Columbia University. Acknowledgements

This publication has been devised and developed with significant input and guidance from a wide range of experienced practitioners and consultants in the arts and pricing. Particular acknowledgements and thanks are due to the following for their guidance and cooperation: The publication steering group: this was led by Rob Marshall, Audience Development Officer, Arts Council England, South East; other members were: Phil Cave, Director, Participation Strategy, Arts Council England; Sarah Gee, Managing Consultant, DixonRaines Ltd, formerly Director of Communications, City of Birmingham Symphony Orchestra; Craig Hassall, Managing Director, English National Ballet; Meli Hatzihrysidis, Officer, Participation Strategy, Arts Council England; Kevin Johnson, Managing Director, Urban Communications Limited; Katy Raines, Director, DixonRaines Ltd; and Amanda Rigali, Senior Officer, Arts Strategy, Arts Council England. The reading group: to ensure that this publication would be as useful as possible to the sector, a number of arts managers were invited to read and comment on an early draft. Their observations were helpful in shaping the final text. Members of the reading group were: Tish Francis, Theatre Director, Oxford Playhouse; Nick Hallam, Programming and Marketing Director, Royal and Derngate; Richard Russell, Director, External Relations and Development, Arts Council England, South East; Antonia Seymour, Head of Sales and Marketing, Lyric Hammersmith; Lucy Shorrocks, Director of Marketing, Welsh National Opera; Sue Williams, Senior Strategy Officer Diversity (Disability), Arts Council England; and Peter Wilson, Chief Executive, Theatre Royal Norwich. The opinions expressed in this publication are those of the contributors and not necessarily those of Arts Council England. Contents

Foreword Craig Hassall 7

Preface Richard Ings 9

Introduction Playing with live ammo: Debates around the role 13 of pricing in the arts Richard Ings

Chapter One What price epiphany? Assessing the value 25 of the arts Robert Hewison

Chapter Two Can we raise our prices please? Building towards 43 a viable pricing strategy Angela Galvin

Chapter Three The bottom line: Using pricing to optimise 65 sales and income Tim Baker

Chapter Four Pile them high, sell them cheap? Pricing for 97 audience development Paul Kaynes

Chapter Five Selling tickets and influencing people: Transaction charges and the customer relationship 121 Beth Aplin

Chapter Six Squaring the circle: Does pricing actually matter? 143 Richard Ings

Postscript The American scene: New York trends in arts pricing 165 Chris Lorway and Geren Raywood continues overleaf Contents continued

Pricing in practice: presentations Richard Ings

Fighting its corner: Hall for Cornwall’s eclectic strategies 39

From novice to strategist: Learning to price at the 41 Royal Centre Nottingham

Clear about pricing: Cambridge Arts Theatre’s fair prices 59

Maximising local interests: Pentabus and rural pricing 60

Starting off cheap but getting expensive: Shifting perceptions 61 of value at The Place

A balancing act: Fine-tuning pricing strategy at the 91 Lyric Hammersmith

Making an irresistible offer: WNO’s subscription scheme 93

To charge or not to charge: Gallery admissions at the 118 Sainsbury Centre for Visual Arts

Event by event: Cost-based pricing at The Stables 139

Everything must go: CBSO’s January Sale 141

Look – no prices! Sydney Theatre Company’s approach to 163 airline yield management Foreword Craig Hassall Managing Director, English National Ballet

For those of us lucky enough to work on the business side of the arts, there is an annual ritual that we all undertake called ‘The Preparation of the Budget’. We all methodically pore over last year’s results, grimace, and then carefully estimate our imminent expenditure line by line. We hope that the fixed costs can stay as close as possible to the previous year and optimistically peg the variable repertoire-related costs as low as we can convince ourselves is enough to get away with to deliver the magic onstage. We tend to spend a lot more time on the expenditure than the income as, sadly, there is very little we can do to affect the latter. Government funding is cloaked in vagaries at the best of times and private sector support usually entails an optimistic guess. Then there is box office income… This area of the budget is treated as somewhat of a sacred cow. We approach change in this area with great trepidation. The more conscientious of us commission reams of pro bono research from well-intentioned analysts that usually convinces us that what we were already doing is probably okay for the moment, while the rest of us have a stab at some prices and pray that the audiences will still part with their pounds. As many of us receive a range of subsidies from government, ranging from sparse to begrudgingly adequate, there is a tacit unwritten code that we must not, in any way, be seen to engage in commercial tactics. We are not beholden to shareholders to deliver juicy profits, nor are we driven purely by the bottom line. Here then is the dilemma. We are all acting responsibly, I hope, to save money and maximise income. Why then, are we not allowed to seriously consider ways in which we can maximise income from the box office as well? We do this to some extent already by programming repertoire that will earn us enough income to balance the more esoteric parts of our repertoire. How about then also really examining the building blocks of box office revenue? Ticket pricing is an area shrouded in myths and legends. The days of roll tickets and wizened box office managers clutching a cash-tin are behind us – however, many of the customs and practices remain. We are now in a competitive market where a night at the ballet competes with cinema, cable television, football, YouTube and a

7 Call it a tenner

great meal out. The whole process of selling a ticket has been revolutionised by internet sales and computerised box office systems. It is incumbent upon us all to ensure that we are offering our attractions at the right price to the right customer. It is possible to enlist pricing strategies that enshrine the value of the house while also allowing outreach strategies to bring in a new market. How often have we ventured on a special-offer promotion and then researched the results only to find that we have simply sold the tickets to our regular customers at a lower price? Perhaps one of the reasons for our reticence in tackling the pricing agenda is trepidation. Once one delves into the potential for pricing variations, the result is often a baffling matrix of opportunities. How much does it cost to fly to New York? Well, it depends… It depends on when you want to fly, where you want to sit in the plane, how early or late you book, who you choose to fly with, what offers your loyalty scheme throws up, what you are packaging up with the flight and even who you book through. What does a ticket to the theatre cost? Well, the same variations apply, although we often don’t see the correlation. A seat in a theatre is a perishable asset – it is not worth anything after the show has finished. An empty seat on a plane is worthless once you are in the air (although worth its weight in gold if you happen to be sitting adjacent) and an empty hotel bed is just a pile of linen once the sun has set. We have to capitalise on the value of that theatre seat in advance as much as possible. Until now, we have either not felt that we have the right to be a little bit commercial in attacking pricing or we have felt that it is all too overwhelming to even start pulling apart. Until the arrival of Call it a tenner, that is. My experience in other countries has already opened my eyes to the possibilities of experimenting with ticket pricing. The chapters in this book not only provide a mandate to overhaul pricing structures – not doing so, it asserts, is no longer an option. A variety of strategies are canvassed and explained. The book is not designed to be read from cover to cover (although you are welcome to do so). As the world of ticket pricing is so idiosyncratic, the reader is encouraged to pick and choose as a suggested strategy strikes a chord. When you are reading this publication, please keep an open mind. You may need to blow some ingrained preconceptions out of the water. Most of all, test these suggestions out. You will find a new level of ticket pricing enlightenment, hopefully in time for next year’s budget setting ritual. See you in the cheap seats!

8 Preface New thinking about the strategic role that pricing can play in the arts Richard Ings

Pricing is a bit of a neglected art and, compared to other industries, we are a bit clumsy in how we manage yield. Tim Brinkman, Hall for Cornwall

Pricing, once barely researched or mentioned in the arts, is increasingly recognised as a critical marketing and financial tool. In terms of maximising revenue, the growing adoption and adaptation of yield management techniques suggest that a new, more dynamic approach to pricing is emerging. In terms of developing audiences and, beyond that, achieving wider social access to the arts, price also has a part to play, though how significant a part is still a matter for fierce debate. What is not in question is that most arts organisations, whether subsidised or not, whether a flagship venue or a small touring company, whether in the performing or the visual arts sector, would benefit from re-examining the role of price in sustaining and developing their artistic work. There is a need for a more rigorous process in researching, setting and evaluating pricing structures – for pricing strategy, in other words – rather than relying on custom and practice or opportunistic (or desperate) pricing tactics. By exploring current theories about pricing in the arts and presenting examples of practice, this book is intended to inform and inspire arts organisations to develop their own strategic thinking with greater confidence. The publication is, therefore, aimed primarily at arts managers who are directly involved in setting price and the cost of entry in their organisations – from experienced senior staff whose key task is to set pricing strategy to newly appointed staff given a responsibility for pricing within a much larger brief. The publication should also prove a valuable resource for those engaged in funding and supporting the arts, including agencies, local authorities and other funding bodies, including Arts Council England.

9 Call it a tenner

As a general introduction to the debates on the role of price in the arts and to current practice, it is intended to help managers to develop their thinking about price and question received wisdom, to identify the issues that they need to address in their own particular situation, and to give them the confidence to formulate their own strategic solutions. But the book must strike a note of caution, too. If experience tells us anything, it is that pricing the arts is never easy; success at the box office is not predictable, any more than it is for the actual artistic product. Nor can audience behaviour be reduced to simple utilitarian motives – how could anyone have foreseen, for example, the spike in demand for premium-priced tickets in the West End that followed the bombings in July 2005, when theatre receipts were otherwise well down? There are no formulas to follow and no one instance of success which can be transferred entire and unchanged to a different context. Readers will, in the end, have to make up their own minds and take their own chances. All this book can do is give them a better idea of how to go about setting prices strategically. This is not a ‘how to’, more a ‘why – or why not?’ guide, intended to challenge assumptions and to encourage out-of-the-box thinking about pricing. Above all, it is about the need to recognise how important pricing is and what a trick we are missing if we don’t transform it into an active strategic tool.

How to read this book This publication is not designed to be a comprehensive manual or the last word on pricing in the arts. It is a collection of discrete essays articulating the beliefs and experiences of people established in the field on various aspects of pricing, theoretical and practical. Although these essays may, therefore, be studied quite independently of each other, there is a basic narrative thread holding them together. This takes the reader from a broad consideration of the main issues to a historical consideration of price versus value in the arts; from the contingencies that affect the development of a pricing strategy to the range and purpose of various pricing tactics and tools; from the implications of pricing decisions for audience development to the question of box office and customer relationship management. This narrative ends with an examination of two contrasting examples of corporate pricing strategy. Examples of pricing in practice appear in these essays as part of particular arguments, but these are complemented by eleven stand-

10 Preface alone presentations of pricing in practice around the country and a chapter-length postscript on pricing in New York. Although coverage is, perhaps unavoidably, weighted more towards venues and the performing arts here, we have conceived this book as a resource for all arts organisations, including touring companies, galleries and festivals. Pricing is not just about the theatre and the concert hall. No doubt some readers will know more than others, but a good manager keeps learning, not least to keep pace with a rapidly changing culture and economy. We hope that we have struck the right balance between ‘teaching grandmother to suck eggs’ and talking over people’s heads. Pricing may be, as one theatre manager has remarked, ‘the most basic of our venue management skills’ but skills can atrophy without exercise and new challenges, just as pricing structures can ossify without a constant review of their impact and effectiveness. As a start, readers might want to pause a minute or two before beginning this book to see how easily or fully they can respond to the following short set of questions:  What kind of policy do you have on pricing? Is it a written strategy?  The relationship of value to price in your strategy: how do you judge what price to set in relation to your product(s)? Do you, for example, cut prices when you have an unknown quantity on your programme?  What research have you undertaken into what prices you should be setting? If you have competitors, who or what are they, and is their pricing influential in any way?  How do you decide on increasing or lowering prices? And how do you present/introduce those changes?  What resources do you turn to in order to find the right pricing tactic, eg penetration pricing, yield management, etc?  What part, if any, does pricing play in developing your existing audience or drawing in new audiences?  How do you sell tickets and how far do you exploit customer data to monitor your work, including setting prices?  What other approaches to pricing are you aware of and what help would you need, if any, to explore other pricing options and re- evaluate your pricing strategy?

11 Call it a tenner

12 Introduction Playing with live ammo

13

Playing with live ammo Debates around the role of pricing in the arts Richard Ings

Pricing: A neglected art? Managers are always nervous about really engaging with pricing as a marketing tool because it feels like playing with live ammo. Tim Wood, marketing manager at The Place, a leading contemporary dance venue, neatly encapsulates here the paradox of pricing in the arts: it is so important that many people are afraid to do anything about it. That is why every success story you hear about pricing begins with an admission that ‘once upon a time, there was no strategy’. Prices had been settled on by following well-worn formulae or were based on untested assumptions. Often, the decisions had been taken either on the hoof or by someone in junior management. Sticking to ‘how it’s been done before’ may or may not be a peculiarly British trait, as one manager remarked to me, but it’s still not uncommon. Equally prevalent is the practice of setting the marketing department a target attendance to meet, which means effectively that product (and the artistic choice behind that product) is determining the role of pricing strategy. Partly because pricing has had such a low profile in the arts, it is not that rare to discover that a newly appointed venue or marketing manager has had no previous experience in pricing. Unlike such managers, Dave Murphy had accumulated a long business CV, most recently with an oil-trading company, before becoming chief executive at Cambridge Arts Theatre. He brings an outsider’s fresh perspective to the art of selling the arts. From what he has seen, the arts sector often demonstrates a poor understanding of economics, from neglecting the basics – such as the need to do rigorous cashflow checks on a regular, if not daily, basis – to grasping the dangers of over-marketing a finite product: ‘If customers demanded more barrels of oil, I could find more barrels to sell them, but if the house is a sell-out, I can’t suddenly magic up more seats to meet the new demand.’

15 Call it a tenner

Part of the problem, at least in the subsidised sector, is that price has been something of a dirty word – something to reduce or otherwise hide away in order to generate new audiences or a broader social mix, not something to explore as part of a broader strategy for growth. This goes back in some cases to the feeling that the art comes first and that the size of the audience – and the income it brings with it – is not as crucial. Equally, venues have been, perhaps understandably, nervous about being seen to use pricing to maximise revenue in case it jeopardises their pitch for subsidy, although current Arts Council policy is to support arts organisations to ‘thrive, not just survive’. Whatever the strengths of these various explanations, the result is that there is a lot of confusion and nervousness about pricing. So, it seems odd that, until recently, there has been very little detailed research into its role in the arts. Consequently, arts managers have had very few resources available to help them to develop a pricing strategy – or, more fundamentally, to appreciate that pricing can be a strategy. Broach the subject with managers, however, and it is soon clear how important pricing issues are to them, how many questions they need answered and how unsure they sometimes are of how to proceed – or how far to go in handling ‘live ammo’. I have recently been thinking about the damaging effects on advance sales and box office income of getting into the habit of giving away last-minute discounts, and would be interested in a system where, as a sector, we rewarded advance booking instead, so the ticket price would gradually increase nearer to the time. I don’t have the courage to try this myself yet and wouldn’t want to alienate customers, who might go to competitors that discount at the last minute. Haleh Ahmadian, Head of Marketing and Customer Relations, Sherman Theatre Pricing is a critical issue. The balance is always between trying to keep tickets affordable at the same time as being realistic about the cost of production. We don’t have a set policy, but treat each show on a case-by-case basis. In practice, we usually price shows higher on a Friday and Saturday and pepper a run with options like a ‘cheap Tuesday’ or a special schools price. At the end of the day, we try to keep it all as simple as possible for the public, to attract them through the nature of the work in tandem with its cost. The truth is that there is no regular audience in London so every show has to be judged by its own merits. Alexandra Bowley, Programming Manager, Riverside Studios

16 Introduction: Playing with live ammo

I’m very interested in maximising ticket revenue through using banded pricing in a previously one-price house – looking at booking patterns and pricing accordingly, so, for example, if you know that for dance the seats with the best sightlines sell first, increasing the price of those. The range of prices would mean that the event is still financially accessible, but should, however, generate greater income, and has the benefit of being flexible – higher price seats for one genre do not have to be the same as for another. Jo Dereza, Acting Director, South West Arts Marketing, formerly Marketing Manager, Exeter Phoenix

Myths and mysteries: a lack of resources Pricing is one of the more scientific areas of marketing that demands significant analysis and investigation. Unfortunately, it is still far from being a perfect science, meaning that making decisions and implementing them is complicated and risky. Jessica Hepburn In the absence of a reliable source of information or support for creating a pricing strategy – and this may have to wait until the next generation of database management systems – managers have a limited number of options at their disposal, as Jessica Hepburn, executive director of the Lyric Theatre in Hammersmith, explains. In determining our pricing strategies, we have a number of resources. We draw on our own analysis of box office data to look at patterns of booking, which informs how certain initiatives are implemented. We also discuss strategies with industry colleagues, and look at competitors’ pricing models and review their success. We look at current literature from consultants such as Baker Richards and the Arts Marketing Association and learn from other industries such as the airlines. With the risks involved, the more shared experience and information the better. In a situation where there are few clear answers and little authoritative guidance, venues tend to gravitate towards examples of success in the hope that they can piggy-back on them. But if an organisation wants to emulate the National Theatre ‘Travelex effect’ – and quite a number have wanted to – can they really pull it off without incurring financial penalties? And when they start to look deeper, the ways in which such successes have been achieved seem to contradict each other. One venue cuts its top-price tickets to increase yield, while another reduces the number of price bands and raises the top price each year to achieve the same result. If one

17 Call it a tenner

venue is considering moving away from a single price and splitting the house, the next will be looking at trying out one price across as many events as possible. Out of this slightly panicky atmosphere arises a range of myths and shibboleths: ‘young people will only come here if they get a big discount’, ‘public subsidy means that we cannot charge a realistic price for our show’, ‘we cannot drop concessions for the over-60s’, ‘our audience would resist a ticket levy’, ‘two-for-one offers are a good way of pushing up sales’, ‘prices cannot be raised once they have gone on sale’, ‘standard concessionary rates satisfy our access responsibilities’ and so on. Each of these myths has been debunked by managers willing to challenge the assumptions that lie behind them. Tim Brinkman, for example, claims that his 75p ‘theatre development fund’ charge on each ticket sold by Hall for Cornwall was the inspiration for a major West End chain of theatres to do something very similar. Deborah Bestwick, director of Oval House, argues that concessions need to represent a meaningful reduction, not just £2 off the full price, to be fully effective. And so on. Beyond the constricting power of such myths, managers have some very real and tangible practical challenges to their freedom of operation.

Striking a deal: market forces It should be remembered that arts organisations have limited room for manoeuvre financially, as they lack the capital base that enables a company like Sky to try out risky pricing strategies and to sustain large initial losses to secure its market. Arts companies, in contrast, are simply not as free to change their prices. For those subsidised by local authorities or arts funding bodies, even the most sophisticated understanding of value and price cannot prevent the roof falling in when grant cuts are announced, so caution is endemic – and probably wise. They are also operating in a complex economic environment, where it is not always clear who or what their competition is – other local venues, the alternative of a CD or a cinema ticket purchase, a night at the pub – or how the local demographic can be turned to their advantage. Even if the organisation has national significance and thus draws on a wider potential audience, it is, most managers would argue, crucial to know the local market before setting any kind of strategy or using any type of tactic. As Jane Pugh, project manager of Carn to Cove, Cornwall’s rural

18 Introduction: Playing with live ammo touring scheme, remarks, ‘each village has different needs and issues’ which affect pricing strategy. Paul Maurel, artistic director of the Laurence Batley Theatre, gives a vivid example of how pricing strategies are, by definition, market- and particularly local market-driven. If we look at a product like Phil Cunningham and Aly Bain in concert, Colin in Inverness will be able to think of a number, double it, and make that the charge, and fill three times over. That means he’ll probably buy the concert at no more than a derisory guarantee against a fairly hefty split. Paul in Ayr has a smaller capacity and is in the central belt, but could still expect to sell out if he prices reasonably, and invests quite a bit in marketing. So he’ll pay a higher guarantee, take a smaller split and add a marketing contra. We, on the other hand, in Yorkshire, would struggle for a half-full house, would face a big straight fee, and would lose massively. You could reverse the above process for booking a production by Hull Truck. As Paul’s comments serve to illustrate, the setting of price is, for receiving venues, not a simple matter of imposing a structure but a struggle for a fair deal with the producing company – even more so if the venue has no box office of its own or puts out its ticketing to an external agency. Pricing strategy has to be pragmatic in these circumstances. Craig Hassall, managing director of English National Ballet (ENB), describes this process of negotiation from the point of view of a touring company. Typically, the theatre will control the box office. And the case with the ENB, and I’m sure a lot of the touring companies, is that we don’t simply go and rent the theatre. It’s a risk share. The theatre foregoes its rent for a share of the box office and you negotiate the split between you and the theatre – generally, ENB takes 75 per cent of the risk, the venue 25 per cent – so the theatre then has a stake in the marketing, the pricing and so on. The theatres are usually not going to be as sophisticated in the pricing model as the company – and probably less likely to take risks as well. So it’s difficult to negotiate with a receiving house, which is also a risk- share partner, on taking a risk on a passing strategy, because they want to do it the way they’ve always done it. They have 25 companies coming through in a year and, as a rule, they don’t want to start catering too much to the idiosyncrasies of one of those companies.

19 Call it a tenner

The other complication is that a lot of the theatres are owned by the Ambassador Theatre Group or Live Nation, so you don’t even have the sense of a local market. You have a centralised ticketing agency, Ticketmaster, which just volume sells. Dealing with someone in London about a venue in Birmingham means that there’s quite a disconnect with the human beings involved. They’re not going to take a risk on a local buying or pricing strategy because they just don’t have the expertise or the interest. A negotiation over setting prices is often about squaring one strategy with another. When, for example, the London Symphony Orchestra recently tried lowering prices to draw in new audiences, two different pricing structures were literally embodied at their concerts at the Barbican Centre, where yield management approaches are focusing on maximising income. So, a customer who had paid the LSO £25 for a ticket sat alongside another who had paid the Barbican £65. Which brings us to the audience, their perception of price and value, and the question of price sensitivity.

Does price matter? Audience perception of price and value One of the more remarkable aspects of pricing in the arts, particularly in the areas of theatrical performance and live classical music, is its sheer complexity. In one detailed study of Broadway pricing carried out a few years ago, the researcher discovered that for one particular show there were, on average, 8.7 different price categories per night out of a possible seventeen. One might picture how hesitant a customer might become, faced with that choice, cross-referencing each price on the seating plan, imagining the sightlines, perhaps, or wondering if the cheaper matinee the following day might be an option, but almost certainly mindful now of how much they want (or had planned) to spend – and conscious, too, that there may be competing attractions that might be cheaper or more fun just down the road or even back at home… If this had started out as a spontaneous impulse – the customer seduced by the posters outside the theatre and eager for the value of the experience they promised – it has quickly become a question of mental haggling over the cost. Angela Galvin, chief executive of Sheffield Theatres, questions why things have to be so opaque. In this sophisticated marketplace, pricing is the touchstone against which artists judge the value being placed on their work, and a benchmark for persuading audiences confronted with a cultural

20 Introduction: Playing with live ammo

cornucopia that ours is the event to attend. Pricing secures our artistic and financial futures. Why then do so many arts businesses communicate prices across the whole range of marketing materials in logarithmic grids? With footnotes. And inconsistencies. It’s the bit of the brochure that catapults the required reading age from twelve to forty-seven years. Part of this complexity is due, ironically enough, to the enduring assumption that arts audiences are particularly price-sensitive and will appreciate a price tailored to them. Hence, the plethora of discounts and special deals, as if price were the determining factor in deciding to go to the event. The available evidence, however, suggests that both first-time and regular attenders are more likely to be attracted by the offered experience than by price alone: the tickets cost me a fortune, but it was worth it. The Glastonbury Festival famously sells out on the spot. In the old technology days, punters would queue overnight to secure tickets for this kind of event; now, a finger hovers over the BUY button. Both then and now, price is really not the issue – and not, in these cases, because prices are low. The tickets for the last Rolling Stones’ tour rose to over £100 – and were exchanged for considerably more on the black market. The perceived value of seeing the ultimate rock survivors perform outweighed any financial qualms – you know what you’re getting with the Stones or Glasto, or you think you do. The price is – for the practical purposes of selling tickets – virtually invisible. The same seems to apply at the other end of the market. I understand why things change and I put the reason for them changing precisely on the price of a ticket. It was different when everything cost $3, or $3.50, or at the most $5. You could pay to see a cheap Jaws ripoff and pay the same money to see A Star is Born, no worries. But now you’re talking about $10, $12 – it doesn’t make sense. Quentin Tarantino, explaining why exploitation movies now go straight to video (The Guardian, Friday 4 May 2007) Quentin Tarantino’s comment reflects a clear understanding that price can be critical in getting people to see your art, whether that is an exploitation movie of the kind he recently apotheosised in his own film Death Proof, or a Shakespeare play or a concert of new music or an exhibition of Old Masters. However, what is particularly interesting about this argument is that it seems to demonstrate that only when the price becomes visible to the customer do distinctions over the relative value of competing attractions become critical in deciding to attend or not. In other words, when cinema tickets were too cheap 21 Call it a tenner

to be concerned about, customers would chance going to see less worthy or less commercial or less mainstream films or films that had no recognisable stars or directors. Once price becomes an issue – something customers have to mull over before committing themselves – perceptions of value kick in. And all those films they might have gone to see end up, without fanfare, on the shelves of the local Blockbuster – until, of course, a customer or a video store employee (as Tarantino once was) discovers one and, given that the price of renting any DVD is relatively inconsequential, decides to give it a whirl – and thus discovers its true value. It is also worth noting here that assigning higher value is, in some significant way, related to reducing the level of risk. With its high- profile stars and its artistic and dramatic qualities reinforced by good reviews and industry buzz, a film like A Star is Born would be a much safer bet for a pricey evening out than, say, the latest flick from a B- movie maker like Roger Corman. This should remind us that going to any arts event involves some level of risk – and that this is why vast numbers of people never darken the doors of the local theatre or gallery or arts centre. They don’t know quite what they are going to get, so they don’t know whether they would get anything out of it or even enjoy it – and, in some cases, they don’t feel they would even be welcome, judging by the building or the people who do go. Education and social habit play their part, too. So, to sum up. In Tarantino’s example, the perceived value of going to see an unknown quantity was not an issue because the price was so low. In the case of the Stones or Glastonbury, the cost of a ticket was not an issue because the perceived value was so high. Either way, the risk of wasting time or money was rendered negligible, making a ticket sale more likely than not. This example of ‘neuro-economics’ – the mental process that goes on when considering any kind of bet – demonstrates why managers should keep a careful eye on the wider cultural trends that affect how people are choosing to spend their money, time and energy. People’s perceptions of value do not remain static as the culture shifts. For example, the development of secondary marketing, otherwise known as scalping, has been given a huge boost now by the internet, and eBay in particular – and that will undoubtedly influence perceptions of value and thus the setting of prices. Finally, we turn to how arts organisations might be able to move forward in developing their audiences by consolidating and maximising their revenue.

22 Introduction: Playing with live ammo

The lure of yield management: maximising income There is a latent conflict between access objectives and income optimisation which forms a constant ideological backdrop to ticket pricing. Elizabeth Hill et al, Creative Arts Marketing, 1995 A central issue addressed in this book is whether and how far pricing strategies might square the circle – that is, optimise revenue without compromising audience development and social access. This is obviously a particular concern for managers of subsidised organisations, who believe they have a particular obligation to their audiences to keep prices low. How can they then draw in more than the usual crowd without discounting themselves into debt? The question is whether by, in a sense, creating a dual-pricing policy, ‘young-person’s-railcard’ style, the subsidised sector now has to live with the consequences and not be able take advantage of more commercial techniques to maximise revenue. A stark example of this difference is the curious tradition of closing a best-selling subsidised show while the West End is freer to extend runs – and product-test new shows. Subsidy seems to have made things more complicated. The need to explore what might be transferable from commercial practice is urgent, as Craig Hassall remarks. People should feel empowered to be a little commercial about pricing. Because the subsidy is the public support. You needn’t keep your prices below what you could charge in the market. That’s like a double subsidy. Just because we’re subsidised, it doesn’t mean we charge less if people can afford to pay more. Craig’s comment seems to point directly to the lure of yield management techniques, which are now being tested and applied by some arts and venue managers. Yield management, first developed in the travel and hotel industries, can take many forms in the arts, but it is essentially about increasing yield by varying prices or price ranges. It can mean increasing higher prices at a slightly faster rate, while still maintaining low prices elsewhere. A few organisations are starting to use so-called airline pricing, where the price paid for a specific seat for a specific performance will vary according to when the booking is made. Prices might be increased at the end of the week, to increase yield and control demand – and this may stimulate more attendances earlier in the week. And so on.

23 Call it a tenner

Not everyone believes that yield management is the panacea. It is still probably too time consuming in a hammer-to-crack-a-nut way for smaller venues, while for organisations that pride themselves on providing a quality programme there are stages of the ‘Easyjet route’ they’d rather not go down. Chris Harper told me that when he was head of marketing at the National Theatre the rep system he served was ‘too complicated to try that staggered price escalation’. The flight isn’t part of the experience; I don’t think that the theatre is comparable to an airline. The holiday’s the experience and we’re selling the holiday. It is certainly true that theatre does not have the resources or indeed the vast amount of historical data needed to match the ability of airlines to predict how to obtain the highest yield out of each flight, so yield management in the arts may never be as reliable – this is the arts, after all, with all its risks of noble failure. However, just as the airline passenger will rarely wonder what the passenger next to them paid for their ticket, so audiences are now beginning to accept variable pricing. For some, yield management is the future. Ticket prices will be delivered like stock prices, based purely on supply and demand. Until that point, the debates will continue – and do so, in the following pages.

24 Chapter One What price epiphany?

25

Chapter One: What price epiphany?

This chapter outlines the historical and cultural context of current debates on value and pricing in the arts. When John Kemble tried to raise prices after the opening of the new Covent Garden Theatre in 1809, he provoked sixty-seven days of rioting and a public controversy that raged in the press for several months; he was eventually forced to give way to the supporters of ‘the Old Price’. John Brewer, The Pleasures of the Imagination: English Culture in the Eighteenth Century, 1997 It would seem that pricing in the arts has always been an emotive issue and one that the popular media of the day can be relied upon to cover with some eagerness. For those particular theatregoers two hundred years ago, the value of the arts was not in question – they were clearly enthusiastic enough to take to the streets to defend their right to enjoy theatre. The problem lay rather in how that value had been translated into price and whether that price was perceived as fair. In this chapter, Professor Robert Hewison goes back to first principles. Although this is a book about price, it has to address the fact that what people are looking for is value – and so we must examine the relationship between the two. He explains, via Adam Smith and John Ruskin, how ‘value in use’ differs from ‘value in exchange’ and describes both how we arrived at our mantra of ‘value for money’ and how the cultural sector is challenging that utilitarian viewpoint by arguing for the arts’ ‘intrinsic values’. As a vital part of our economy, the arts are subject to the laws of supply and demand but they are also particularly vulnerable to cultural shifts, from popular enthusiasm for cultural products during the exigencies of wartime to our postmodern culture, where apparently infinite consumer choice is counter-balanced by ferocious demands on our time and energy.

27 Call it a tenner

What price epiphany? Assessing the value of the arts Robert Hewison

Buying a ticket for a show can be an unpleasant experience. The queue at the box office is long, the staff are surly, the show sold out. Telephone booking merely transfers the process to the ether, adds a booking charge, and you still have to queue up to show your credit card. The internet adds the worry over security of financial information. Yet when an arts organisation sells you a ticket, it is the beginning of a personal relationship. Before that, the company will have been communicating in general through advertising, reviews and word of mouth, but the message becomes particular only when money changes hands. The price of a ticket is as important a means of communication as the name on the marquee and the image on the poster. Oscar Wilde famously defined a cynic as ‘a man who knows the price of everything and the value of nothing’. Cynicism, I might add, is the response of someone who – like punters who are told the show is sold out – is disappointed in their hopes. This is a book about price, but it is value that people are really looking for. In the chilly world of economics, price is a monetary expression of the worth that individuals, groups or that abstract being ‘the market’ assign to an object or activity. Is the show worth the price of a ticket? From the seller’s point of view, price will be a reflection of the costs of the raw materials involved, of the labour employed and of the additional overheads, such as maintaining plant, administration, marketing, taxation and so on. Setting a price should therefore be simple: add up your costs, stick on a bit extra to make a profit that can be distributed or reinvested, decide what you can get away with, and set out your stall. But who will buy? From the buyer’s point of view, willingness to pay will depend on a much more complicated set of variables, beginning with the ability to pay in the first place. To buy means to make a choice between buying and not buying, and between the range of objects and activities on offer. That will include a consideration of the ease or otherwise of getting hold of a ticket. Willingness to pay will depend on the utility the buyer attributes to what is on offer, and what importance they attach to that utility: is this show a must-see? The amount the buyer is willing to pay will also be affected by the perception of the relative scarcity or availability of what is being 28 Chapter One: What price epiphany? offered: how long is the queue, how hot is the ticket? Thus, price is the monetised expression of a very complicated set of valuations. In real life, we have to take into account such unscientific things as emotions, and the cash element may be the least important factor in the equation. Many people complain that culture has become a commodity. Few appreciate that what we think of as commodity is shaped by culture. Culture is the key to the fundamental distinction made in The Wealth of Nations (1776) by the founder of modern economics, Adam Smith: ‘The word “value”, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing goods which the possession of that object conveys. The one may be called “value in use”, the other “value in exchange’’.’1 Value in exchange is reasonably easy to understand: it is the amount of money or goods or services that a person is willing to give up in order to be able to acquire certain goods or services. The idea is so neat and simple that many economists, including Adam Smith, have based their calculations exclusively on value in exchange. But why are we willing to exchange one thing in order to possess another? Because, presumably, that which we want to possess has some value in use – some utility – to us. John Ruskin, in Unto This Last (1862), had a lot of fun with this problem, pointing out that many of the things that have the greatest value in use frequently have little or no value in exchange. The air we breathe would be a good example. Contrarily, many of the things that have the greatest value in exchange frequently have little or no value in use. Ruskin asks what is the value of the gold in the money- belt of a drowning capitalist as it drags him to the bottom. When we talk about value in use, the value lies not in the object, but in the use we make of it, and the nature of that use is our moral responsibility. In order to challenge the cold utilitarianism of Victorian England, Ruskin sought to redefine wealth as welfare and value as vitality, and even coined a term that summed up the true product of industrial society: ‘illth’.2 The narrow economic calculations of utilitarianism have continued to be made, however, and from the 1980s on they have borne down ever more heavily on those working in the arts. Ruskin may have argued that ‘there is no wealth but life’,3 but life has become harder and harder in the arts as the cultural sector has become subject to an ever stricter regime of accountability. The rule is not ‘value for life’ but ‘value for money’, defined as ‘economy, efficiency and effectiveness’. The supposed efficiency of the market replaces the benign bumbling of bureaucrats, citizens have become consumers, 29 Call it a tenner

and the results of creativity are reduced to products. To demands to deliver value for money has been added a series of tests that measure the success of cultural organisations, not in terms of the quality of what they do, but in terms of public service agreements that demand ‘quantified improvements in outputs, efficiency, access, quality promotion, income generation or private sector funding’, to quote PSA Target 14 of the Department for Culture, Media and Sport.4 This is the language that defines the obligations the government places on cultural organisations to deliver social outcomes according to its political agenda. The new utilitarianism is being challenged, not because cultural organisations disagree with the government’s desire to improve social conditions in relation to health, crime, education and employment, but because the arts are an indirect way of going about it. What is more, a regime of targets, tables and testing does not sit easily with the less easily calculable outcomes of art. Indeed, by imposing external, instrumental requirements on arts organisations, the government makes it harder for them to carry out their core function, which is to make or present art. That this is a problem felt right across the cultural sector was emphatically demonstrated in June 2003 when the National Theatre and the National Gallery came together to sponsor a conference, ‘Valuing Culture’, jointly organised by the think tank Demos and the cultural consultants AEA. The conference was attended by the Secretary of State for Culture, Media and Sport (DCMS), Tessa Jowell, who evidently listened to what was being said. In May the following year she published her essay Government and the Value of Culture, which acknowledged the difficulties caused by thinking of the arts purely in terms of economic and social outcomes. ‘How’, she asked, ‘in going beyond targets, can we best capture the value of culture?’5 How can we get hold of a ticket to ride?

Cultural value Over at Demos, a senior researcher, John Holden, had been working on the answer, which he first gave in a pamphlet, Capturing Cultural Value, published shortly after Tessa Jowell’s essay.6 Holden does not deny that the arts bring economic benefits in terms of employment, exports and regeneration, or that cultural activity has beneficial social outcomes for those who take part. But he argues that there are other ways of valuing the arts that are intrinsic as opposed to extrinsic to what they are and what they do. Drawing on a range of different disciplines – anthropology, environmentalism and brand valuation –

30 Chapter One: What price epiphany? and different theorists, notably the Australian cultural economist David Throsby and the American expert on administration Mark Moore, who has popularised the concept of ‘public value’,7 Holden proposes that there are several ways in which an object or activity can be said to have cultural value. These can be summed up as:  use value: it engenders expenditure that supports jobs and further economic production  existence value: even though only a certain number of people may directly enjoy something’s ‘use value’, the fact of its existence creates an opportunity that others may enjoy it at another time, or are simply content that it exists at all  bequest value: it represents something that people will be able to pass on to future generations  historical value: it constitutes a link between the present and the past and locates people in time  social value: its enjoyment is a collective as well as an individual experience, and can strengthen social bonds  symbolic value: it generates symbolic meanings that are expressive, for instance, of individual or collective identity  spiritual value: it has the capacity to produce feelings of the numinous or the sublime  aesthetic value: it generates feelings of visual and/or auditory delight. There are, as David Throsby has shown in his book, Economics and Culture,8 ways of monetising these values so as to come up with a price, in what is essentially a sophisticated form of opinion polling, but that is not the point here. Cultural value is a way to re-engage with the quality of the experience of art, to re-legitimise the discussion of those aspects of the experience that evade numerical quantification. While as individuals we may be prepared to give money to enjoy some or all of these values, unless we keep the object exclusively for our own delectation – like a painting in a vault – we do not in fact own them, and even then we only control access to the work, not the value of the work itself. They exist as public goods which, being public, are priceless. The debate about cultural value has put the concept of value-in-use back into value-in-exchange, and the fact that politicians are prepared to take part in the debate offers hope that those who set the terms in which cultural price transactions take place do, in fact, appreciate the significance of the numinous as well as the numismatic. But price has its uses, since we need a way to turn the infinite number of individual 31 Call it a tenner

decisions about what something is worth into a figure that is practical to apply. When it comes to setting a price for cultural goods, as, to be realistic, we have to, there are some real-world factors relating to scarcity and competition that have to be taken into consideration. Culture cannot entirely escape the clutches of the laws of supply and demand, though as we will see, it tries.

The challenge of affluence Arguably, the last time the arts in Britain enjoyed a competitive advantage over many other goods and services was during the Second World War. One of the reasons that they did so demonstrates the enduring power of cultural value: people found, especially in poetry and music, a spiritual resource that comforted them in anxious and dangerous times. Equally, the demotic tradition and free speech of the British stage seemed to be one of the things that people were fighting for.Yes, there was a desire for escapism too, but the demand for serious reading was such that you could sell almost anything – provided you could get the paper to print it on. Paper was rationed, like almost everything else, and scarcity adds a value all of its own. While full employment guaranteed a certain level of disposable income, the goods that people generally like to spend it on – food, clothes, holidays – as well as many essentials such as furniture, were in short supply. This combination of factors, cultural and economic, meant that people were more ready to spend what money they had on the arts. The arts were also in short supply, and it was in order to guarantee a supply of concerts and stage performances that for the first time a British government began to subsidise the performing arts, through grants and tax relief. Libraries, museums and art galleries were already publicly funded, since the Victorians considered them to be conducive to public education and national sobriety, but from now on governments – via the Arts Council of Great Britain and its successors – had to wrestle with the irresolvable questions of what was art and what was entertainment. It is worth recalling that during the war entertainment had also been regarded as a public good, supplied by ENSA, the Entertainments National Service Association, to keep war workers on the go. Since the war, affluence and availability mean that the arts have lost their temporary advantage, but at least in terms of disposable income there is still something to play for. Not only are we individually (or at least most of us) far better off than people were fifty years ago, but the amount of our income that we can spend as and how we like has

32 Chapter One: What price epiphany? also increased as a proportion of our overall income. The Henley Centre for forecasting has tracked so-called discretionary spending in the United Kingdom since 1976, and predicts that it will continue to rise.9 The problem for arts organisations is how to steer enough of that spending their way. Not only are all those goods that were scarce or unavailable in wartime piled high and in abundance, the culture of consumption is such that a pair of jeans is no longer a useful item of workwear, but a fashion statement, an expression of identity – in fact, a form of culture. ‘Style’ is an elaborate symbolic code signalling status, sexual availability and, above all, a sense of self. It also plays a crucial role in encouraging the circulation of commodities by using symbolic goods to enforce fashion’s endless cycle of redundancy and return. With such creativity on the High Street, there is no need to go into art galleries, when so much time can be devoted to the semiology of the sock. And time is now an issue. While we have more and more disposable income, in order to earn it we have less and less disposable time. What is worse, those that have the most time, such as the retired and the unemployed, may well have the least money. The consequences of being cash-rich but time-poor are having a noticeable effect in the theatre, where since the turn of the new century plays have become distinctly shorter. The three-act structure, with two intervals, has disappeared, and many new plays have no interval at all. Contemporary dance appears to have led the way, where the physical demands are such that performances are limited by the performers’ endurance, but the concentrated intensity of the piece generates audience satisfaction – and allows you to have something to eat afterwards. There does not appear to be public resistance to shorter performance times – indeed, they seem to be welcome. So here is a new factor in the price/value equation, and a new twist to the old adage that time is money.

Market failure The problem of price setting in the cultural sector is complicated by attempts to introduce non-monetary considerations that will affect monetary outcomes. In the abstract world of economics, the invisible hand of the market will determine price through the inexorable operation of the laws of supply and demand. But when we look at the operation of the economics of the arts, we find that conditions are determined not by the invisible hand of the market, but its opposite, market failure. Market failure occurs when it proves impossible to produce certain goods in sufficient quantity and/or at

33 Call it a tenner

an acceptable price to justify their existence in purely monetary terms. As far as the market is concerned, the sums don’t add up. The result is that the market fails to produce, or under-produces, cultural goods such as art, literature, orchestras and new political plays, and it is difficult to protect desirable landscape or historic properties from the depredations of developers. The market has been altered by regulation – as in the case of green belt land and heritage properties – or by state or private philanthropy that ensures, through subsidy, that there is a sufficient supply of socially necessary cultural goods. One of the reasons that the arts are particularly susceptible to market failure is that they are unable – outside books, film and recordings – to reproduce their creations in sufficient numbers to exploit their success beyond a certain level. (It is because books and recordings are repeatable that they represent a different form of competition, as it were, between perishable and non-perishable cultural goods.) Nor can the arts easily achieve economies of scale. You cannot downsize a symphony orchestra, nor can you upscale an auditorium without radically altering the audience experience. So, the visible hand of patronage, persuaded by those arguments for cultural value that were rehearsed earlier, reaches in. It does not matter who the patron is (though what is demanded in exchange for patronage means it is rarely disinterested); the market is now distorted, with consequences for both those in receipt of patronage and those who are not. Thus, we find ourselves in the paradoxical position that the subsidised cultural sector is in competition with the unsubsidised, rather as the BBC is in competition with commercial broadcasting. But while there are obvious advantages, in terms of survival, in not having to make a profit, there is a cost in terms of the expectations placed on a company that receives public money, be it from taxation or the National Lottery. The right to fail artistically seems to come with a fair number of obligations to succeed in terms of policy outcomes. In practice, in the arts the two sectors are mutually dependent. The commercial sector looks to the subsidised to take risks and invest in training; the subsidised looks to the commercial sector to exploit their creations in such a way as to be able to reward them with a share in the profits, and so continue to function in the pursuit of the generation of cultural value. Audiences are largely indifferent to the issue of equity between the commercial and non-commercial sector, and are happy to be served by a mixed economy. They buy tickets on the basis of what they want to enjoy, not whether the producing organisation is subsidised or not, and in any case price levels will tend to converge on what the market will bear. There is rough equivalence in the pricing structures of the 34 Chapter One: What price epiphany? two sectors, in so far as the commercial sector is present at all. (What they can’t make a profit from, they don’t do.) A top-price ticket to the venerable Mousetrap at the St Martin’s Theatre cost (in 2006) £37.50, exactly the same as a top-price ticket to a production at the National’s Lyttelton Theatre. Musicals (a commercial sector speciality) are more expensive, with a top price around £55 (a 400 per cent rise in twenty years), but then opera can be expensive too. Raymond Gubbay has so far managed to find ways of avoiding market failure by generating a genre of ‘arena opera’, but for the most part opera is a subsidised sector speciality where modest seats are comparable to those for a musical, and a top ticket at the Royal Opera House will cost £180. National museums that are funded not to charge entry fees have an advantage over independent museums, but tend to charge similar fees for specially mounted exhibitions. The Royal Academy, which is not publicly funded, has a current top price of £9 for an exhibition, the subsidised National Gallery the same for a temporary show. The tendency for there to be price convergence across the cultural sector is not really surprising. Benchmarks are established by prejudice and custom, rather than careful sums on a pocket calculator. Under pressure to justify the existence of public subsidy, from time to time people have made price comparisons between ticket prices in the arts and say, rock ’n’ roll or football, as some contributors to this book do. It cost at least £80 to see the Rolling Stones in Britain in 2007. It costs between £45 and £95 to see a Premier League football match as an adult who does not belong to a supporters’ club. But surely these offer different forms of social experience. The real competition is between different judgements of cultural value; price considerations are secondary. The same is true of other forms of consumption. Dinner at The Ivy, opposite the St Martin’s Theatre, will cost you considerably more than The Mousetrap, but, though both are ephemeral experiences, they are not really comparable when it comes to calculating price. The competition between The Ivy and The Mousetrap (assuming you can afford either) is cultural more than it is economic – fine French cheeses, or mousetrap.

Public interest pricing Prices, in whatever case, have to be set. When it comes to calculating what they need to charge, arts organisations have to consider three different sources of income: state/local authority subsidy; commercial and private sponsorship; and commercial activity, including shops, restaurants, publications, conference and other hires – and of course 35 Call it a tenner

tickets. As has been shown, the existence of subsidy will distort the situation when it comes to pricing. Only the Adam Smith Institute, at the height of Thatcherism in 1987, has argued that the existence of public subsidy is positively harmful, seriously proposing ‘a three- or four-year programme over which the Arts Council’s grant would be reduced to zero’ – and even then it had to admit that the national museums would not be able to survive without state help.10 Unfortunately, all attempts to regularise and rationalise cultural statistics seem condemned to failure, and it is very hard to find longitudinal studies, or even studies that use sufficiently comparable categories, to make a direct comparison with today. But it does appear that public subsidy has fallen as a proportion of publicly funded arts organisations’ income since the Adam Smith Institute started promoting its Thatcherite arguments in the 1980s. One reason is the growth of business and private sponsorship, which Mrs Thatcher’s government was keen to promote. This combined source of funding is sensitive to economic conditions, but the trend has been upwards. An arts organisation will be proud to be earn its keep – and possibly earn more independence from the policy objectives of its funders at the same time – but there are two lessons to be learned from this trend. The first is that, in spite of substantial real increases in cultural subsidies, the pressure is on organisations to earn more. With public funding expected at best to plateau, organisations are going to have to be ever more careful about how they manage their pricing. The second point is that we need to be more articulate about what might be called ‘public interest pricing’. Just as cultural value is a way to express the non-monetary objectives of arts organisations, public interest pricing would be a way to indicate the particular policies towards its audience that an organisation has. This should go beyond the standard ‘concessions’ for pensioners, unwaged, etc and be seen as a way of creating positive value. As I have already suggested, pricing is another way an institution has of communicating with its public, and how an arts organisation communicates can be as important as what it communicates. Again, we have John Holden of Demos to thank for showing that arts organisations are not only creators of cultural value, but that the way they behave creates a further range of values that he calls ‘institutional value’: ‘how organisations operate is as important as what they strive to achieve’.11 This is more than making sure the coffee is hot and the lavatories are clean; it goes to the roots of the way an organisation sees itself, how it defines its purpose and how it

36 Chapter One: What price epiphany? expresses its values in relation to the public. In Cultural Value and the Crisis of Legitimacy (2006) he develops the concept of institutional value to argue that the tripartite relationship between the public, the professionals who manage cultural organisations and the bodies responsible to politicians that fund them is breaking down, and that the mismatch of objectives is causing the cultural system to become ‘a closed and ill-tempered conversation between professionals and politicians, while the news media play a destructive role between politics and the public’.12 The reason for insisting on the importance of institutional value and the role that ticket-pricing has to play in generating it is that arts organisations have to recognise that they are more than sites for the presentation of objects or activities that have cultural value: they are themselves the creators of value through their relationship with the public and through the way they work within themselves. So a ticket will not simply be a billet, but should be handled like a billet-doux. The cultural economist David Throsby argues that economists are ‘deluding themselves if they claim that economics can encompass cultural value entirely within its ambit and that the methods of economic assessment are capable of capturing all relevant aspects of cultural value in their net’.13 Surprisingly, for an economist, he goes on to argue that the dominance of the modern economic paradigm must be resisted: ‘it is essential that cultural value be admitted alongside economic value in the consideration of the overall value of cultural goods and services’.14 In other words, we must reframe Oscar Wilde’s dictum and say that before we can set the price of something we must understand the value of everything. As cultural organisations are already well aware, their duty is to create epiphany. Later, they can worry about the price.

37 Call it a tenner

References 1 Adam Smith, The Wealth of Nations, ed. Cannan, 6th edition, Methuen, 1961, Vol 1, p 32 2 John Ruskin, The Complete Works of John Ruskin (Library Edition), ed. Cook and Wedderburn, George Allen, 1903–1912, Vol 17, p 89 3 ibid, p 186 4 Sara Selwood et al, The UK Cultural Sector: Profile and Policy Issues, Policy Studies Institute, 2001, p 186 5 Tessa Jowell, Government and the Value of the Arts, DCMS, 2004, p 18 6 John Holden, Capturing Cultural Value, Demos, 2004 7 Mark Moore, Creating Cultural Value: Strategic Management in Government, Harvard University Press, 1995 8 David Throsby, Economics and Culture, Cambridge University Press, 2001 9 Arts Council England, Towards 2010: new times, new challenges for the arts, Arts Council England, 2000, p 28 10 Douglas Mason, Expounding the Arts, Adam Smith Institute, 1987, p 45 11 John Holden, op cit, p 47 12 John Holden, Cultural Value and the Crisis of Legitimacy, Demos, 2006, p 10 13 David Throsby, op cit, p 41 14 ibid

38 Pricing in practice

Fighting its corner Hall for Cornwall’s eclectic strategies

As the only purpose-built professional arts venue in Cornwall apart from Tate St Ives, Truro’s Hall for Cornwall faces several major challenges, though perhaps none as life threatening as the initial loss of £300,000 in its first year, 2000/01, when the Lottery money ran out before it could be used to run what it had built.

Once relatively rich through fishing, farming and mining, Cornwall resembles one of its own numerous holiday homes, unoccupied (and not earning) most of the year. It’s a low-wage, fragile economy and, coupled with a small scattered population, that can’t help but have a major impact on pricing strategy. What its director, Tim Brinkman, calls ‘a great space’ has to be filled – and with a great variety of events. It’s a flexible auditorium, with a maximum capacity, when the seats are folded away, of 1,700. This means, theoretically, that a two-week sell-out run could swallow up Truro’s entire population (around 18,500): one way of demonstrating that Hall for Cornwall has to reach out much further for an audience than most city-based venues – thirty miles on average.

A varied programme To do that, Tim has to programme eclectically. There is theatre, from the touring production of The History Boys to co- productions with the indigenous Kneehigh Theatre Company; music from classical chamber concerts to Coldplay and Morrissey gigs; there is an ice show; and there is dance, from ballet to contemporary. Each event is priced separately, with five price bands and a range of concessions; more likely sellers are priced more highly. Before committing to a production, Tim has to calculate how many of each ticket-type buyer will attend, allowing for up to 45 per cent on concessionary rates for each performance. It’s a simple, traditional approach, based on steadily building up a history of what sells and to whom, but it seems to pay dividends: 180,000 tickets are sold each year and houses are on average 68 per cent full – and it does not prevent the introduction of more adventurous work to what is often perceived as a conservative audience.

39 Call it a tenner

A couple of years ago, Tim took a ‘terrifying risk’ in presenting the only southwest date for dancer Wim Wandekeybus’s tour – and it sold out, since when he has continued to demonstrate that there is an open-minded local audience who happen to enjoy cutting-edge dance. Tim has resisted pricing such events down, as he feels that would cheapen them, but there is a small, though clear, price differential between them and safer choices. A top ticket for Rambert Dance Company or Birmingham Royal Ballet would be £21, that for Nederlans Dans Theater £18.50 and, for a lesser-known company, £16.50.

Economic realities Flexibility on pricing does not extend to concessions, where Tim would prefer to mediate prices, shifting the number of seats within price bands, rather than change any concessionary deals. So, while venues elsewhere might, for example, ‘Volvo count’ and reduce concessions for older people, on the basis that many are able to pay the full price, such a policy in Cornwall would be hugely controversial.

The economic environment also means that Tim, as director of a receiving house, has to strike sensible box office deals with incoming companies that may be more used to playing in wealthier regions; he asks them, for example, what they would charge in Darlington or Hull, rather than Manchester or Birmingham. Part of the bargain he strikes includes passing on to the promoter the credit card charges that might otherwise be passed on to the customer. Instead of a booking fee, Tim has instituted a 75p levy on tickets to go towards a ‘theatre development fund’, cash income that he can retain as an essential element in investing in a future for Hall for Cornwall.

With thanks to Tim Brinkman Hall for Cornwall, www.hallforcornwall.co.uk

40 Pricing in practice

From novice to strategist Learning to price at the Royal Centre Nottingham

In 2001, Jonathan Saville was brought in as head of sales, marketing and development for the Royal Centre Nottingham, which comprises the Theatre Royal and the Royal Concert Hall. The job description is wide-ranging, from box office management to corporate development schemes, but pricing is a central responsibility. Like many managers given such a wide brief, Jonathan had no actual training in pricing so, to begin with, he ‘cut and pasted’ (his own words) from old prices. He based his pricing structure on top price for dress circle, second highest prices for front of stalls, third for back of stalls and lowest for balcony. This was a rather blunt instrument, he discovered, so he sent for the cavalry, in the shape of a leading pricing consultant who helped Jonathan to identify areas of underpricing and ways of increasing yield. Jonathan says that he is now ‘selling the same seats to the same people for the same kind of shows but making more money’.

The most vital pointer the consultant gave him was to identify what sold well first – it happened to be centre stalls and the dress circle – and to price up accordingly. Jonathan is now rigorously enforcing five pricing bands, even where prices of some bands for some shows are the same – so, for example, band A might be £16 and band B £14 but bands C, D and E might all be £12. The differentials are never more than £5, often less, apart from the balcony, which is steep and can have a limited view, where the difference can be anything from £5 to £12. This rigour extends to never altering the prices over a run, even one of six weeks; if the production runs into trouble, Jonathan markets it through special promotional deals (eg three for the price of two) with a newspaper or a radio station. Turkeys he just has to live with.

The dangers of discounts Jonathan has learned to avoid cut-price deals: ‘they cause more problems than they solve’. Some of these problems are the result of a frustrating box office system that is capable of mailing special offers to people who have already booked. There was the case of the six women who booked the tickets as a group. Because a different member of the group had booked the tickets this time

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around, the usual booker received a £10 half-price offer in the post – which led all the women to complain that they had been charged full price. There is also the danger of creating an expectation of discounted tickets. Jonathan cites a show at a nameless UK theatre where a show was not selling until the box office got a call asking when the discounted tickets would be available, ‘because you always do it’. The theatre stuck it out and the show did sell – but nail-bitingly late in the day.

The example of other venues is important for managers learning to price effectively. Jonathan continues, like many managers, to share thinking on shows and prices with similar venues – including, in his case, Birmingham Hippodrome, Theatre Royal Plymouth and The Lowry, Salford. He has recently, for example, emailed half a dozen to get a feeling for pricing an Alvin Ailey American Dance Theater show – getting five replies indicates it is a mutually supportive system. Also vital to Jonathan is the support he receives from his managing director who, even though he is ‘not trained in marketing’, recognises how central pricing strategy is to realising the theatre’s vision.

All systems go Jonathan is now moving forward with the procurement of a new box office system and is planning to expand internet bookings, which currently account for 20 per cent of sales. He refers to one venue which went from 14 to 40 per cent almost immediately with a more sophisticated system. Historically, there has been no audience development. Another consultant confirmed that their understanding and usage of audience data was not really giving them the best information to enable them to actively target more potential customers. So the theatre has now appointed a customer research and memberships officer to take it into the realms of CRM – customer relationship management. It is all a far cry from ‘cut and paste’.

With thanks to Jonathan Saville Royal Centre Nottingham, www.royalcentre-nottingham.co.uk

42 Chapter Two Can we raise our prices please?

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Chapter Two: Can we raise our prices please?

If pricing is vital in promoting institutional value, in an age when many products, from cars to computers, are valued as enhancing experiences as much as practical and useful objects, then arts organisations and venues clearly need to take it seriously. And that means making it part of their overall strategy and vision. In this chapter, Angela Galvin argues that the purpose of a pricing strategy is to ‘exercise some control over where we position ourselves and the impact this has on our artistic vision’. Judgements are still often made on the basis of price, and pricing in the arts can be fearsomely complicated – and controversial. The theatre world is not normally silent or bashful… So why is it so silent when it faces the highly serious allegation of ripping off consumers and creating barriers to access? Select Committee Report on Theatre, The Independent, 26 March 2005 So, not only is setting a pricing strategy a crucial financial and management tool, but it is also an essential step in persuading the public and the media of an organisation’s integrity and value – ‘pricing is at the fulcrum of the balance between artistic expression and audience expectations’. Taking that step, however, requires a rigorous analysis of the audience and its needs and thus a firm commitment to the kind of research and development that, paradoxically, many subsidised organisations are not yet adequately funded to carry out.

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Can we raise our prices please? Building towards a viable pricing strategy Angela Galvin

Declining attendances, ageing audiences, economic uncertainty, deep-seated complacency. Is the picture really that grim? This chapter examines some of the internal and external forces that influence pricing decisions in the arts, suggesting that while pricing cannot exist in isolation, pricing strategies can provide a solid platform from which to interrogate the dynamic between the expectations of business stakeholders, artistic expression, audience demand and a sustainable future. Britain’s Royal Opera house must… draw new patrons with lower prices and stop giving free tickets to London’s glitterati.1 Many people assume that, once we’ve discussed the Royal Opera House and the West End, the issue of pricing has been pretty much explored. The entire vibrant and diverse cultural sector is misrepresented by such damaging generalisations and by unfair comparisons with other sectors in the economy. The demands – to reduce prices to attract new audiences, to give fewer rewards to core audiences, to charge less for programmes and drinks – are echoed across the sector and around the country. Communicating to artists, audiences and funders the true cost of responding to these demands is a complex challenge. It requires a strategic response. We might start with a simple question: why do we charge for admission? There are some things best left to the market, and the theatre is not one of them. Standing in a queue for Tate Modern, 2,000 of us happy in the rain, I wondered why waiting to go into a theatre never felt like this: people of all ages and professions with only one thing in common – none of us paid to get in… No-one seems to think that modern art for free is ridiculous – why cannot theatre be the same?2 Through pricing, arts businesses can, in theory, maintain control over their programming, their relationships and their future. It is a fundamental management tool. Yet arts organisations have pursued paradoxical strategies:

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 spending more on the spectacular and charging less at the box office  providing an infrastructure for creative expression while eschewing commercial best practice, and  delivering pricing-led audience development initiatives for public funders, while facing real cuts in levels of public investment. The purpose of a pricing strategy is to exercise some control over where we position ourselves and the impact this has on our artistic vision, on public perceptions of ‘value for money’ and on our future. That is why the term arts business is used throughout this chapter. Establishing a position on pricing (which will not be the same for every organisation) requires that we confront five key strategic issues:  profitability  sales  cash flow  audience growth  value/quality.

Links between cost and value In other areas of the consumer economy, producers understand that investing in quality is not only measurable but can also lead to cost savings. At the same time, consumers are moving away from the association of low price with poor quality. Nevertheless, the perceived link between price and value remains, as illustrated by the infamous Wisconsin knife sale. In the late 1960s, a large department store in Madison, Wisconsin held a special sale on electric knives. Although they were priced very low, surprisingly few knives sold. The store then raised the price a little, and the knives quickly sold out. What could explain this strange phenomenon, which clearly is not what a demand curve suggests should happen? The most likely explanation for this event is that people often make judgments about the quality of items based on their prices. Usually, high-quality items are expensive and low-quality items are cheap. Thus, when people see an item that appears unusually cheap, they suspect that the item has low quality. In the knives example, people must have thought that something was wrong with the knives because the price was so low. When the store raised the price a bit, people no longer thought that the deal was too good to be true.3 47 Call it a tenner

Whether true or apocryphal, this story highlights the importance of three key and interdependent elements:  setting prices  quality control  managing expectation. Arts businesses rarely communicate the strategy, rationale and practical considerations behind their pricing decisions. What customers see is ticket-level information: how much it will cost to attend a particular event. They may assume that the best seats are the most expensive or speculate that reduced prices signal that the venue is trying to whip up an audience. Either way, they will certainly be looking for a good deal. Arts businesses are operating within an environment where the notion of ‘value for money’ competes with the traditional perception that a relatively high price is a sign of good quality. To be effective in this highly competitive marketplace, pricing strategies should be informed by programming and audience development plans; offer a workable balance between conflicting pressures, say between artistic and commercial imperatives; and recognise the perceived difference between cost and value. Our responses to these strategic issues should enable us to:  recognise the difference between cost and value  establish the best fit from a cost-plus or value-based pricing strategy  build profits rather than cut prices.

Assessing audience behaviour A strategic approach to pricing must focus on longer-term objectives that, while not necessarily transparent to our audience, must be crystal clear to us and our organisation. So, for example, if we all buy in to the idea of rewarding our audiences for ‘good behaviour’, we must be able to define precisely what this means. Is it advance booking? Is it loyalty? Is it filling empty seats at the last minute? We can safely assume that most arts venues would prefer their audience to visit several times each year, to book in advance and to pay the premium price for their tickets. If this assumption is correct, the Theatre Audience Survey 2003/20044 will have gained mixed reviews from West End theatre managers. Good news from the survey includes the identification of a loyal group of regular visitors, with theatregoers visiting the West End 6.2 times per year on average and just one in five of the sample attending only once

48 Chapter Two: Can we raise our prices please? during the survey period. The feedback on advance booking is less reassuring, with one in every four tickets booked on the same day as the performance, and almost half of all bookings being made during the week preceding the performance. Also of concern is the finding that, although satisfaction with trips to the theatre is high, with 61 per cent of theatregoers saying that in terms of overall enjoyment their trip was ‘very good,’ only 43 per cent felt that the value for money for their trip was also ‘very good’. Fifty- seven per cent of tickets are booked at full price, while a quarter of theatregoers purchasing reduced-rate tickets would not have attended had only full price tickets been available. Various scenarios might be extrapolated from these findings:  one where a group of aficionados attend avidly, the majority enjoying the experience – and what’s more, paying full price for their tickets  one where arts businesses have a loyal – perhaps shrinking – core audience and a canny – perhaps growing – number of people navigating their way to cut-price ticket deals across the whole leisure offer, so if one artform is too expensive they will go elsewhere  one where the trend for last-minute or spur-of–the-moment leisure decisions cause cash flow problems and longer-term challenges in maintaining a sustainable artistic programme. And so on. The more questions we ask, the more fine-grain detail we can incorporate and the more likely we are to plan our responses than to make knee-jerk reactions to these and other scenarios as they arise. Establishing a pricing strategy requires the collection and analysis of supporting information that, at the very least, covers:  calculations of ticket prices based on covering the fixed and variable costs both of individual productions and the whole season of work  calculations on the value or benefits for audiences:  what benefits audiences gain from attendance  the criteria our audiences use for buying decisions  what value audiences place on receiving the benefits we provide  benchmarking with the competition, ranging from theatres within a certain drive-time through to the cost of dining out at a mid- to high-range restaurant.

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Simply gathering the information necessary to build a pricing strategy will create a firm basis of knowledge, understanding and recognition.

Researching a pricing model The process of researching, developing and applying a relevant strategy will create the framework within which artists, audiences and arts businesses can plan for a financially sustainable future, grow and diversify audiences, and increase the quality of and engagement with the artistic programme. Given that a pricing policy is only as strong as the artistic and audience development strategies, all of which should inform each other at any planning stage, it is vital to carry out effective research into product, audience behaviour, and the cost and value of everything we do. Asking the right questions, challenging orthodoxies and suggesting tactics are all building blocks for a robust and effective pricing strategy that unpicks the true cost and interrogates the value and benefits of our work. A strategic approach to pricing enables us to secure income and profit artistically as well as financially. And it builds a case for those areas of our work that require public aid because they meet a social and political agenda as well as an arts business one. In research terms, a pricing strategy can begin by assigning a figure to every facet of an event, including the physical production, marketing, front of house overheads and other less visible elements that all contribute to the event being staged and audiences being accommodated. This exercise generates the total price tag. Once we know the cost of everything, we can start to assess its strategic position and its market value. So, for example is an event going to be a loss-leader to attract new audiences? Or is it an expensive event for core audiences? Developing a coherent pricing model is important for both artistic and commercial reasons. If pricing decisions are well presented, they can communicate some unambiguous messages to our audiences about the quality of the work they will see, persuading new and core attenders and generating the revenue that will support further artistic endeavours. The importance of identifying our strengths and putting a value on them can be illustrated by Sheffield Theatres’ response to the artistic and audience dynamic of the Crucible’s unique performing space.

50 Chapter Two: Can we raise our prices please?

[The Crucible’s] design was directly influenced by the ideas of ‘theatre in the round’ developed by the director Tyrone Guthrie, whose associate Tanya Moiseiwitsch worked with the architects, and it remains one of the most exciting theatrical spaces in the country. A central thrust stage is embraced on five sides by a steeply raked bank of seating for 1,000 people… achieving the intimacy, immediacy and flexibility which Guthrie advocated.5 When the theatre space itself gets such good reviews, there is an absolute responsibility to maximise its potential. In 1971, when the Crucible first opened, the configuration around the thrust stage was explained to would-be audiences with the legend, ‘No seat is more than 60 feet from the stage.’ In the intervening years, directors and audiences lost confidence in that configuration and productions were directed end-on, as though the Crucible were simply a misshapen and misguided proscenium theatre. By 1996, the auditorium had been priced to reflect the buying patterns of audiences. A funnel to the front of the stage was priced higher, implying that these were the ‘best seats’. Not unusually, these ‘best seats’ sold first while the sides became the cheap seats and were rarely sold to capacity. Directors and actors had no incentive to play to all five sides, so the best seat/cheap seat pricing model actually directed the artistic vision, and eventually became a self-fulfilling prophecy – the space simply didn’t work for artists or audiences. The decision to go back to the original ethos was taken from a joint artistic and marketing perspective. The idea was to celebrate the strengths of the playing space and of the auditorium: to direct shows to all sides and to sell seats at the same price on all sides. To support this endeavour, a single price has applied across the auditorium since 2000/01. Initial audience resistance was overcome by artistic delivery on the marketing promise that theatregoers would have a different experience but one of equal quality throughout the auditorium. There are targeted discounts, but there is no premium pricing for any area. The artistic delivery of a pricing promise made a significant contribution to an increase of 71 per cent in Crucible audiences between 2000/01 and 2004/05. Of course, the Crucible’s thrust stage affords a very particular pricing potential, but the message of consistency holds true for any arts venue. The strategic lowering of prices can also be used to attract price- sensitive new audiences in a planned way – preventing the kind of wholesale discounting or inconsistent pricing that drives down

51 Call it a tenner

income, dilutes perceptions of quality and value, and makes anyone who has paid full price feel like a sap. Since 1998, the introduction of targeted discounting in Sheffield, including £1 public dress rehearsals, cheaper previews and Young People’s Nights, has been rewarded in a variety of ways, including:  generating valuable word of mouth through higher ‘front end’ audiences  factoring in low-price performances at the earliest budgetary stage  engaging price-sensitive audiences with scheduled development initiatives  meeting stakeholder demands for price-led initiatives  testing assumptions about levels of risk, motivation and price sensitivity. The learning from this exercise can be applied in a wider sense by ensuring that pricing strategies examine and respond to five key variables:  image and market positioning  strength of the benefits for customers  rewarding ‘good behaviour’ (for example, loyalty or advance booking)  acknowledging price-driven audiences  incorporating strategic responses rather than panic discounts. A long-term view of audience growth, artistic development and business sustainability is made possible through analysing the impact of a pricing strategy in five key areas:  maximising profitability  increasing sales  controlling cash flow  planning targeted audience growth  increasing our perceived value. At the heart of all this lies the need to invest in the quality of artistic programming and audience development. If a performance, an exhibition or a screening falls short, the pricing strategy will need to demonstrate virtuoso repackaging in order to get people to attend, let alone buy premium tickets. That’s no way to express a vision, entice an audience or, indeed, run a business.

52 Chapter Two: Can we raise our prices please?

Whereas in 2001 it might have been legitimate to ask why theatre wasn’t free when people didn’t pay to see modern art, we are now seeing the challenges as well as the benefits of free entry to our galleries and museums, with special funds being sought in order to fund new acquisitions to maintain the interest of new audiences. Across artforms, new and exciting work can also be the most financially risky. Without ticket revenue, the risk is increased. In that respect, pricing is at the fulcrum of the balance between artistic expression and audience expectations.

The right kind of investment There is no simple answer to the question, ‘What is public funding paying for?’ It could be for the audiences, subsidising ticket prices so that the huge number who can’t afford top-price tickets are not disenfranchised. It could be for the art itself – bringing an international touring exhibition to a gallery or museum, or allowing larger casts in theatrical productions. Or it could be for supporting infrastructure, guaranteeing up-front, in-the-bank money as opposed to income generated at risk against matured events, projects or publications. A considered pricing strategy can satisfy all three answers in a virtuous cycle of art, audiences and sustainable forward planning. Since 2005, the Audit Commission’s Comprehensive Performance Assessment has focused the attention of agencies investing public resources on delivering ‘improvement of public services; as seen from the perspective of users; while providing value for money for taxpayers; targeted and risk proportionate; and delivered in partnership.’6 In organisational terms, delivery requires the investment of resources into developing artists, staff skills, facilities, marketing and support materials, research and evaluation. And of course, every responsible arts business should be making this happen. Yet, strategies for redressing long-term imbalances, often in sensitive areas, need to be thoughtful, informed and consistent. This is something that in most other sectors would be seen as requiring a massive and long-term process of research and development (R&D). At a time when the European Union is urging all European businesses to increase their (R&D) expenditure,7 and there has been a call for government resources to be channelled into research and education, the arts have made scant progress in increasing public and private investment beyond ad hoc initiatives. In other sectors, thorough R&D is seen as essential for long-term financial survival. The arts are not alone in finding it difficult to free funds for large R&D exercises that

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will not necessarily lead to commercial gain, but we may be unique in embarking on such a programme in the knowledge that our resources to do so are, at best, inadequate. How can arts businesses match their funders’ expectations? If we accept ‘audience diversification’ and ‘social inclusion’ as examples of areas for improvement that are not only desirable but fundamental, we have to seek clarification on what support will be available. The policy statements outlining the position of the Museums Libraries and Archives Council and Arts Council England both imply that in pricing terms these activities will be ‘loss leaders’, with prices set so low that they act as a promotional device and draw new audiences into the sector. But lowering prices to draw in an audience is a one- off tactic rather than a strategy for artistic development, audience growth and business sustainability. While such tactics can be employed on an ad hoc basis, their impact is greater as part of an operational plan that employs them strategically.Yet, arts businesses tend to focus on just one or two pricing options. A wider pricing strategy would audit current use, identify over-reliance and judge the relevance from the full range of pricing tactics available. A more confident approach to ascertaining and communicating the worth of our sector to audiences, communities, business and funders can be established by considering our relationship to eight general statements:  pricing impacts on control, sustainability and advocacy  pricing dovetails with the social inclusion and cultural diversity agendas through price-led audience development strategies  preparing a strategy helps us take informed pricing decisions based on the true cost of each production, identifying where profits lie and where subsidy is required  pricing strategy creates a solid and workable framework while being flexible enough to accommodate variables between productions, audiences and stakeholders  awareness of the full range of variables informs our choice on cost- or value-driven planning and audience development  the role of the strategy is to plan the implementation of pricing tactics by design rather than default  the ability of arts businesses to generate their own revenue is central to growth, development and sustainability. This is

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particularly the case as we find ourselves facing immense pressure to devise and implement pricing strategies that balance the demands of funders, the desires of consumers and the struggle for survival  regular review of the strategy, using customer information, our own experience and some market research, enables us to work towards a sustainable future.

Making art, losing money? Within the wider debate about the degree of influence and control sought by public funders in return for relatively low levels of investment, there is an issue we’ve been hesitant to name: the close relationship between making art and losing money. This problem is put into sharp relief by two of the UK’s leading Shakespearean companies. In January 2006 it was reported that the Globe theatre had returned a pre-tax profit of £1.5 million, its tenth consecutive year in the black – without any public subsidy. In the same report, the Royal Shakespeare Company, which receives almost £13 million from Arts Council England and aims to break even, stated that the company could not operate without subsidy. Yet, with standard ticket prices ranging from £5 to £31 at the Globe, and from £5 to £42 for the RSC in Stratford, we might reasonably expect that the RSC had the greater prospect of ensuring sustainability through its box office. The complicating factor is that economies of scale rarely apply to theatrical production. While the Shakespeare Globe stages six productions between May and September each year, the RSC mounts an average of 30, runs a permanent company of actors and operates in three theatres in Stratford-upon-Avon and three in London (currently). The RSC also sends out tours to the regions and internationally.8 And so the more work created, the higher the costs and the greater the pressure on finances. Pricing strategies won’t guarantee a grant of £13 million, but the underpinning research and analysis can reveal precisely who ‘subsidises’ the cost of delivering an artistic programme. It can reveal the true cost of complying with funding criteria. It can help tease out the difference between ‘subsidy’ and ‘investment’. And it is the key to taking control of our position within the arts funding landscape. Historically, arts businesses have been unable to accumulate financial reserves to draw on for R&D or to mitigate the risk of, say,

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commissioning a new work. Alternative sources of support, such as Lottery and corporate funding, look set to be diverted elsewhere at least until 2012. But perhaps the severest challenge to arts sustainability is more immediate and comes from the stakeholders whose demands are the greatest. Local authorities and Arts Council England set measures called key performance indicators (KPI) and these currently imply a direct correlation between ‘subsidy’ (or more accurately, ‘investment’) and attendance by calculating the ratio of box office income to public funds per seat sold.9 So, for example, at Sheffield’s ratio the case would be that without public investment each £10 theatre ticket would have to be priced at £15 in order to make a revenue contribution equivalent to the lost subsidy. From this perspective, the most important function of public funding seems to be to subsidise ticket prices. In fact, the KPI reports from local authorities and the Arts Council ‘double count’ the impact of their investment, through monitoring levels of activity, artists, audiences, diversity, education, governance, trading and even customer satisfaction. Arts businesses would be well advised to factor all of these elements into their pricing strategies as risk mitigation should public subsidy be threatened. Whether or not the market would bear increased ticket prices, there are other arguments about the role of theatres, museums, galleries and other arts businesses in adding value and excitement to the cultural life of communities, cities and regions: by producing excellent work, engaging with local communities, running learning programmes in schools and building audiences. The sector has also engaged with the wider social and political agenda, with economic and capital regeneration schemes and with ad hoc initiatives. Again, the Theatre Audience Survey is a useful template for the layers of information required to underpin a strategy. Perhaps its most relevant finding here is that the average expenditure per theatregoer as a direct result of the theatre trip is £116, with travel, food and accommodation being the major additional costs. If, as the Arts Council’s economic surveys suggest, arts businesses can demonstrate just a fraction of that economic impact, the return on public investment is evidenced and the case for public funds reinforced.

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The importance of a pricing strategy This chapter is not an argument that the arts are owed a living from the public purse, rather a discussion of the tensions of demonstrating a return on investment to public funders, representing ‘value for money’ to audiences and expressing a commitment to creative development. The arts economy is, essentially, fragile, regardless of scale. In this context, engaging with the political and social agendas for economic regeneration, destination marketing and social integration can strengthen the perceived value for money of public investment in the arts. But there is usually a funding gap between public investment and organisational need. Arts businesses have to make up the shortfall and one of the key tools open to them is price. Without reserves and with fewer exceptional awards, arts funding has reached a defining moment. In the past, our decisions have been influenced by the need for accountability and by gratitude for public funds. The ‘efficiencies’ driven by stand-still (or worse) public funding have created a sector well practised in cost management. Now arts businesses need to meet head on the challenges of effectively managing both costs and revenue. The ability of arts businesses to generate their own revenue is central to their growth, development and sustainability, as we are under immense pressure to devise and implement strategies that balance the demands of funders, the desires of consumers and our own struggle for survival. As the public sector becomes engaged in the ‘improvement’ agenda of the Audit Commission, arts businesses need to confidently assert their own measures of successful investment. We need to influence the key performance indicators, particularly those that affect the fundamentals for business management on which public partnerships are being judged: new products and services; target ages, consumer segments and income groups; staff skills and capabilities; capital developments, and so on. To call public funding ‘subsidy’ rather than ‘investment’ assumes that arts businesses are, at best, valued and valuable but intrinsically unviable. Greater awareness of pricing and the development of a coherent pricing strategy may not just help arts business to move away from dependency on shrinking public funds. Paradoxically, it may also gear the sector up to argue for increased and sustained public investment with more confidence and greater clarity.

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References 1 Sarah Lyall, ‘Getting Royal Opera House in order’, article on Richard Eyre’s report on The Royal Opera House, New York Times, 1 July 1998 2 Samuel West, ‘Should theatre be free’, The Observer, 2001 3 Robert Schenk, Problems of Risk and Exclusion, Ingrimayne, 2002 4 Conducted by MORI on behalf of the Society of London Theatre 5 Ruth Harman and John Minnis, Sheffield: Pevsner Architectural Guides, 2004 6 www.audit-commission.gov.uk/cpa/index.asp 7 Sarah Laitner and Clive Cookson, ‘Brussels urges more R&D funds to keep competitive edge’, Financial Times, 19 July 2005 8 Nigel Reynolds, ‘Shakespeare’s Globe makes £1.5m without any subsidy’, Daily Telegraph, 12 January 2006 9 In Sheffield’s case, a ratio of 67:33 / box office to public funding in 2004/05

58 Pricing in practice

Clear about pricing Cambridge Arts Theatre’s fair prices

As far as the paying public is concerned, Dave Murphy’s overriding aim as chief executive of Cambridge Arts Theatre is to provide them with ‘a good programme priced fairly’. To be seen as fair, the venue tries to set out its prices in as clear a way as possible – clear in the dual sense of comprehensible and transparent.

Only twice in the three years he has been in post has Dave tried a two- for-one deal, and would only consider it if a production was going disastrously. Instead, there are two pricing tiers – three if you include the annual panto – and any product the theatre takes on is crowbarred into one or the other. More mainstream work, such as The History Boys, is sold for the highest possible income, though not at the expense of alienating the audience. A ticket for a production starring Felicity Kendall could easily sell for £40 or more here, but Dave sticks to the regular price bands of £10, £20 and £30. A lower range of prices – £10, £15 and £20 – is offered for subsidised or more experimental work. In both cases, the number of seats will vary within bands, depending on predicted appeal – though, once set, they won’t vary, whatever the sales. So, when a production needs longer-term audience development to sell or is likely to appeal to a poorer section of the audience, half the house may be available at £10 with only a few £15 and even fewer £20 tickets on offer. The vital issue, for Dave, is that price bands remain the same. It would, he feels, devalue the show to sell it at, say, £10, £12 and £15 instead.

The reasoning behind the setting of particular prices is evident to the customer. The brochure is ‘transparent’, Dave claims – anyone can work out what the deal is and see that it is fair. Partly as a result, there is little price resistance, though a few students moan (there are no concessions for them). There is more concern about where to park or eat than about prices. Dave has an equally transparent approach to booking fees, which are levied simply to cover the cost of sales rather than as part of a deal with promoters.

There is, however, one downside to such a simple and clear pricing strategy, Dave admits, in that it makes it that much harder to put prices up: switching to £11, £16 and £21 would seem – at least initially – ‘a bit odd’. As the National Theatre would agree, simplicity comes at a price.

With thanks to Dave Murphy Cambridge Arts Theatre, www.cambridgeartstheatre.com 59 Call it a tenner

Maximising local interests Pentabus and rural pricing

Just because ticket prices are generally lower in the country than in the city, it doesn’t mean that pricing strategies have to be unsophisticated. A couple of years ago, Pentabus Theatre ran an outdoor show, an adaptation by Bryony Lavery of Mary Webb’s novel Precious Bane which featured eight professional actors and 180 singers recruited from the local community. These were formed into three choirs, one for each of the three weeks the show ran. Box office was handled by the Music Hall, Shrewsbury’s sole venue for professional theatre. In terms of selling tickets, the choirs presented a problem, as Pentabus director, John Moreton recalls: ‘Participants always expect their friends and family to come free.’

The solution was to set up a Choir Members Offer scheme, where each singer was offered four tickets for family and friends at a reduced rate of £5, which they could purchase through the Music Hall box office using a secret codeword. Singers were also allowed a free ticket to attend a show they weren’t singing in. The full pricing structure was as follows:

Tues £8/£6 (choir offer applies) Weds/Thursday £10/£8 Friday £12/£9 Sat/Sun £12 across the board

This stepped pricing promoted attendance on the least popular nights, a policy reinforced by dropping concessions on Saturdays or Sundays. (This last tactic has to be understood in a context where, as John explains, some of the smaller theatres in the well- to-do market towns never offer concessions to pensioners ‘since these make up 90 per cent of their audience and are the richest section of society’.)

The results were good. The average ticket sale was £9.20, and an astonishing 77 per cent of the audience were new attenders, according to the Music Hall database.

With thanks to John Moreton Pentabus, www.pentabus-theatre.co.uk

60 Pricing in practice

Starting off cheap but getting expensive Shifting perceptions of value at The Place

The idea came to John Ashford on an Easyjet flight to Barcelona. The venue he continues to direct, The Place (in Euston, central London), was about to undergo a major refurbishment and an Arts Council-run stabilisation programme. By the time the venue reopened, in autumn 2001, an innovative new pricing strategy was in place.

The Place is a small studio theatre, with a capacity of almost 300, which shows, almost exclusively, contemporary dance performances. No seat has any great advantage over any other in terms of sightlines and none are allocated. So, the question is: how do you increase yield through the level of price differentials in such an auditorium? The answer is: by finding something other than the quality of the seat to base different prices on. Remembering his airborne epiphany, John, with the support of his marketing manager,Tim Wood, decided price should be shifted on to when the customer books their seat.

Rather than us imposing a value on each and every performance, according to the price you wanted to charge for it, we wanted to shift that perception of value on to the person buying the ticket.

Establishing the new strategy Out went the old one-price structure (£10 or £12 with £8 concessions), and in came five new prices: £5, £7, £10, £12 and £15. The venue explained that there would always be at least twenty tickets at each price for each performance. The sooner you booked, the more likely you would be to secure the cheapest, £5, ticket. Leave it until the last moment to decide to come and you would almost certainly have to pay £15. The idea, John explains, is to attract people with the low prices on offer – and then sell as many tickets for the highest price possible.

The £7 ticket is for the usual concessions but unusual in that it is not the cheapest offer – partly because not all people eligible for concessions are actually less well off. The £10 ticket has to be bought at least 24 hours in advance and cannot be bought at the door. Given that, at The Place, as much as 60 per cent of sales are 61 Call it a tenner

from ‘walk ups’ (people just turning up on the night), the fact that the £10 ticket cannot be bought on the door is significant. The second highest-priced ticket, at £12, can be exchanged for credit towards another performance if the customer is unable to come to the performance. Even more flexible is the top-priced ticket, £15, which can be exchanged or refunded; interestingly, John remarks, few take up that offer, so making it is easy.

All five prices are offered for all performances, no matter how celebrated or how untested the performers. John feels it’s invidious to price down riskier work: ‘We don’t want to say, “It’s only a fiver for this performance because it’s not very good”.’ But there is obvious flexibility in the structure that will allow the venue to sell more of one price ticket than another. This can have a significant impact on yield, as Tim explains:

With the same headline prices, we sold out two performances, completely sold out. One netted under £2,000, a yield of about £6.50, and the other was nearly £3,200 – yield: £10.88. We’re approaching a 50 per cent increase in yield with the same prices and the same number of sales.

The success of the strategy If the purpose of the strategy could be seen as a way to increase income, it might also have been a way of securing income earlier. Yield did go up by £1 a ticket on average, but it soon became clear that there would not be a lot more early bookers. Those who book late are doing so for a reason – they are not sure they will be free that night. The fact that they are prepared to pay the premium price for this convenience helps the venue to achieve an increase in yield.

Not only has yield gone up, but the public perception of value at The Place has actually improved since the change in strategy. In 2000, 75 per cent of customers surveyed said they thought that The Place was ‘good’ or ‘very good’ value for money. When it reopened two years later, that figure had gone up to 85 per cent.

There are challenges, however, as Tim points out:

The terrifying thing about this strategy is that, traditionally, you price something and, if it’s not selling, you start discounting and making all sorts of offers to generate some demand for this show

62 Pricing in practice you can’t shift. Our pricing works the other way round, it starts off cheap and gets more expensive. So if it’s not selling, it’s even more terrifying. Though we can, as Easyjet do with their penny flights to Denmark or Spain, send round an email to say there are some new £5 tickets now available.

Reviewing the strategy Another current debate is around how to increase prices now that the increase in yield is falling behind inflation. In the first year, net yield went up 12 per cent and, in subsequent years, up 7 per cent, then 6 per cent and last year 3 per cent. So, John concludes:

We’ve been selling fewer tickets at the cheaper price and more at the more expensive price without the public knowing and have squeezed out probably the highest revenue we can from these price structures. So we are now at the point where need to review.

Perhaps the most challenging aspect of this strategy, however, has been communicating it to a public used to thinking that a higher-priced seat is a better seat. Both John and Tim are puzzled that few venues, even those of the same small scale as The Place, have tried this approach. Until that happens, the box office at The Place will still have plenty of explaining to do.

With thanks to John Ashford and Tim Wood The Place, www.theplace.org.uk

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64 Chapter Three The bottom line

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Chapter Three: The bottom line

What do your customers value about you? This is one of the fundamental questions that need to be asked before setting a pricing strategy. It emphasises the need to look at both who our customers are, and how their individual circumstances influence their ‘perceptions of value’. These perceptions are not just a matter of academic interest, but are of crucial importance for every arts organisation’s pricing. Setting prices is not just about balancing the budget, but about addressing a whole range of issues that will require a sophisticated response. This chapter provides a structured and comprehensive overview of what pricing strategies and tactics are available to organisations ready to set a coherent strategy. There are no set formulas, of course, and no room anymore – at least, so we hope – for the cynical view of one delegate at a marketing conference who remarked, ‘I love “best available” – it’s the best way to get rid of the crap seats.’ Instead, what Tim Baker offers here is a smorgasbord of pricing options with some pointers on where and when organisations might best use them – and some questions that need to be asked. There are no full-blown recipes for success: every organisation needs its own particular strategy, based on its own particular answers to these questions and to the unique challenges it faces. Here, then, are some tools – but no conclusions.

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The bottom line? Using pricing to optimise sales and income Tim Baker

Perishability and the peculiar nature of arts pricing ‘The problem is that ticket prices are too high. If only they could be reduced, more people would come.’ The complaint echoes through press articles, boardrooms and funding meetings. But should price always get the blame for poor audience figures? Thousands of people pay around £40 every week to watch ninety minutes of football. Would they pay the same to watch contemporary dance? Would they pay £10, or £5, or even £1? In most cases, probably not. But price is not the problem – it’s the value they associate with the experience on offer. We have to face the fact that many people don’t think that the arts offer them anything they value, and in that context price is irrelevant. The problem may simply be that people don’t understand the value of an artistic experience because it hasn’t been communicated effectively, but the fact remains that, unless people value something, the price is irrelevant. Price elasticity of demand explains the correlation between demand for a product (ie the number of tickets sold) and changes in price, assuming all other factors remain constant. In general, if you charge more for something you’ll sell less of it, and vice versa. The underlying logic is undeniable; if you charge less, you’ll sell more tickets. But to whom? It is most likely to be to the people who are coming already, because they already understand and appreciate the value of the experience. In other words, most of the people who will benefit from lower prices are the educated middle classes who are already attending. This only becomes a problem when the price is subsidised, which it often is, with the aim of encouraging all people to attend. Direct solutions to this problem imply some form of means-testing, which would be contentious and difficult to apply. While price elasticity of demand offers a persuasive argument that reducing prices will increase attendance, is reducing price the best

68 Chapter Three: The bottom line way to promote arts attendance? Advertising a lower price can work in particular circumstances, but unless the message is carefully managed there is a danger it devalues the experience. One problem is that those working in the sector can undervalue their ‘product’. This lack of confidence has a number of causes, including an inability to communicate value effectively, and is compounded by the perishability of most arts ‘products’: if you don’t sell it by curtain-up, you can’t put it on the remainder shelves. This often leads to indiscriminate last-minute discounting, undermining perceptions of value among people working in the sector as well as the customers. In other words, rather than simply reducing prices, we need to develop a better understanding of what people value, and better skills in creating and communicating that value. If we can do that, a sophisticated pricing strategy can be used to maximise both access and income. This chapter summarises seven basic building blocks towards a more sophisticated pricing strategy:  pricing in the marketing context: pricing doesn’t work in isolation, and the starting point, as in all elements of marketing, is understanding markets  objectives and strategy: there are three strategic approaches to pricing that can be adopted, achieving a wide range of objectives  putting a price on value: perceptions of value are almost unique to each customer for each event and understanding them is fundamental to pricing strategy  the price is right: so how do you set prices? What are the variables that can be adjusted, and how can the arts benefit from revenue management?  sales promotion: using pricing tactics to increase sales  implementing pricing strategy: how to present prices and implement pricing on the front line  basic monitoring: analysing data to assess your strategy.

Pricing in the marketing context Although pricing can be an extremely powerful tool in achieving a range of objectives, it doesn’t work in isolation. Price is just one of the seven Ps and to be effective it must work alongside the other six strategies for Product, Place, Promotion, Process, Physical evidence and People.

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While all of the Ps should work together, the most important for pricing are ‘product’ and ‘promotion’:  product: what is the value that you are offering? Not just the artistic experience, but the venue, catering and so on  promotion: the value that the product offers is worthless unless you are communicating it in terms of benefits – what will customers get out of it? Creating and communicating value is fundamental to effective pricing. The starting point for all marketing, however, is understanding your market. In terms of pricing, this means:  an understanding of price demand, usually based on analysis of price, yield and sales for previous events or promotions  an ability to segment your current and potential market, principally according to behaviour. The basis of such segmentation is analysis of your customer database. This can be enhanced with primary research on characteristics and motivations  a more general understanding of the local market context, including market size and demographics  an understanding of the marketplace: what the ‘going out’ options in your local area are, as well as the prices of direct competitors (and not just their prices, but also an assessment of the value that they offer).

Objectives and strategy Arts organisations can use pricing to achieve a wide range of objectives: maximising yield per ticket, increasing volume of sales, or improving accessibility for people for whom price would otherwise be a barrier. Although pricing tactics are many and varied, there are essentially three strategic approaches to pricing. ‘Skim pricing’ sets prices high, consciously attracting only a small sector of the market. ‘Penetration pricing’ does the opposite; prices are set low in order to sell a greater volume. A more common strategy in the arts is ‘neutral pricing’. This seeks to take price out of the equation altogether, recognising that, for most people, price is not the reason they decide whether or not to go to the arts.

Three pricing strategies Skim pricing Skim pricing involves deliberately setting a price that only a small segment of the market can afford. This requires that customers place 70 Chapter Three: The bottom line a high value on the product. It can be employed where someone else pays (for example, corporate entertainment), with impulse purchases, where there is some degree of exclusivity, or where there is an emotional end-benefit (eg jewellery and the arts). However, making it a sustainable strategy for a whole business requires a clear competitive advantage, through, for example, a strong brand. There are some arts organisations whose limited market means they are able to base their strategy on skim pricing, and others where the international brand is so strong as to allow for much higher prices, such as the Vienna Philharmonic. Skim-priced corporate entertainment packages are still commonplace in the arts, although greater competition has emerged since they first became popular in the 1980s. However, many arts organisations also find that there is a sector of their market that simply asks for ‘the best seats’. Events with a major star or that are good for special occasions or treats – typically the West End, big musicals, ballet or opera – attract those who use price as an indicator of high value when they want a guaranteed good night out. This opportunity can be exploited by offering a premium price, in addition to a neutral pricing strategy. Creation Theatre Company presents site-specific productions in Oxford. By identifying the key benefits sought by customers who ask for ‘the best seats’ (including additional leg-room, pre-show drinks, programmes and priority bar queues), it is able to offer a package charged at an additional premium which is purchased by over 10 per cent of the market. By maximising income from those willing to pay for a premium experience, the company, which does not receive regular subsidy, is able to operate a penetration pricing strategy for other more price- sensitive markets, including students and schools.

Penetration pricing Penetration pricing means using price as a key selling proposition, making price the main reason why people should buy your product. It is generally used to gain or hold market share in a competitive market (and it is important to note that in this context ‘market’ refers not only to the number of people purchasing, but to their total spend). It only works as a long-term strategy if costs can be lowered and there is the potential for a significant increase in volume of sales – and competitors are not able to respond.

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There are relatively few cases in the arts where market conditions mean that penetration pricing is financially viable on its own, not least because few arts attenders buy solely on price and therefore, by charging less, you will be passing up revenue opportunities and risk undermining the value of your product. The National Theatre’s Travelex season is a classic example of penetration pricing: a stripped-back product at a lower price, re-positioning the brand in the highly competitive London market. Other organisations, such as the Queen’s Theatre in Hornchurch and Derby Playhouse, have used penetration pricing in particular market circumstances to gain their share of spend by increasing frequency of attendance through very low-priced subscription schemes.

Neutral pricing Neutral pricing is essentially neither ‘skim’ nor ‘penetration’, with prices set at a comparable level to those of competitors. This is not to say that prices will be the same as those of competitors. They may be the highest or the lowest, but they are defined by the perceived value of the offer, relative to the competition. A neutral pricing strategy is often adopted by default and usually forms the core of an arts organisation’s approach to pricing.

Which strategy is right for you? For most arts organisations, a combination of strategies works best: neutral pricing as the basis for standard prices, skim pricing for customers willing to pay more for the best experience, and penetration pricing to address markets where other barriers to attendance are significant. This is rather like the pricing you’ll find at your local Tesco: most brands and products priced competitively, with the ‘Finest’ range for those willing to pay more for higher quality, and the ‘Value’ range for the cost-conscious. There are a number of factors to take into account when considering which combination of strategies works best for your organisation. Your costs and your customers form the parameters within which prices can be set: if you do not cover your costs, or if you charge more than your customers are willing to pay, your organisation will be unsustainable. However, between these parameters pricing offers all sorts of possibilities for helping you meet your objectives.

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Costs Historically, pricing strategy was cost-based: you decided what you wanted to do, worked out how much it would cost and then how much you needed to charge, based on the number of attenders you thought you would attract, in order to get that money back. But this can be a good way of losing money. A lower price charged for a product that is just as good, but happens to cost less to produce, represents lost income (and potentially lost sales, by suggesting that it is of lower quality or value). More significantly, forcing prices higher than the market is willing to bear to help pay for higher costs may reduce sales. Customers While there will be a small section of the market for whom cost is an absolute barrier to attendance, for most – and certainly for the majority of the educated middle classes who currently attend, especially in an age of easy credit – it is less a question of how much they are able to pay, and more of what they are willing to pay. This is a function of their perceptions of the value offered. Objectives A pricing strategy must start with ‘what the market will bear’, with costs coming into the equation in calculating whether an organisation can afford to stage a particular event. But that usually leaves significant room for manoeuvre in allowing price to address a range of different objectives. Arts organisations normally have three sets of objectives, all of which have a significant bearing on pricing strategy, but which can also create contradictions.  Artistic objectives define the work of the organisation. They tend to require maximum occupancy, often for specific events that might be difficult to sell. This means that there will be pressure to sell the tickets at any price as long as the event is seen as a success.  Financial objectives also require maximum occupancy, but are also much more concerned with the income per ticket.  Social objectives determine what sort of customers an organisation wants to attract. These can conflict with other objectives: for example, customers desired for social reasons may not generate the yields required to meet financial objectives.

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Putting a price on value Like all aspects of marketing, pricing starts with an understanding of the people you want to attract, and the benefits that might attract them. What are their motivations for going out? People go to arts events for all sorts of reasons, including special occasions and specific shows and events. What needs are people trying to meet when they go out? What are their alternatives? This sets the context for price – what value are they seeking? – and allows you to understand your competitive set and the context within which customers are judging the price/value trade-off.

Understanding perceptions of value When presented with a price for a product or experience, we all, consciously or unconsciously, weigh up the relative value of that offer compared to the other things we might do with the same amount of money – or, just as importantly, with our time. This weighing up of value is affected by many different factors and may even change at different times for the same offer. For example, you might visit the same restaurant for a business lunch, a romantic evening and a Sunday lunch with the extended family; your perception of value (and the price you would be willing to pay) would be different on each occasion. In the case of a theatre visit, tickets bought for a birthday treat will be valued very differently from a regular subscription you take out for yourself. Of course, the event itself lies at the heart of the value a customer will attach to it. How special is that event? Is it a normal part of your season, or a once-in-a-lifetime experience with a star performer (nothing drives value like perceived scarcity)? Perceptions of value are also affected by other factors, including the facilities and ambience of the venue and a company’s brand. Brands are all about creating value. Brand value is, however, external to the specific attributes of a product. For example, designer clothes create a value – and thus willingness to pay a price – that goes far beyond the basic utility offered by the item. Other brands create a sense of familiarity or trust. While there is a small segment of the arts-going market that actively seeks out risk, for the majority of customers, risk is, in a sense, the opposite of value. An experience that is new or unfamiliar makes it very difficult for the customer to understand the value it might offer and thus weigh up whether the price is a fair one. In certain circumstances a lower price can help overcome perceptions of risk, by suggesting a ‘bargain’, but it can work the other way. Price can enhance perceptions of value (which is why Stella Artois once claimed

74 Chapter Three: The bottom line to be ‘reassuringly expensive’), with a higher price used to suggest higher quality. Equally, a lower price may suggest lower quality. You may choose a flight for its cheapness, but you’re unlikely to pick your dentist purely on the basis of price. Perceptions of value also depend on the profile of the customer. Earnings, occupation and lifestyle all have an impact on the way that value is perceived, and life-stage – most significantly whether or not they have children – will have a tremendous psychological and practical impact on the type of experience a customer will value. Someone looking for a family day out, for example, will have a very different framework for assessing value than that of a single person looking to impress someone on a first date. Perhaps the biggest influence on the way a customer perceives the value of the event you are offering is their experience and knowledge of that type of event. A regular attender at a theatre over many years will have a far more acute understanding of the relative value of your offer than a first-time attender. Regular attenders are able to make comparisons of relative value – between different artists/productions, the merits of different parts of the house, and so on – and also of the availability of substitutes from the competition. Regular attenders therefore tend to be more price-sensitive than infrequent attenders, who are more likely to use price as a proxy for value (a high price equals a guarantee of quality).

Price differentiation Perceptions of value are individual to each customer for each event. As a result, the price that customers are willing to pay varies significantly. The key to maximising income and accessibility is to differentiate prices to reflect that variability. Maximising both income and access depends on having a wide variety of price points to meet different perceptions of value. There are examples where it is difficult to have more than one price (eg in the visual arts), and there are sectors in which a single price works well (such as popular music, where it is commonly accepted there is just one price for a gig). However, having only one price leaves you with very few options when you need to increase income: you can either put the price up or try to sell more tickets. Price elasticity of demand means that with only one price there will always be some people who would have paid more, and other people who may have come had you charged less. Both represent lost income opportunities.

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Price elasticity of demand: a higher price results in lower demand and vice versa

£10 Price

Income = price x demand £10 x 100 tickets = £1,000

100 Demand (number of tickets sold)

Some of the existing attenders were willing/able to pay £2.50 more, resulting in additional income £12.50 Additional income £2.50 x 80 tickets = £200 £10

Price Some new attenders were attracted by the lower price, resulting in additional income £7.50 Income = price x demand £10 x 100 tickets = £1,000

Additional income £7.50 x 20 tickets = £150

80 100 120 Demand (number of tickets sold) 76 Chapter Three: The bottom line

As the graphs opposite show, the way to gather that lost income is through price differentiation. Whether your organisation is large or small, performing or visual arts, the principles of price differentiation apply. If it is not possible to break prices in an auditorium, or your organisation is not auditorium-based, you need to look at other options for differentiation. In cultural organisations there are a wide variety of tactics that can be used to differentiate prices. Choosing which mix of price differentiators to use depends on the differences in value that will motivate your customers and on the simplicity of presentation.

The price is right? So you know your target markets, the value they are seeking and how to communicate those benefits effectively. How do you set prices? This section examines, first, how to set prices, then the variables available in the price differentiation ‘toolbox’, the importance of value fences and, finally, the flexibility that can be achieved using revenue management tactics.

Setting prices Pricing textbooks talk about ‘valuing competitive differences’, meaning the different economic benefits of product features. While this is difficult with something as intangible as an arts event, it’s still worth trying to ask what you do better or worse than the competition and what that is worth to your customers. But that begs the question of what the competition is exactly. Price competition in the arts is very rarely direct (people rarely decide to go to the play at Theatre A rather than Theatre B purely on the basis of price). Competition isn’t necessarily the theatre down the street, but any other substitute product or experience that a customer might purchase to meet their particular needs. A social occasion could be spent in the pub. A birthday treat could be a sporting event. And cultural enrichment is available through an increasing range of media in the home or a good book. Actual prices will be set around your headline price: the main point of reference compared to the price of possible substitutes. This would usually be the top price (excluding any premium offer with added value), but should also include consideration of bottom prices (excluding discounting).

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However, it is very rare that you will need to set prices in such an abstract way. Although it is useful to reconsider issues of value from time to time, if you have an established audience or established offer, your existing prices will be the starting point for the actual prices you set, and you can examine price demand in relation to those offers and audiences. Price differentiation is fundamental to an effective pricing strategy. The number of variables that can be used to differentiate prices is enormous – which you use will depend on your product and the need to keep the resulting price schedule as simple as possible for the customer.

The price-differentiation toolbox At the heart of the toolbox are the four core price levers: price variables, venue variables, product variables and transaction variables. The key to a sophisticated pricing strategy is setting these variables to reflect the individual value perceptions of different customers for different events. Price variables are not just the different prices you charge but, perhaps more importantly, how many prices you have, what the relationship is between those prices (the range from top to bottom, as well as between each price) and the way that your prices reflect natural price thresholds. The number of prices you could have is potentially large, the main limitation being the need to present them as simply as possible to customers. A minimum of three is probably best: many customers automatically look at mid-range prices, but others will look for the best seats or for a bargain. Where prices are presented in a range it is important to think about the relationship between them, so that the next price is within reach; if your prices are £10, £20 and £30 you are creating big jumps for customers to trade up. The importance of price thresholds is difficult to prove definitively, but we all know instinctively that £10.01 feels wrong. Thresholds exist not only at round numbers – £5, £10, £15, etc – but at the £2.50 intervals too. Venue variables describe how prices reflect the attributes of an auditorium (stalls, circle or balcony, but also front to back, side to side and different types of seating). It is vital to make sure that the number of seats at each price reflects levels of customer demand. An analysis of patterns of demand for Regents Park Open Air Theatre revealed greater demand at top price than seats available. Increasing the number of seats at top price allowed for further demand, and overall price changes resulted in significant additional income. 78 Chapter Three: The bottom line

It is vital that any such changes reflect actual differences in quality of view, acoustics and so on, and that those differences should be perceived by customers. When City of Birmingham Symphony Orchestra (CBSO) moved into Birmingham Symphony Hall, they priced a very complex auditorium in a logical way, but found that over the following seasons their yield fell. Customers were ‘learning’ the hall and finding that cheaper seats were just as good as more expensive ones. Detailed price demand analysis allowed the orchestra to identify which seats the customers thought were best and re- price them accordingly. As a result, they were able to increase yield by 7.5 per cent. Product variables describe the way you change price schedules for different productions or performances. It is often standard practice to price productions or artists differently. However, this is not always desirable: analysis of demand often shows that higher priced shows sell better than lower-priced ones. It can be argued that pricing a similar event at a lower price creates the suggestion that it is not as good as a more expensive event. Presenting a run of performances also offers the option of changing prices by time of day (matinees versus evenings), day of week, or over the course of the run. This can be highly effective, both by maximising income from those willing to pay most, eg for a special Saturday night out, and by shifting demand from the more price- sensitive customers to the less popular performances. For example, Theatre by the Lake in Keswick offers penetration-priced package deals for performances at the start of its long summer season to free up seats during the peak months of July and August. One of the most effective uses of this technique is for Christmas shows, where peak performances are more expensive, shifting demand to off-peak performances and maximising income from the less price-sensitive customers. Transaction variables allow prices to be adjusted based on the time of the transaction or the sales channel used. Airline revenue management systems use transaction variables, increasing the price the later a booking is made. This depends on having a late-booking market willing to pay more for the benefit of delaying their choice (or to book earlier to secure a discount). This doesn’t always apply in the arts, although there are countless small venues effectively doing the same thing by charging less in advance than on the door. Marlowe Theatre in Canterbury offers Early Bird rates for customers booking months in advance for its Christmas 79 Call it a tenner

show, thereby persuading customers to book as much as a year before the performance takes place. Changing prices by sales channel depends on whether there is additional benefit from one sales channel versus another. One could argue that since online booking offers the benefit of convenience, it should be more expensive than other channels. However, the number of cost-cutting online sales operations means that most customers expect online prices to be, if anything, cheaper than elsewhere.

Discounts and surcharges Discounts and surcharges (including transaction fees) offer further opportunities to differentiate prices, overlaid on the core price levers described above. Discounting Discounting is the most flexible means of price differentiation, because it offers three variables that can be changed:  applicability: who can claim discounts (either concessions or sales promotion) based on behaviour or other characteristics  availability: how many discounted tickets are made available, for which performances, and at which stages in the sales cycle  discount rates: what the different discount prices are. The main problem with discounting as a means of price differentiation is that it only reduces prices. However, you can maximise income by controlling and differentiating discounting. The principles of differential discounting apply to concessions, as well as to sales promotions. For example, it is not necessary to offer the same discounts to well-off seniors as to unemployed people on income support. It is already possible to make different promotional offers to different database segments according to previous booking history, but exciting possibilities exist around online sales if ‘cookies’ can be used to identify returning customers. It is also common to see organisations maximising income by restricting availability of some or all discounts and concessions for peak performances. Some, like Birmingham Hippodrome, make all discounts and concessions ‘subject to availability’ and are thus able to close off discounts after a certain number have been allocated for popular performances. The key potential benefit of discounting is selling more tickets, but it also has a number of dangers and, if used indiscriminately, can undermine value. 80 Chapter Three: The bottom line

While there are furniture shops that have non-stop sales, there are many examples of arts organisations where indiscriminate discounting has had a disastrous effect on ticket sales; customers no longer book in advance, but have learned they can wait for the special offers to start. The key to avoiding this problem lies in ‘value fences’. Transaction charges Unlike discounts, transaction charges have the advantage of being ‘extra’. They are also relatively flexible, eg per ticket versus per transaction, as well as the actual level of charges. It is also possible to adjust charges by sales channel, payment type, performance or customer profile. Transaction charges are particularly attractive to venues with external promoters, because additional income from ticket sales is usually shared, whereas transaction fees are retained. Although customers tend to dislike them on principle, transaction fees are now commonplace and unless there is competitive advantage derived from not charging them, not doing so simply represents lost income.

Good fences make good customers Customers should always understand the reason for a difference in price. In pricing theory this is known as ‘value fencing’ – the reason why someone will pay more for something (the genuine additional value) or expect to get a discount. The most important point about value fences is that they need to reflect benefits that are important to customers. For example, when setting price breaks in an auditorium, you need to understand which seats the customers think are the best. The best value fences will be based on points of competitive advantage that are valued by customers (such as comfort, view, acoustics, quality of service) and as such may translate into brand values. For example, The Broadway in Barking offers a ‘Big Night Out’, in which people place value on the cabaret style seating, waiter service and social experience as much as the performance itself. It is important to remember that value fences can mean taking something away as well as adding value. So, the ‘deal’ for standbys is that you pay very little for good seats, but you have to take a genuine risk on availability. If you leave holes in value fences, you can be sure that customers will jump through them. If customers work out that standby is always available on decent seats, why would they bother paying full price in advance?

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Revenue/yield management Revenue (or yield) management is used by most airlines and has been successfully applied to many other industries, including hotels and rail companies, to manage inventory and maximise income. Essentially, revenue management involves setting a range of price classes which are opened and closed according to a comparison of actual sales against a forecast. It thus includes control of discounting, but also the management of inventory to ensure that sufficient product is kept available for purchasers willing to pay the highest price for convenience at the last minute. Revenue management requires the ability to segment customers into micro-markets with identifiable patterns of demand for different prices and products. This requires a sophisticated pricing strategy and an ability to forecast, monitor and react to sales patterns and external market factors. Implementing a successful strategy requires commitment throughout the organisation, a willingness to implement changes at a strategic level and, often, financial investment. Critically, it will not work without strong market demand for the product or service in question. On the surface, the arts, entertainment and sport sectors have many similarities to industries where revenue management has been successfully applied. However, there are some critical differences created by the different nature of the value offered by arts events, so if revenue management is to work, its principles need to be understood and applied in unique ways. The main principle of revenue management is to adjust price differentials in response to changing customer demand, in order to maximise both occupancy and income. The entertainment sector already uses many revenue management techniques, eg differential pricing by time of day, day of week, availability of concessions by performance, cheap previews, Early Bird and standby. Some organisations already adjust price breaks by performance and many adjust prices to control inventory for Christmas shows. Many organisations control discounting by operating quotas. A few arts organisations have developed airline-style pricing strategies, where prices change by booking time, perhaps the best example being The Place, a dance centre in London. Revenue management doesn’t have to be an ‘all singing all dancing’, dynamic model where prices and availability change constantly (as happens with sophisticated airline systems). It can be simple things like removing concessions from weekend performances, having

82 Chapter Three: The bottom line several different seating plans for an auditorium, or adjusting the number and schedule of performances of a panto. The key to applying revenue management is adopting a scientific approach to planning and to the ways in which simple existing tactics are applied. This will include better informed and more finely tuned decisions about the need for last-minute promotions, design of subscription schemes, application of discount quotas, changing seating plans between performances, offering premium seats and managing inventory away from peak performance, but also adjusting inventory – how many performances of what, when?

Sales promotion: Using pricing to increase sales While controlling discounting can maximise income, the main benefit of discounting is selling more tickets, by encouraging trial, increasing frequency of attendance, increasing party size and, if necessary, shifting unsold seats at the last minute. In developing discount tactics, it is important to distinguish between sales promotions (to increase volume) and concessions (which are about social objectives).

Discounting to encourage trial Price alone is rarely the main reason for people not attending, but, packaged with other elements that address barriers to attendance, discounted prices can be effective. An example of this is Test Drive schemes that encourage ‘free trial’ while addressing other barriers, through, for instance, print designed specifically for new attenders. Often the biggest challenge with these schemes is getting people to re-attend at full price.

Discounting to increase frequency of attendance Research consistently shows that the majority of people who attend the arts do so very infrequently. (For example, only 39 per cent of those who attend plays do so more than once a year, just 9 per cent of the population.1) Assuming the seat would otherwise go unsold, every £1 a customer spends on an additional attendance represents additional income, and often that only means getting someone back for a second visit in a year. Consequently, it is usually worth discounting and taking a ‘hit’ on yield to increase frequency because, assuming you have spare capacity, you are obtaining additional income and building your relationship with the customer. Frequently attending customers are more

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likely to keep coming – and keeping existing customers is far cheaper than generating new ones, so marketing costs are reduced. The potential ‘lifetime value’ of these customers more than makes up for short-term losses. Furthermore, discounted prices and familiarity with the organisation can encourage greater risk taking. And it makes planning a great deal easier if there is a guaranteed sales base to build on, allowing more time and resources to be deployed developing attendance from more difficult markets. Discounting is effective in increasing frequency of attendance, because previous attenders have a better understanding of value and thus appreciate the deal they’re being offered. However, before implementing sales promotions to increase frequency of attendance, it is critical that you know the current frequency of attendance and thus the points at which to encourage trade-up. The range of options for such sales promotions is wide.  A ‘money off next purchase’ voucher offers a simple approach to encouraging repeat attendance from new or infrequent customers. However, it can be difficult to control what else they come to without complex conditions, and there can be issues in ensuring non-transferability (ie stopping customers giving it to someone else).  Two events for the price of one, three for two, four for three, etc offer a slightly more controlled version, especially if the date/product of the other purchase is stipulated.  Loyalty cards or points schemes provide flexibility for customers, creating an incentive to frequency without the need to plan in advance. It is also possible to charge people to belong to a scheme and to add value to promote greater frequency of attendance.  Packages: discount if you book three/four/five events, through to full subscription. This encourages customers who are willing to plan their attendance to try different things. Packages booked in advance are good for cash flow and can help marketing planning. Packages might also include added value offers.

Maximising income through subscription Subscription schemes aim to maximise sales by increasing frequency of attendance. They encourage customers to buy tickets for a package of events in advance and thereby attend more events than they otherwise would have done. Discounts are essential in creating a sense of value for money, and placing a deadline on the offer can create a sense of urgency.

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However, the level of discount offered is rarely the most significant factor in the decision to subscribe. Most people who subscribe do so because they like to plan (and the main reason people don’t subscribe is that they don’t like to plan). Derby Playhouse wanted to encourage more of its audience to see a whole season of their work. Generating an earlier cash flow was also a primary objective. They launched a very simple subscription scheme, offering four shows for the price of two. Before launching the scheme, advance season ticket sales were as low as 1,000. In the three seasons since, they have generated as many as 16,300 advance ticket sales. Although the scheme was principally aimed at existing attenders, 30 per cent of subscribers had no previous booking history. Yield, predictably, fell, but not by much (less than 5 per cent), and increased sales meant that average income per performance rose. In designing a scheme, it is important to research the nature of the offer that will motivate the market (and ensure the organisation will not lose out). Schemes range from a ‘take it or leave it’ offer of a complete season, to ‘choose a series’, with a choice of packages (eg a Wednesday or Friday series, or a drama subscription or comedy package), through to ‘pick and mix’ schemes aiming to give a customer maximum flexibility and choice. CBSO had a highly successful fixed-day subscription running for many years, but found that retention, and especially uptake, had started declining for the highest frequency packages. They commissioned research to help in designing an additional, flexible scheme, ensuring that the levels of discount, choice of concerts and other benefits differentiated from the original scheme to meet the needs of new subscribers, without causing too much slippage from the original and highly beneficial scheme. Once a scheme has been designed to suit the market and maximise sales, there are a number of structural variables which can be adjusted to improve yield and volume, and thus total income: eg season length, offer timing and availability, discount levels and number of purchases required. Where possible, organisations should also try to address barriers to purchase. Common reasons cited for not subscribing are: size of financial outlay (so let customers pay in instalments), not wanting to commit in advance or inflexibility of schedules (so offer ticket exchanges) or wanting to choose which performances to attend (offer a ‘pick and mix’ subscription). 85 Call it a tenner

Increasing party size Group bookers can deliver a high volume of sales and it is worth using pricing tactics to encourage them. However, doing it properly requires investment that is probably only worthwhile if groups represent a significant market. Larger groups effectively make the organiser a member of your sales team. Above all, you need to consider the nature and motivation of groups and organisers, eg groups of friends, corporate entertainment and schools all seek different benefits. In some cases, a group discount may be a key benefit sought, but often organisations have a ‘one size fits all’ groups policy that means that some groups are being given discounts when they would actually prefer added value (eg best seats, ‘hosted’ service, catering, separate room). It can be time consuming to properly respond to the nature of different groups with a direct sales operation, so a dedicated member of staff may be required. ‘Four for two’ can be a better way of expressing a 50 per cent discount and higher multiples can make a significant difference to sales. Since most people come in pairs, two for one is no more than a 50 per cent discount – it won’t increase sales. You need to assess current party size and thus the points at which to encourage trade-up.

Last-minute discounting Perishability is a key problem of selling tickets for events, but feeding the late-booking culture causes problems.  Standby: attracts last-minute attenders and at the same time shifts seats that wouldn’t sell otherwise. However, this has helped to create endemic late booking in several markets, especially where conditions (eg eligibility and time of purchase) are not applied or have been extended.  Rush: same as standby but only available on the door. This does not have such a bad effect on booking and it is easier to control quotas. It also creates a value fence because it requires customers to take a real chance (unless they learn that tickets are always available).

Implementing pricing strategy

Price incentives There are many different ways to express a discount or offer a price incentive, such as:

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 x tickets ‘free’  fixed price, eg £5 best available  fixed discount, eg £2 off  percentage discount. The trick is to pick the one that makes your discount seem the greatest. Although not exactly a price incentive, a money-back guarantee can help to offset the risk that some may perceive in unfamiliar work – and few people do ask for their money back!

Putting it all together Make sure all the different elements – prices, price differentiation, sales promotions, concessions, revenue management – work together to achieve your objectives. Are your value fences motivating? Do they work in the right places to achieve your objectives (eg frequency of attendance)? What are you getting in return for offering a discount? Having established a range of differentiated prices, look at the price range from top to bottom, the relationships between prices (ie how big a jump you’re asking customers to make to trade up), and the relationship to the round-number thresholds.

Presentation of prices Think about the message your pricing communicates about your organisation. If you are pricing productions differently, what are you saying about the quality of each production? What do concessions say about the audience your organisation wants to attract? What kind of booking behaviour do you reward? If your strategy includes penetration pricing or sales promotion involving discounts, remember that the price becomes a key part of the message. If the idea is to persuade people to change their behaviour because of price, then you need to make that clear. You don’t need to put every detail of every price and discount on every piece of publicity. The basics might be no more than the range of prices (from top to bottom, because if you start from the bottom the top can seem very expensive!) and the concessions available. Above all, keep it simple. A good pricing strategy should be swan- like – all the activity goes on below the surface!

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Writing it down Having decided on a pricing strategy, write it down in a policy document accessible throughout the organisation, especially to box office or other front line staff. Include details of concessions policies and the circumstances under which tickets are discounted. In developing your concessions policy, the fundamental question is: to whom do you want to be accessible? Segment and target your concessions so that they meet the real needs of the markets for whom price is a barrier. It should be possible to use the strategy as the basis for future tactical pricing decisions, unless conditions change or new opportunities present themselves. Each time new ‘products’ are introduced, new target markets identified, or other major changes implemented, it will be necessary to go through some or all of these steps.

Pricing on the front line The best pricing strategy won’t function properly unless it is understood and implemented by the box office. Sales staff can offer valuable input into understanding the benefits sought by customers, as well as providing a reality check on the rationale of the pricing strategy. However, it is important that sales staff don’t impose their own perceptions of value. Sales staff often have comparatively low levels of disposable income and high frequency of attendance, making their perceptions of value very different from those of most customers. Another problem arises where the transaction process has adapted to regular customers. Because regular attenders have a better appreciation of value than non-regulars, they will often know what they want. Where the sales process adapts to these customers, the box office team becomes reactive, rather than asking questions and making recommendations. Asking appropriate questions makes for a faster transaction and makes the process easier for a new or infrequent attender. For example, asking someone where they would like to sit is a common question in transactions, but is not welcoming for a new attender (because it implies they ought to know) and makes an ‘up-sell’ difficult. A key challenge for the future is making the most of price in the transaction process in different sales channels, in particular encouraging up-selling and cross-selling as part of an internet transaction.

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Monitoring Monitoring means understanding the behaviour of your audience and patterns of demand between performances in relation to your prices. You can tell a lot about the impact of pricing through analysis of data held on a box office system. A full review of pricing should not be necessary every time you set prices. Effective monitoring means you can identify problems and opportunities that indicate the need to re-consider elements of your strategy. The basics are set out below.

Sales analysis The key statistics for sales analysis are:  mean price (total potential value divided by number of tickets available)  gross yield (gross income divided by number of tickets sold)  percentage discount ((mean price minus gross yield) divided by mean price) multiplied by 100). These values can then be analysed against sales (total and average sales and income and percentage capacity sold) by a number of variables such as production genre, year, day of week and so on. This analysis can be used to observe correlations between price, sales and income, and thus identify price sensitivity. Note that pricing is about tickets sold, and so complimentary tickets must be filtered out. Analysis must also be based on gross income, including VAT, commission and so on, because what matters here is what the customer pays, not what the accountant counts.

Discount analysis It is important to be able to monitor uptake of sales promotion and concessionary discounts. This can be done using discount codes (sometimes called ‘buyer types’) on a box office system. It is worth taking time to think through discount codes, because ad hoc codes soon multiply and make analysis impossible. Each discount should have its own unique code, but you also need to have some way of grouping them together so that the important distinctions are easily identified, eg sales promotion versus concessions, groups, frequency incentives, Friends, ‘company’ tickets and so on. As a rule of thumb, it is difficult to analyse more than around a dozen code groups.

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Analysis takes two main forms: monitoring uptake of specific concessions or sales promotions (in the latter case to measure cost effectiveness); and looking at distribution of demand for different discount types for different events (as per sales analysis).

Sales by price band/part of house In an ideal world you would analyse sales by price or part of house alongside sales and discount, but this is a more specialist job than you might think. Some box office systems can show sales by each price or part of house, but even then, you need to be able to see discounts. One common mistake is to identify strong demand at top price without necessarily being aware that many seats were ‘sold’ to sponsors or as part of ‘best available’ offers.

Customer behaviour Again, it can be difficult to get this information in a user-friendly format, but the basics for pricing include customer retention rates (the number of new customers versus retained customers – the latter normally being more aware of price and value and more price resistant), frequency of attendance (fundamental for designing any sales promotion to increase frequency), group size (ditto for group rates), and details of which events they attend.

References 1 Target Group Index, Arts Council England, 2002

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A balancing act Fine-tuning pricing strategy at the Lyric Hammersmith

The strategy As part of its 2005-08 marketing strategy, the Lyric took a detailed look at its pricing strategy and formalised a policy of revenue maximisation. The Lyric’s new approach, according to Jessica Hepburn, executive director, was ‘to attempt to maximise income from non-price sensitive customers whilst remaining accessible to price-sensitive customers’.

In 2005, the Lyric created two models for pricing the auditorium: economy and premium. Whether a performance was priced economy or premium depended not on just the usual ‘feel’ for how it would sell, but on an analysis of historical box office data, which showed, for example, that performances at the beginning of a run and on weekday evenings were harder to sell. Jessica also examined the Lyric’s popular tradition of cheap tickets on a Monday night, part of its commitment to accessibility. Shifting the cheap tickets to performances earlier in a run succeeded in increasing yield, thus, Jessica says, ‘enabling us to promote economic accessibility on performances that have been historically more difficult to sell’.

The strategy has paid off modestly over the first two years, with average ticket yield in the Main House up from £10.74 in 2005/06 to £11.60 in 2006/07, though this is partly due to an increase in ticket pricing. Average attendance has remained steady at 70 per cent. One recent innovation, made possible by Patron Edge, a box office system from Blackbaud, is that premium and economy performances can be set once the theatre has a sense of how the show is going.

Any pricing strategy is influenced and shaped by the particular context in which the venue or organisation operates. A strategy looks outwards and inwards, for example taking account of competition within the sector and responding to customer demand.

Adjusting for the competition As part of its research for the new marketing strategy, the Lyric looked at its main competitors, in this case helpfully identified by 91 Call it a tenner

Audience London’s Snapshot survey, which looks at venue cross-over of audiences. Crucially, the Lyric knew strategically where it wanted to be positioned: below the National Theatre, the Barbican Centre and the West End; comparative with the Almeida and the Royal Court; and above the Tricycle and Battersea Arts Centre. It was vital, Jessica says, that ‘we used our pricing to send messages to our audience about the value of our work relative to other venues’.

When the Lyric increased its prices in 2006, for example, the top price rose from £25 to £27, but the lowest full price ticket proportionately less, from £12 to £13. The cheap ticket nights (£9) and student tickets (£7) remained untouched, on the principle that ‘increasing the top price sends a message that the Lyric’s work is of a high quality; while the lower prices maintain accessibility’.

Jessica is also interested in other pricing models used by competitors, including the National Theatre’s £10 Travelex scheme, a popular initiative that dissuaded the Lyric from increasing the price of its £9 nights.

Adjusting for the public Although the need to increase revenue drives price hikes, a careful eye must be kept on what the market will allow. For example, the decision to increase prices last year was supported by an analysis that showed that there was no significant price sensitivity. Indeed, at many performances, the higher-priced tickets were selling at a faster rate than lower-priced tickets. A Mosaic analysis, based on customer postcodes, indicates that Lyric audiences come largely from wealthy areas and professions. A look at other theatres’ current prices also demonstrated that the Lyric’s prices were ‘very competitive’. Thus, it was decided that the Lyric could increase prices with a relatively low risk of a decrease in demand.

With thanks to Jessica Hepburn Lyric Hammersmith, www.lyric.co.uk

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Making an irresistible offer WNO’s subscription scheme

Opera can be a ‘special occasion’ purchase. Our pricing strategy, however, is aimed at putting on a cultural programme for everybody. We want people to come more often and try out more kinds of opera, not just Carmen. Lucy Shorrocks

Think of opera and most people think of high prices. This is partly because, no matter what the range of prices on offer, people tend to remember the price of the best seats. It is also because, until very recently, opera was genuinely at great risk of overpricing itself and losing an audience, as the Welsh National Opera (WNO) discovered when it commissioned research from Tim Baker into its own pricing practice. That research found that price was crucial in driving attendance and that audiences would be more likely to take risks on less popular work if prices were lower.

From research to implementation Since then, the WNO has set out to create an opera-going habit by selling the maximum possible number of seats for the minimum possible price. With an annual box office target of £3m, Lucy Shorrocks, WNO’s marketing director, is not entirely joking when she says that if the company could sell three million tickets at £1, it would. However, as the biggest venue it tours to is the Liverpool Empire, with a capacity of 2,225, that is not a likely scenario. The next best thing, the company felt, was to find a way to increase audiences not just by encouraging new people to come but by getting existing attenders to come back and, crucially, given the company’s need to remain vital artistically, to try out operas they previously might not have considered going to see. The strategy that WNO has adopted is thus driven by frequency and risk – and it takes the form of a novel subscription scheme.

This strategy is currently applied at three of its main touring venues, in Birmingham, Southampton, Llandudno, and, most impressively, at its new flagship base in Cardiff, the Wales Millennium Centre (WMC), which opened in November 2004 (the WNO launched its first season there the following February). This venue can seat 1,800, virtually twice the capacity of the New Theatre, where the company used to perform. Having, on the 93 Call it a tenner

basis of its research, introduced a new strategy of reducing prices to drive up attendance at the Mayflower in Southampton in 1998, the WNO bit the bullet and, when it moved, reduced its old top price of £47 to £35. It also reduced the number of price breaks from thirteen to seven partly because there were virtually no seats in the new venue that didn’t have perfect sightlines or acoustics (key considerations in pricing the former venue, built a century ago). And even the lowest price was cut, from £8 to £5.

A different kind of subscription Having made the overall offer more financially attractive, the WNO then created an unusual subscription scheme to tempt audiences to come back for more: when bookings first opened, tickets could only be obtained by subscribing, with single tickets finally going on sale several months later. The hope was that, having lured subscribers in with big names like Lesley Garrett, they would then discover that they had wider operatic tastes than they had first thought. The fact that tickets for The Flying Dutchman with Bryn Terfel sold out on subscription before individual sales had opened encouraged people to feel it imperative to subscribe if they were to get the best possible deal – and the best possible tickets.

In mounting a production of a popular work, like The Flying Dutchman, the temptation is for venues to price fairly high but then to price down less familiar work, such as Tchaikovsky’s Mazeppa or Handel’s Jephtha, to encourage people to take a risk. At the WMC, however, if customers commit themselves to booking at least five operas a year, they can choose two operas from list A, ie the safest choices – say, Don Carlos or The Merry Widow – and then receive a discount on two of the less familiar operas; the most risky evenings are discounted by 50 per cent, so the top price for Mazeppa was, in operatic terms, a bargain at £17.50.

Longer-term outcomes The WNO has gone through nearly three cycles of this scheme and Lucy is cautiously optimistic about its longer-term outcomes. Certainly the sales picture was good right from the start: the initial figures, comparing WNO sales at the New Theatre in 2004 and at the WMC in 2005, show a 96 per cent increase in seats sold (from around 21,000 to 41,000) and an 87 per cent increase in gross cash income (from around £482,000 to £901,000), while the

94 Pricing in practice average price paid for a ticket fell by 5 per cent. Even more satisfying is the fact that, over the last three years, 26–35 per cent of each house has been sold through subscription. That statistic might just be the first concrete sign of a major cultural shift in attitudes towards opera-going.

With thanks to Lucy Shorrocks Welsh National Opera, www.wno.org.uk

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96 Chapter Four Pile them high, sell them cheap?

97

Chapter Four: Pile them high, sell them cheap?

The last chapter’s long march through the thickets of pricing strategies and tactics ended with a last-but-by-no-means-least observation on the importance of customer behaviour – behind which may be discovered a whole recent history of attempts to build new audiences and of subsequent reflections on what such attempts might mean for financial growth as well as for improving access. Though the jury is still out on how important price is relative to other factors, such as simple lack of interest, for many promoters developing new audiences still implies lowering prices. This chapter begins by challenging that assumption and goes on to examine the role of pricing strategy in building and developing audiences, including specific target groups of new or infrequent attenders, such as young people or people with disabilities. Audience development is more than this, however, and Paul Kaynes turns next to the various ways in which pricing can be used to encourage repeat visits and to retain and develop existing audiences. This chapter ends by raising an intriguing possibility: if, after research, it seems that pricing reductions (or value-added packages) are a good way of developing a new audience, could this not be funded as a marketing exercise ‘rather than a hit to be taken at the box office in pursuit of demonstrating a social conscience’?

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Pile them high, sell them cheap? Pricing for audience development Paul Kaynes

There’s a popular belief that high ticket prices are the reason that our arts venues are perceived by the majority of the UK population as ‘not for them’– and that lowering prices would lead to larger audiences and a popular groundswell of support for the arts. It’s an appealing notion. It’s also over-simplistic. Price has a role to play in supporting audience development programmes, but that needn’t necessarily mean lower prices: sometimes, raising prices may be the way to attract new audiences, or retain existing ones. And price is only one of many marketing tools available. To understand why it cannot be used in isolation, we must first understand what audience development is and the way it works. Audience development is not something that happens in the marketing office on a wet Wednesday. Programmers and artists, education teams and community liaison workers, box office and front of house staff, curators and producers all have key parts to play because audience development happens when a whole organisation knows and understands its constituency. The organisational culture embraces collaborative working to create an environment where existing supporters are cherished and taken on a journey to extend and deepen their engagement, while new people are welcomed and encouraged to build a relationship with the organisation. Arts Council England and the Department for Culture, Media and Sport (DCMS) launched the New Audiences Programme in 1998. It funded arts organisations to try new approaches to reach new people – particularly those who were considered ‘non-traditional’ audiences. In those early years the approaches were mainly quantitative, ie most of the supported projects focused on getting numbers of new people to attend or try out the arts. Many of the projects were innovative and successful, and some tested the importance of price levels for their target groups. However, the few projects that focused on price alone were not, on the whole, successful, while those that took a broader approach, looking at price alongside a range of issues or perceived barriers, fared better.1 Current thinking on audience development not only places a focus on winning new audiences but also champions existing customers 100 Chapter Four: Pile them high, sell them cheap? and supporters who are ripe for new, more frequent experiences and/or more intense engagement with the arts. Neglecting existing audiences in pursuit of new audiences runs the risk of destabilising the financial security of many organisations, not least because the cost of winning new people is so much higher than the cost of retaining and developing existing customers. Balance is the key. The different types of audience development, dependent on different mixes of new and existing audiences, and new and existing experiences, are broadly illustrated in the matrix below:

Figure 1: Examples of types of audience development, dependent on artistic experiences and engagement history with an organisation

Existing audience New audience Existing Raising frequency Attracting people from experience Developing value a different socio- economic group to an Deepening artistic established programme engagement of work

New Crossover campaign Developing new strands experience from one artform to of programme to reach another under-represented group, eg new arts Offering opportunities programmes designed to explore different types to appeal to young of artistic experience, people who haven’t such as contemporary attended before expressions of a familiar artform

In this context, price alone can never achieve audience development goals – these are very diverse and have a wide range of targets and desired outcomes. In all cases, audience development relies on the development of relationships between arts organisations and new or existing audiences, and these are unlikely to be mediated by price alone – and certainly not by discounts in isolation from other elements of the marketing mix. Reducing price might have a role to play in achieving some types of audience development objectives, but only if deployed as part of the marketing mix alongside such factors as:

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 the programme and its ‘surround’  the way in which the arts activity is accessed  the appropriateness of the brand values for the target audiences  the environment in which the organisation operates  the way the work is communicated and promoted  the way in which the actual experience is delivered. There is some new evidence to show that price is quite a long way down the list of reasons that non-attenders don’t attend. As part of the Taking Part survey (commissioned by DCMS, Arts Council England, English Heritage, the Museums, Libraries and Archives Council, and Sport England) in 2005–06, people who had not attended any arts activity during the previous twelve months were asked why they chose not to attend.2

Figure 2: Main reason for not attending arts events

Not really interested 31% Difficult to find the time 29% Health not good enough 15% Costs too much 6% Never occurred to me 4% Not enough facilities near home 3% Lack of transport 2% Don’t have anyone to go with 2% Wouldn’t enjoy it 2% Not enough information on what’s available 1% Don’t know enough about it 1% Other/don’t know 4% Source: Informing Change. Taking Part in the arts: survey findings from the first 12 months

Only one in seventeen respondents selected cost as their main reason for non-attendance – significantly less important than the issues of interest, time availability and health. The findings from the same survey suggest that there is no statistically significant difference between the proportion of people from the lower socio-economic groups (including those in lower supervisory and

102 Chapter Four: Pile them high, sell them cheap? technical roles, those in semi-routine and routine occupations and those who have never worked) and the higher socio-economic groups who cite cost as a main barrier. For both groups, lack of time, lack of interest and poor health are far more important. However, the same survey asked people who don’t currently attend very often (one to four times a year) what would motivate them to become more frequent attenders. In this instance, cheaper tickets do become a more prominent factor – with 18 per cent saying it would most encourage them to attend.

Figure 3: Main factor that would encourage more frequent attendance among infrequent attendees

More free time 30% More performances/events closer to home 19% Cheaper admission prices 18% More events about subjects of interest 10% Better information on what’s available 5% Better access to transport 3% Better-quality events 3% More people to go with 3% More activities for children 2% Other reason 6% Source: Informing Change. Taking Part in the arts: survey findings from the first 12 months

So price can be a factor, but it isn’t the dominant issue. If anything, it seems to be more of an issue for those who already attend and would like to attend more often than for the hard-to-reach non- attenders. As others have already pointed out, the beneficiaries of lower prices are usually the middle-class regular attenders who know their way around venues, not the hard-to-reach groups for which the lower prices are often designed. In effect, the effort made to use price to attract these groups is wasted because the benefits are being taken up by people outside the target group, thereby reducing arts organisations’ income and the resources available to invest in attracting new attenders. Used appropriately, alongside a range of other measures, price can be a crucial part of the offer – a way of encouraging more frequent attendance, of mitigating the risk associated with a specific programme, 103 Call it a tenner

of reaching a specific group such as young people, of marking out a new programme as different or targeted at a different group. But it can never work in isolation – it needs to be combined with other aspects of the marketing mix (including the programme, promotion and place) to achieve agreed audience development outcomes. Using the audience development matrix from Figure 1, it’s possible to look at some of the actions organisations might take to achieve different types of audience development – though, of course, the actual actions in each case will be determined by the specific circumstances.

Figure 4: Examples of types of organisational activity, dependent on artistic experiences and engagement history with an organisation (pricing-related issues in brown)

Existing audience New audience Existing More effective Features and benefits experience communications (direct identification leading to marketing, on-selling at new and effective the box office) communications Creating programming targeting the market patterns to reflect Test Drive approaches demand cycles First timers’ value-added Creating a price packages – charging incentive to attend more more often – eg subscription or season ticket sales Not necessarily lower prices

New New communication New programme experience styles to support sense development of journey and New communication adventure – flagging styles to reflect needs up links and identity of audience Programming support and programme events and Using ‘banner’ documentation to (sometimes higher) overcome sense of risk pricing to create Short-term price awareness and initial incentive interest

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The rest of this chapter will examine how some organisations have used pricing structures as part of a coordinated audience development plan to achieve specific aims, whether to attract existing attenders more frequently to different programmes or to reach new people with new or exciting programmes of work. There is a caveat, however: the lack of available research evidence is alarming. There have been very few reliable, robust studies of pricing and its role in achieving audience development objectives. Many feel that price is a crucial issue for the enfranchisement of new audiences but that is precisely what it remains – a feeling.

Price and the first-time attender The Royal Shakespeare Company (RSC) and Audiences London report that one-time attenders don’t necessarily seek out lower prices. In fact, in many instances price seems to be less of a barrier than for frequent attenders. Using price offers effectively as part of a plan to attract first-timers can be challenging because they’re more difficult to find and target, price may not be a key factor in their current non-attendance, and heavily discounting a first attendance can lead to an expectation of reductions on subsequent visits. In the mid-1990s, Arts About Manchester developed a scheme called Test Drive the Arts, which aimed to remove price as a barrier for first- time attenders, while providing reassurance and support to address other likely barriers. Although it was widely adopted at the time, few organisations made Test Drive work for them, but those that did, such as the Hallé, succeeded because of the quality of their planning, long-term follow-through and resource availability. The initial free offer was followed up by an event offered at a proportion of the normal cost, aiming to encourage the respondents to become full-price ticket payers, weaning them off the need for reductions or free offers. It may take three to five visits before the customer is paying full price and some organisations have never persuaded those people to pay full price, partly because the audience member has become so used to reduced prices that the prospect of paying full price is anathema. This is one of the main pitfalls of the Test Drive approach, and it raises the question whether it can work for everyone. A comprehensive study of the Arts About Manchester project was undertaken by Morris Hargreaves McIntyre in 1999.3 It identified two key challenges in running an effective Test Drive campaign: 105 Call it a tenner

 reaching people who are genuine first-timers to a venue or organisation and offering them something suitable to Test Drive  having the capacity to pursue a long-term plan for developing the relationship. Screening the sourced lists to ensure that genuine first-timers are being reached is one key to success. Organisations often ask the respondents to call a hotline number or make the initial approach by phone, and run through a few key questions to determine whether they fit the desired profile before the initial offer is confirmed. When there’s an initial offer of free tickets, or an added-value experience with no charge, there needs to be a plan to follow up the initial offer with further events, considering when they will be offered, at what price and using which media. Having systems in place to enable consistent measurement of the response rate is also crucial. Morris Hargreaves McIntyre’s report shows that of those people who responded and took up an initial free offer, 32 per cent went on to re-attend. Price isn’t the only aspect of the marketing mix which is crucial to Test Drive, but removing it as an initial barrier can be a major driver of motivation to attend for the first time. In addition, working in collaboration with other organisations, or in partnership with an audience development agency, can improve the chances of success. Issues for first-timers and Test Drive  don’t assume that first-timers are more likely to attend at a lower price  set the starting price for Test Drive at a level that will enable you to reach full price quickly  plan the follow-up offers and ‘commitment path’ before making the initial Test Drive offer; ensure resources are in place to manage and deliver the programme  monitor and report on each stage of the Test Drive programme  be clear about who you wish to target and choose a list of people that meets those needs.

Price and developing target groups

Young people This section looks at the role price plays in encouraging more young people to attend the arts. Young people are usually defined as post-

106 Chapter Four: Pile them high, sell them cheap? compulsory education age, most commonly those aged 16–24, though some organisations offer reductions up to the age of 26. Sheffield Theatres’ How Much? project in 1998–99 was part of the New Audiences Programme. It sought to encourage more 16–24-year- olds to attend their three theatre spaces (Crucible, Studio and Lyceum) after a study had shown that, while the city had more young people in this age group than the national average, the theatres were attracting a lower proportion than the national average. The project aimed to answer the question ‘How does the mix of programming, price and promotion influence young people’s attendance of Sheffield Theatres?’ The key determining factor in this project was its mix of various elements – not only price, but programming and promotion as well. However, research among the target group revealed that financial constraints were the most commonly cited deterrent in preventing young people attending the theatre more frequently. ‘Don’t have enough money’ was the most frequently mentioned of all comments (62 per cent of the sample).

Figure 5: Sheffield Theatres’ How Much? project: responses to questions relating to monetary constraints 4 Constraint/view % Ticket prices too high 46% Don’t have enough money 62% Theatres are expensive 26% Theatres are reasonably priced 47%

Sheffield Theatres, therefore, introduced a flat-rate price of £3.50 for 16–24-year-olds for most shows in the theatres during the project, along with programming productions that were thought likely to appeal to the target group. This was backed up by specially targeted promotional activities, including word of mouth, printed publicity, a website and direct mail. The most popular incentives which respondents in the same research said would attract them to the theatre were a young person’s discount (86 per cent), a free drink with a ticket (69 per cent) and deals with bars and clubs (47 per cent). The researchers then asked those who responded to the How Much? offer if they were prepared to pay more than the £3.50 ticket price: 58 per cent said they would have been prepared to pay more, with the range being 50p to £3 extra.

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The key finding was that the low ticket price (though not necessarily as low as £3.50), combined with programming designed to appeal to young people, overcame the perception that going to the theatre was an expensive risk. One respondent wrote: The How Much? scheme is excellent, as it is not a waste of money if you don’t enjoy the production. Overall, this programme resulted in 32,000 ticket sales, with people aged 16–24 making up 41 per cent of the audience, compared to just 7 per cent before. How Much? is one of many projects using price alongside other approaches to appeal to all young adults – not just students, under-16s, under-18s or unwaged young people. Organisations such as West Yorkshire Playhouse, the RSC and the City of Birmingham Symphony Orchestra (CBSO) are offering reductions for under-25s/26s without requiring them to be in full-time study, recognising that price can be a real barrier for this market, and that the sense of risk can be greater than for more experienced attenders. There are signs that this approach is changing frequency of attendance and lack of peer group interest, as cited here by a 23-year-old RSC attender. Thank you for the £5 scheme you have introduced for 16–25- year-olds. Not only am I able to go and see the RSC productions as I have done in the past few years, I am also able to get my friends to go with me (for many their first experience of live Shakespeare). Not only can I watch great stories, I can also afford to go back and see the productions again to try and learn how the actors are doing it. The level of discounts tends to be high: 50 per cent off is the norm, either for all events or on selected nights of the week. These reductions are offered in advance (even if only a week in advance, as in the case of West Yorkshire Playhouse), and explicitly encourage planning on the part of the audience member. Where these kinds of pricing approaches work, however, the organisations involved don’t rely on price alone to make the impact: they consider the needs of the young target markets in the way they conceive the programmes, the customer experience on arrival and the support materials/events offered. Those organisations that don’t do this but simply offer lower prices for young people have limited success. The RSC went one stage further by offering free tickets for people under 30 for performances in summer 2006. There were 100 seats for each performance in its Stratford Courtyard Theatre that were offered free to telephone, website and personal callers, with a limit

108 Chapter Four: Pile them high, sell them cheap? of two tickets per order. The scheme was sponsored by ITV Central and two-thirds of the 8,990 bookers hadn’t booked at the RSC previously. It’s too early to know whether the audiences will be retained and encouraged to pay in future. An RSC £5 ticket offer for 16–25-year-olds has been taken up by 7,000 young people during the Complete Works Festival. Likewise, 68 per cent of them are new ticket bookers to the RSC. The Fierce Festival of live art in Birmingham has a policy of targeting young people by setting ticket prices for its events as the ‘price of a cinema ticket’. There is just one price – always a ‘round pound’ – and it’s featured prominently on the print rather than hidden away in the detail. Many of the audience are not existing arts attenders and are considerably younger than for other contemporary arts festivals. Fierce is perceived to be an alternative to clubbing, going to the cinema or spending the night in the pub with friends. But pricing isn’t a sole, blunt tool. The programme, too, has been created with the target audience in mind. The various media platforms through which communication takes place are diverse and matched to the various segments of the audience. The whole organisation uses its creativity to tap into the groups it wants to reach, as well as trying to retain existing audiences through brand and loyalty building. Tickets priced in this targeted way, where they are linked to events likely to appeal to a young market, are selling in large numbers. Venues regard this investment in youth markets as long-term audience development; the price level may be low, but it is creating an arts habit in young people, often before the financial and time pressures of having a family, taking out a mortgage and caring for elderly parents set in. Those organisations offering lower prices for young people only on the day or on the door have less success. Even if young people tend to book later than average, it doesn’t mean they don’t plan in advance. The risk of not being able to secure tickets (however cheap), added to having to plan an evening at a concert or event, drives all but the most determined to settle for a night at the cinema or in the pub. Standby rates sometimes deliberately match the price of a couple of pints, an important comparison in a market used to sales promotions in bars or student unions and whose culture is more discount-responsive than most. But these reductions are often taken up by students (and more often students with a study-related interest) than working young people, not least because of the ease of promoting them to an easily identified market at short notice.

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Issues for pricing for youth markets  it’s not price alone – the rest of the offer needs to be right too  make it meaningful – reductions of 10 per cent or 50p aren’t likely to have the necessary attention-grabbing power alongside programming and customer welcome issues  be clear about the importance of discounting to encourage risk- taking and increase frequency  think about the prices charged to young people in comparison to other (non-arts) purchases they make and promote them in this way if appropriate  don’t assume that young people make decisions at the last minute – standby approaches rarely work except for the die-hards  price-led promotions can help overcome the assumption that prices for arts events are much higher than they really are.

Over-60s With evidence that many people over 60 could afford to pay full price without having an impact on their frequency of attendance or willingness to attend, some organisations, such as the London Philharmonic and Philharmonia Orchestra for concerts at the Royal Festival Hall, have removed price reductions altogether from this group, without a significant impact on attendance levels. There is now a widely held view that many over-60s claiming regular discounts are well-heeled and don’t require them. For many arts organisations, this is the aspect of their pricing practice they would most like to change. The number and availability of ‘seniors’ discounts is on the decline: more organisations are restricting the occasions on which the over-60s can claim money off and the level of reduction offered. Instead of offering permanent, across-the-board reductions for pensioners, many organisations are using specific events to target this growing market, with or without the incentive of price offers. Some organisations are removing price reductions altogether, while others are linking them to specifically targeted programmes of work, or even offering prices which are higher than usual, representing value-added packages including food and drink, programmes, talks or tours. For example, the Tyneside Cinema in Newcastle has a specific programme strand; its Silver Screen sees fortnightly daytime screenings of a film specially selected for the market, with tickets at £2.20 each, 110 Chapter Four: Pile them high, sell them cheap? to include a talk about the film and a coffee. It’s effectively a membership scheme and is promoted primarily through word of mouth with existing users, with whom it is extremely popular. Issues for over-60s pricing  reductions offered in advance are more successful than those offered on the day  most impact is achieved by linking seniors’ price offers to specific programme strands or days of the week, and offering added value – sometimes at a higher price  consider restricting reductions to this market to protect overall yield, in conjunction with targeted promotions for specific events.

Disabled people Pricing for disabled people really deserves a chapter of its own, as it is a complex area. Organisations offer a myriad of approaches, and there’s little consistency of approach. Some venues require attenders to register as disabled with the venue to access price reductions. A few even charge for this registration service. Some will offer reductions for the disabled person and one other person, on the basis that some disabled people will need to be accompanied and shouldn’t be penalised for that. Increasingly, venues have dedicated access officers, but there are instances of the support offered by these staff being intrusive and over-bearing. Of course, the experience a disabled person has is informed by much more than the ticket price. As important will be the capacity and ability of the organisation to provide the appropriate welcome and support. Requiring disabled people to go through the process of registering with an organisation to access reductions simply puts another barrier in place for what is, after all, a non-essential service. It’s likely that such approaches will put off the casual and first-time attender unless they’re very determined. The average earnings of disabled people, however, are lower than the norm. Many disabled people feel that, because they are only getting part of the experience (depending on their disability and the ways in which the venue accommodates them), they shouldn’t have to pay full price. Most venues recognise this, but are reluctant to make the price incentives universal to anyone claiming to be disabled, effectively penalising many disabled people for the fraudulent behaviour of a small minority who may abuse the system.

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Issues for pricing for disabled people  reducing ticket prices for disabled people and their carers is often justified by the low earnings of disabled people, and the costs of getting to the venue, or the partial experience they may have  avoid requiring people to register to receive price reductions – it will deter all but the most determined  as important as reductions are the customer care policies of the organisation – the support offered needs to be well-judged and not over-bearing.

Pricing and driving up volume

Retention and frequency So far, this chapter has examined price incentives for those groups that are traditionally seen as worthy of concessions and those who are new attenders. However, price has also been assumed to be a useful tool in driving up volume among core attending arts audiences either through multiple purchases for a series of events (season tickets and subscription), or by using price as a key tool alongside others as a way of encouraging more frequent attendance without the need for a season ticket approach. Despite predictions of the decline of subscription, some organisations, especially orchestras and opera companies, continue to rely on it for their core sales. In other artforms, notably theatre, the market for subscription has almost disappeared, but it’s unclear whether this is because audiences are less likely to buy subscriptions or because arts organisations have become less interested in offering them – or less skilled at developing and promoting them. There is concern that the large reductions associated with subscription – often up to 30 per cent for large orchestral series – are benefiting people who are already committed. Wouldn’t these people attend as frequently without the level of discount offered? What if subscribers were asked instead to ‘donate’ their subscriber reduction to the organisation or maybe to purchase a half-price subscription for a young person? As yet, these interesting ideas haven’t been tested, perhaps because of an assumption of deep conservatism among subscribing audiences.

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We need to understand the motivations for subscription much better, to map the impacts of changing reduction rates and package design, and to ensure that the concept of traditional subscription is not a negative one for those who aren’t subscribers themselves. We also need to consider how subscription might be developed more effectively as a loyalty scheme rather than a pricing reward, or whether there may be opportunities for offering some subscriber markets added value, as opposed to discounts. The Birmingham Rep is using flexible prices at the point of sale to increase frequency, offering an additional event at a reduced rate when a customer books a ticket. The success of each offer depends on the suitability of the event match, and the skill of the ticket-seller in promoting the offer. But this does address directly the 18 per cent of ‘infrequent attenders’ who cite ‘cost of admission’ in the Taking Part survey as the main reason why they don’t attend more often. However, there is a contradiction here. The RSC/Audiences London research into the relative price paid by different audience segments suggests that infrequent attenders are no more likely to pay lower prices than frequent attenders – in fact, quite the opposite. Those who attend once a year in London are among the highest-paying groups (only people attending three times a year pay more in relation to average ticket price), while the amount paid in relation to average ticket price is about 26 per cent lower for people who attend five or more times a year. Similarly, the RSC has found that regular attenders spend less per ticket than one-time attenders who tend to book closer to the performance. But the research isn’t conclusive: many one-off attenders are choosing to attend high-priced events such as major musical events with star names, where discounts are less likely to be available. The same people may choose to pay less for run-of-the-mill events. Issues for retention and frequency  explore what the motivations to subscribe or buy season tickets for the organisation might be; don’t assume that price reductions are the key driver  don’t assume that reducing prices is the way to encourage greater frequency of attendance – infrequent attenders are as, if not more, likely to pay higher prices, or respond to value-added packages  consider on-selling at the box office as a means of increasing frequency among less-frequent attenders.

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Group sales A study undertaken by Peter Verwey for the Theatrical Management Association (TMA) in 20005 examined the state of group bookings in a range of theatres and performing arts venues, mostly middle and large scale. He found that the overwhelming percentage of groups were of nineteen people or fewer for all types of work except children’s and young people’s work, where 55 per cent of the groups booking consisted of twenty or more. Most venues and companies offer reductions for groups of eight or ten and over, though some offer more substantial benefits (including incentives such as dedicated spaces for groups during the interval or opportunities to meet cast or director) for groups of either twenty or forty and above. Verwey found that the majority of venues (around 75 per cent) offered percentage reductions, others offered free seats for group organisers and relatively few (around 15 per cent) offered flat rate reductions. Smaller and mid-scale venues such as Exeter Phoenix Arts Centre lead on free or reduced-price tickets for the group leader, while larger venues tend to offer either flat rate or percentage reductions. Many group organisers say that adding value to the group booking is more important than (but not necessarily a replacement for) money off. In selling the concept to the group, the organiser can use the additional benefit of special events, talks, tours, free programmes, special interval drinks ordering or seat location to encourage people to take up the offer. Issues for group sales pricing  analyse sales data in depth, to understand volumes, price breaks and different market segments  test rate reductions with all key markets through experimentation  test added value as an alternative to discounting.

Discounting for yield management Some organisations have managed to reduce the price of individual tickets while raising the overall level of income achieved. Some of these approaches also have the impact of reaching new audiences but that is not their primary role – it is an added benefit. These strategies depend on high levels of price elasticity: evidence that changing or even lowering price can generate greater income through increased sales than leaving ticket prices as they are. These approaches have challenged the long-held assumption that arts ticket 114 Chapter Four: Pile them high, sell them cheap? prices aren’t that elastic – that raising or lowering prices won’t have that much impact on levels of sales. The most celebrated of these is the National Theatre’s Travelex £10 seasons of plays in its Olivier Theatre (and in one instance the Lyttelton). In its first three seasons (April–November 2003–05 inclusive), the National sold around 460,000 tickets at the reduced £10 rate, representing 70 per cent of all tickets sold. Because occupancy rates for plays have risen substantially (from 67 per cent to 92 per cent), and because the theatre has improved its productivity by scheduling more performances, and having fewer dark nights and faster changeovers, the overall net income has risen. Additional income has also been raised from the higher number of audience members buying programmes and using other facilities, such as catering. In addition to the higher levels of income earned, the National’s £10 Travelex seasons have reached large numbers of new attenders, though this wasn’t their specific aim. In each of the three years it has run, 25 per cent of those buying the £10 tickets have been people who hadn’t booked at the National before. Birmingham Royal Ballet (BRB) achieved something similar at the Sunderland Empire.6 Following a period when all tickets were £10 (as part of a pricing project by the theatre), prices in the mid-1990s started to rise and audience numbers fell. With the support of the New Audiences Programme, BRB priced all its tickets at £10 (£7.50 for children) for its 1998 seasons. In addition, BRB also aimed to attract non-traditional audiences for ballet, by targeting local community venues, especially those where men gathered, such as working men’s clubs and Sunderland Football Club. Overall, although the socio-economic mix of the audience didn’t change, the company attracted 3,322 new bookers and, crucially, it achieved its best ever financial results at the theatre. So, as these two innovative programmes show, lower pricing can, when price elasticity is high, result in higher income levels overall because the volume of additional tickets sold compensates for the lower price charged. Issues for discounting to increase yield  test price elasticity for the organisation before discounting to raise yield  don’t necessarily expect that reducing prices in this way will reach a different group of people – while attenders may be new, they’re more likely to be from the same socio-demographic groups as current attenders

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 find support (sponsor, trust funding, etc) to enable a trial period without risk to the organisation’s income  make plans to continue a successful initiative when the funding stops.

Conclusion It’s too easy to think ‘price reduction’ when considering the approach an arts organisation might take to attract new and different people to its offerings. Specific market segments – most obviously young people – might respond to price incentives, but only when the rest of the offer is right too. There’s little evidence to suggest that high price is a major barrier for most potential attenders. There are exceptions: disabled people, having a lower average disposable income and sometimes receiving a lower quality experience than others, are more likely to attend if prices are set accordingly.Well managed subscription and season ticket schemes can encourage greater frequency of attendance, but we don’t know enough about the role of price incentives in the mix of what’s offered. There are few arts organisations which budget for price reductions as part of their marketing and audience development expenditure. Outside the arts, sales promotions are funded by the marketing department rather than by reducing the level of sales income recorded. Such an approach in the arts could change the culture of price setting. Blanket concessions could be replaced by a more targeted, flexible approach encouraging development and promotion of relevant programme strands. Value-added packages might replace reductions for first-timers and infrequent attenders, and yield management would take on a new importance and focus. Price reductions would be seen as a cost of promotion or audience development rather than a hit to be taken at the box office in pursuit of demonstrating a social conscience. The sector’s greatest need, however, is for more research on the subject of the impact of price on different groups. Some organisations – most notably those agencies conducting large-scale benchmarking exercises in their areas, such as the RSC – are beginning to identify key factors in price sensitivity among different sectors. Those findings are helping to challenge long-held assumptions about price and the role of discounting or lowering prices to attract target groups.

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References 1 Projects that benefited from New Audience Programme funding are documented at www.newaudiences.org.uk 2 Arts Council England, Informing Change. Taking Part in the arts: survey findings from the first 12 months, London, May 2007 3 Morris Hargreaves McIntyre, Test Drive the Arts: North West Project Report, 1999 4 Angela Galvin, Peter Taylor, Sophie Withnall and Elizabeth Owen, ‘How Much’ project report, Sheffield Theatres Trust/Arts Council England, February 2000 5 Peter Verwey, Theatre Ticket Sales to Groups, Theatrical Management Association, November 2000 6 Developing a Ballet Audience in Sunderland, available at www.newaudiences.org.uk Thanks to Sarah Gee, Andy Ryans, Richard Bliss, Chris Harper, Andrew Ridal, Mark Ball, Rob Macpherson, Mary Butlin, Trina Jones, Jonny Tull, Katy Raines, Orian Brook, Sheila Benjamin and anonymous others for contributing information to this chapter.

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To charge or not to charge Gallery admissions at the Sainsbury Centre for Visual Arts

Given that, unlike our national theatre or dance or music, our national art collections are expected to be fully and freely accessible to the public, which ‘owns’ them, the big question for many in the subsidised gallery sector is whether to charge for any admissions at all and, if so, on what those prices (or, more often, that price) should be based. After the brief interregnum, in the early 1990s, when many ‘free entry’ national art galleries and museums were forced into selling tickets to generate income the government did not want to give them, we are now back to a situation where some charge and some don’t – or perhaps, like Tate, only charge for temporary exhibitions, largely because these have cost implications beyond those of maintaining permanent collections.

The Sainsbury Centre, based at the University of East Anglia in Norwich, has gone through this change of policy twice, though for different reasons. It took the decision to offer free admission to its permanent collection when it reopened in May 2006, after a major refit. That put the Centre in line with the big national collections and also passed on to the public the benefit of a favourable decision on charging and VAT for university museums, which extended to those university museums in receipt of government funding through the Arts and Humanities Research Council’s museum and gallery funding scheme the same VAT status enjoyed by national museums – providing admission to the museum’s permanent collection was free.

Although this proviso does not apply to temporary exhibitions, the Centre decided to extend free admission to Pacific Encounters, its first temporary show, allowing visitors free access to all gallery spaces. This was partly to celebrate the refurbishment and ensure that all visitors were able to enjoy the full gallery experience with no price barrier and partly to celebrate the Pacific exhibition and remove any perception of risk for visitors who might not be familiar with Pacific art and the story of how it was collected by early explorers and missionaries. It was a resounding success. Over 18,000 visits were made to the Pacific show in twelve weeks, making it the Centre’s best attended exhibition. 118 Pricing in practice

When it came to the first major temporary exhibition of 20th century painting, however – a major retrospective of Francis Bacon – a different choice was made. On the one hand, as Kate Carreno, the Centre’s head of public services and administration, explains, this was an opportunity to charge, as the public would expect to pay for a landmark event like this. On the other, if no charge were made, the gallery might be completely swamped. Given the Centre’s location and audience base, it was felt that to charge more than £4 or £5 would have presented a significant barrier to entry. In the event, the full price was set at £4, and was calculated to make a welcome contribution to earned income but not to cover exhibition costs. Initially, the Centre thought it might charge for one or two temporary shows a year, but it then decided to charge £2 minimum for a full price ticket to see temporary exhibitions from summer 2007. Admission to the permanent collections remains free.

From free to charging Although ticket prices seem low, certainly in comparison to theatre or cinema admission, the implications of a shift from free to charging are still to be seen. The two ‘low-key’ shows programmed at the beginning of 2007, an exhibition of paintings by Martin Bloch and a show dedicated to the University’s Anderson Collection of Art Nouveau, were expected to attract modest numbers so an early decision was made not to charge for these. However, they did as well in audience numbers as the Bacon show (an impressive 16,000). Although the Bloch exhibition benefited from very good press coverage and both shows generated very positive word of mouth, at least part of the reason for their success was felt to be free admission. Kate believes that, while a visitor’s first attendance may not be affected by whether or not the show is free, the pleasant surprise of getting in without paying anything encourages repeat attendance and also persuades visitors to bring friends and family with them second time around. Effectively, not only does it remove the price barrier, it removes – or vastly reduces – the risk that visitors might invest time and money and then not like what they see. They might also recommend the show to their friends. A £2 charge might – or might not – change all that.

The low charges are partly due to the Centre’s out-of-town campus location, where parking fees have been introduced, at £1.50 for two hours, and are set with an eye to charges at similar university art museums, similarly located venues with similar 119 Call it a tenner

programmes, and local venues, such as Norwich’s Castle Museum. As at performing arts venues, the Centre offers more than one standard price, including concessions and family tickets, as well as free entry for under-5s and members of the university. To calculate visitor numbers, tickets are issued, even to those visiting the free permanent collections.

Another source of income It is perhaps ironic that the visual arts sector is so often diffident about charging people when museums and galleries have far greater flexibility to alter their offer to suit their audience. Some galleries do exploit this, for example, with later opening hours or by offering timed entry, where prices can be varied to capitalise on which times are most popular. However, for the Sainsbury Centre or for a gallery like the Whitechapel in East London, which has only one paying exhibition each year, there is money to be made, not in ticket prices but in the gallery shop.

The sale of merchandise in the gallery shop is a crucial factor in income generation in the visual arts sector. The Whitechapel currently earns between £50–100,000 on limited-edition catalogues alone, which compares to its take on the annual paying exhibition of £50–70,000. At the Sainsbury Centre, catalogues, cards, DVDs and other items linked to current exhibitions, along with more broadly art-related products, generate an average spend per visitor of around £3.50, net of VAT, and average spend per shop transaction of between £8 and £12, net of VAT. Interestingly, just as West End theatre data shows that people buying top-price tickets spend more on the rest of the evening out (transport, restaurant and so on), so visitors to the Centre seek to get more value out of their visit – by spending more. It seems that the more prestigious and highly priced the show, the more the customer dwells in the shop and the greater their spend.

With thanks to Kate Carreno Sainsbury Centre for Visual Arts, www.scva.org.uk

120 Chapter Five Selling tickets and influencing people

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Chapter Five: Selling tickets and influencing people

I think it’s a scandal the amount of money that customers have to pay in booking fees. When they call our box office, they know they’re calling the National Theatre, not a ticket agent, so I see cutting out these charges as a very strong marketing opportunity. Even though it’s very expensive to run our box office operation, it’s still a valuable opportunity for us to increase our service to customers. Chris Harper, ex-Director of Marketing, National Theatre If price is based on a perception of value, then how about booking fees? These extra charges may be met with a shrug, a snort of irritation or a slow-burning fury on the part of the person booking, but just exactly how did such charges become so common – and how do they square with the growing desire for better ‘customer relationship management’? This chapter challenges current box office practice, unearthing the history of booking fees and examining why audiences have not generally benefited from the cost-saving that new technology and the internet have made possible. Chapter One began by asserting that buying a ticket for a show can be ‘an unpleasant experience’, partly because of booking fees. As Beth Aplin shows, this is not simply a quibble but an example of how carefully an organisation must develop its pricing strategy if it is to successfully promote its ‘institutional value’.

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Selling tickets and influencing people Transaction charges and the customer relationship Beth Aplin

‘So, that’s two tickets for Deal or No Deal: The Musical at the special half-price offer, making a total of just six pounds. If you’d like to pay by credit card, there’ll be an additional £2 processing fee, and also a £1 booking fee per ticket. And we’ll be posting them first class for a fee of £2. So that’s a total of £12…’ It’s a worryingly familiar conversation. As many a disgruntled patron has wondered: just why do venues charge people extra for basic services? Tesco doesn’t charge you a ‘checkout fee’ for the pleasure of being able to give your money to its cashiers. Indeed, most industries incorporate these basic running costs into the face value of their product. So, what makes venues so different? This chapter examines the evolution of fees in ticket sales and argues that their emergence has been a result of short-term reactions to the introduction of new technologies. As such, they lack a logical rationale for existing in their current form. And, as we’ll see, due to a misunderstanding about the true cost of selling tickets, the notion that venues benefit financially from passing on these costs to the customer is a fallacy. As well as exploring how audience acceptance of fees depends on the relationship different types of venues want to have with their customers, the chapter also examines how the implementation of box office fees affects the in-house box office at venues, as opposed to the impact it may have on companies or ticket agencies. A venue’s box office is the contact point between the audience and the venue and, if anyone is going to be affected by the decision to charge fees, it’s going to be the box office. The box office’s commercial counterpart – the ticket agency – makes all its money through charging fees, so perhaps we can’t reasonably expect it to change its ways any time soon. But the in- house box office is part of a larger organisation – the venue – and this makes its purpose and its options far more open to debate. To begin at the beginning, let’s have a look at how people used to buy tickets in the dark and distant days of a couple of decades ago.

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A history of selling tickets

Once upon a time Until surprisingly recently, people bought tickets by visiting the box office. They would discuss their choice of show, pay in cash or by cheque for their seats and then take their precious tickets away in an envelope. If they were regular bookers, they might be encouraged to join a mailing list so they could receive a season brochure. This brochure would include an often baffling booking form on which they could mark their selections and list their seating preferences, before sending it off with an open cheque and SAE. Once received, the venue would process these forms, in strict order of receipt, and then enter into an often complex correspondence with the customer as they battled out specific seat choices. Maintaining order and rigid structure was essential to stop chaos breaking out. With only a single paper seating plan and a book of tickets per performance, keeping track of house seats, price breaks and the dreaded returns was no mean task. Savvy customers would attempt to speed up the process by phoning and reserving their tickets before popping payment into the post. While this made things a bit less chancy for the customer, it made more work for the box office, who needed staff around to take the initial phone call, pull the tickets, wait for the post and then attempt to match up the name scrawled on the reserved tickets with the cheque. Only then could the box office change the status of the tickets from ‘reserved’ to ‘sold’ – always assuming that the payment actually arrived. Sorting through all the reserved tickets and pulling out those that the customer had abandoned was a major housekeeping chore. For the majority of box offices, you paid the ticket price and, provided the customer had enclosed an SAE, that was that – a sale was a sale. Admin fees were only charged to deter complex labour-intensive processes – returning tickets, for example.

And then one day During the early 1990s, two changes combined to introduce the first ticketing revolution: the widening adoption of credit and debit cards, and affordable computerised ticketing systems. In the 1980s, those computerised systems that did exist ran on mainframe computers and required a dedicated team of worshippers to tend their needs. Consequently, only very large and wealthy arts organisations ever had them. 125 Call it a tenner

In those dark and distant days, IBM held the monopoly on personal computers and its prices reflected this. But when the Far East started producing PCs that were 100 per cent compatible, things changed. Suddenly smaller businesses could own PCs that were nearly the same as IBM’s ones, and for a fraction of the price. No longer were computerised systems the preserve of the elite arts venues, and it was a change that revolutionised ticket selling. Then the banks wised up to the potential of electronic payment methods. Processing cash and cheques was a time-consuming and expensive business, but now plastic was the name of the game. Sure, a few early birds already had their credit cards, but their foresight tended to inspire suspicious glances rather than respect. But the introduction of debit cards, where customers could clearly see where the money was coming from, made plastic accessible to all. Gone were the worries of hefty credit charges, replaced by the ability to pay for things without the tedious business of actually having to be there. You could now book and pay for your tickets in one relatively painless transaction and the only physical exchange was the box office posting out the tickets. Interestingly, prices and fees remained unaltered. High admin fees were only charged to those sneaky types who tried to return their tickets. In the world of paper-based box offices this policy had arisen from practical concerns – a returned ticket would mean a mountain of paperwork and an accounting nightmare. On a computerised system, the only real backlash of returning tickets was having to explain to the promoter why its sales figures were down on the previous day. But every silver lining has a cloud, and computerised box offices were no exception. Although the process of selling tickets was now more streamlined and transactions could be completed in a single call, this system had one major disadvantage over postal systems: it was up to the customers to decide when their purchase would be processed. In a post-based system, the venue could handle the bookings when they chose. If it was a busy day, you could simply mark the date received on the envelope and process them in strict order. With phone sales, however, customers expected to get through first time and to be dealt with there and then – when they chose. If you hit a busy patch and people couldn’t get through, you would start losing sales. And the booking patterns themselves could be harder to predict. For instance, a favourable review in the local paper could send the phones into a frenzy on the traditionally quiet week when half the box office staff were on their annual backpacking trip.

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In practice, this introduction of technology meant that a small army of box office assistants now had to be beside the phone ready to tackle what could either be a rush or trickle of bookings – nobody could predict anymore. This staff cost is the ‘forgotten’ overhead of computerised systems. It explains why the introduction of computerisation, for all its huge efficiency savings, has not had the financial impact that it should have had.

The next revolution Then, in the mid-1990s, the second ticketing revolution occurred – the internet. Now it was possible to remove the box office staff from the equation completely. We were at the start of a new, super-efficient age of tickets. Well, that was the theory. The most interesting thing about the rate of internet ticket sales within the industry is the huge discrepancy between venues. For example, the MEN Arena sells 90 per cent of its tickets (for some, not all, performances) via the internet. The only reason it’s not 100 per cent is that they hold some back to placate the poor folks who’ve been queuing in the rain for five hours, waiting for the ticket office to open. Conversely, many other venues feel that 10 to 12 per cent internet sales is really rather good. And some others have not felt the need to introduce real-time internet ticketing at all. This difference can be partially explained by the behaviour of one ticketing software supplier, Tickets.com, which has by far the largest share of middle- and small-scale arts customers within the UK. When it introduced its straightforward, integrated internet ticketing module in 1996, it was way ahead of the game. However, it decided to charge UK venues £1 per ticket processing fee, plus a moderately priced credit card fee. Many venues thought that their customers would not bear this additional cost and didn’t want to lose £1 per ticket of their own revenue for selling via the internet. So, these venues simply didn’t take up the internet ticketing option. Another factor is the amount of money venues are prepared to pump into their websites. The internet is another whole new element within the marketing mix – stretched marketing departments have been asked to maintain all their existing channels (brochures, direct mail, posters, etc) and add in designing, maintaining and marketing an appealing and effective website. This is especially problematic when it can take some time to see a tangible payback on the investment. Websites may also be another area where arts organisations feel they are somehow different from other kinds of businesses: a firm like Amazon manages to express its personality very clearly through its website, while many venues feel 127 Call it a tenner

the simplest of sites will be enough for its patrons, who are presumed to be above such things. Yet another problem is the sheer speed of technological change and the investment required to keep up. Arts venues tend to depreciate computer hardware over five to seven years. Many commercial businesses now depreciate computers over two to three years. The arts has a culture where you save up, apply for grants, spend an eye- watering amount of money updating one department’s hardware and software, and then heave a huge sigh of relief that this will not need to happen again for another seven years. But, because of the speed of change, most of this stuff is really out of date after four years. Your antiquated equipment doesn’t take advantage of any new technological efficiencies, and half the time it isn’t even compatible with the cast-offs of a more up-to-date business. New software won’t run effectively, if at all, and this can limit the organisation’s competitiveness. The commercial lesson in all this is that businesses don’t spend big bucks constantly updating their hardware and software because it comes in better colours. They’re doing it because it makes financial sense. The software changes are making things simpler and quicker (despite how it may feel at the time when first presented with a baffling new array of menus) and improving communication with other departments and with the outside world. In simple terms, new technology helps you to be more efficient, which ultimately saves money. That said, keeping up with technological change requires expertise as much as money. An organisation needs to know:  what to buy  when to invest in one particular innovation rather than another  how to set it up  how to manage and maintain it  how to take a step back and reassess your whole business process. The last one is important. The time when these innovations really save you effort is not when they duplicate something you used to do but a bit better; it’s when the technology takes over whole areas of work previously done by people. That’s when it enables you to completely rethink the way you work. The whole aim here is for technology to take on more and more of the repetitive, time-consuming tasks and leave valuable people free to make decisions, manage, communicate with the public and create some life-enhancing art. Easier to say, though, than for arts organisations to do.

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If we plot the percentage of tickets sold over time against the method of sale, we come up with something like this:

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% 1980 1985 1990 1995 2000 2005

Via the internet By telephone By post In person

It does not take rocket science to work out what the future might look like, and we should take note of the fact that many successful businesses are working as hard as possible to speed up these changes.

Data protection and all that In recent years, various legal requirements for box offices have also had an impact on how things are run. In the era of computer records, the need for adequate data protection is probably the most visible example of this. In essence, data protection laws mean that a venue must have the informed consent of its customers before targeting (or bombarding, depending on who you talk to) them with marketing materials. The data protection laws also have implications for venues that share their databases with each other. While this has often been seen as a common sense means of attracting new audiences for similar venues, the spirit of the data protection laws requires the data holders to consider what is common sense from the customer’s point of view. Despite confusion over quite what this mythical customer might consider to be ‘common sense’, in practice the entertainment industry has embraced data protection like a surprise 129 Call it a tenner

visit from a distant relative – someone we’re stuck with, even if we’re not quite sure what we make of them yet. What this has all meant, in practical terms, is a requirement to inform the customer, at the time of their first booking, of what may happen with their data. While essential in terms of legal requirements, this has meant further hidden costs in terms of paying a box office assistant to read out a lengthy data protection statement (and then often having to explain what its careful wording actually means to the customer). Perhaps this is one area where internet sales really do excel; if the urge takes the customer to read the data protection statement then it costs no one’s time but their own.

Balancing the books So, we can see that the introduction of new technologies – credit cards, computers, internet booking – had a practical impact on how box offices were required to operate if they were to stay competitive. The question was how venues would react to the increased cost of appearing not entirely antiquated. In the best tradition of human behaviour, they panicked. They introduced explicit fees for customers to cover the cost of these new ways of selling tickets. Frankly, this was a strange thing to do. Whatever the technology, the selling of tickets through a box office is an essential income stream for any venue. All but the artiest of venues are reliant on selling at least a few tickets for their events, but venues have decided to make parting with cash a premium-rate privilege for any customer foolish enough to try and do so. Obviously, any moderately bright customer might ask why a supposedly more efficient system was actual costing them more to use, and they’d have a point. The actual cost of supposedly fee- incurring activity is often misunderstood by venues, and this misunderstanding has led to fees which can greatly affect an audience’s perception of that venue.

The impact of charges and costs Easyjet obviously thinks that relatively small fees have a big influence upon customer behaviour – that’s why it’s £5 more expensive to book by phone rather than via the internet. Consequently, 90 per cent of its customers book online. It is penalising the customer for behaving in a way that costs the company more money. In principle, this is what venues are doing with their fees. In practice, however, they are doing quite the opposite. 130 Chapter Five: Selling tickets and influencing people

Postage fees The increasing use of credit and debit cards has meant that people complete ticket sales remotely and aren’t present to take their tickets away. This led to three possible solutions:  ask people to pop by the box office when they had a moment  ask people to collect their tickets on the night  put the tickets in the post. The problem with popping by the box office is that it rather undermines the whole streamlined, efficient process. The world of computers and paying by plastic is based around saving time for people with busy lives, a viewpoint not really compatible with dragging people in to collect something they’ve already paid for. Amazon wouldn’t be the success it is if you had to trail out to Milton Keynes every time you ordered a book. Many people choose to collect their tickets on the night. In busy venues, dishing out pre-paid tickets uses up valuable staff time that could be better spent selling more tickets to customers on the door. Consequently, some venues insist on posting tickets booked a certain amount of time before the performance. However you look at it, popping the tickets in the post seems the most sensible solution. However, without a stamped self-addressed envelope, where is the postage fee to come from? Simple – charge the customer. The irony of this is that the two options that take the most box office staff time and money are free to the customer, while the most efficient – not to mention the most popular with busy customers – is the only one that incurs a charge! And this irony deepens when we consider that darkest of all arts – the returning of tickets.

Returning tickets Without wanting to suggest that we open the floodgates and let people buy, return and generally faff about with tickets all over the place, there is a legitimate objection to be made about some of the games being played here: we say ‘no returns’ – but we don’t really mean it. What we actually mean is:  ‘We want to discourage you from doing something which used to be complicated and requires staff time’  ‘No one else allows returns, so why should we?’  ‘The promoter wants to see the sales figures going up over time, never down’ 131 Call it a tenner

 ‘If you make enough fuss, the box office manager will make a judgement call about whether your excuse is valid’  ‘If the box office manager does not choose to allow you to return, you can always write a horrid letter to the Chief Exec, and if he or she is in the right mood, they may well overrule the previous decision’ Basically, the more you are difficult and complain, the greater your chance of being allowed to return or exchange your tickets. We are actively encouraging customers to complain, which – other than not being terribly pleasant for the person taking the complaint – uses up considerable amounts of staff time. I love John Lewis. The shops are bright and spacious; the café is nice and has enough highchairs; it stocks all the clothes I need for frequent travelling; and the staff are knowledgeable and (almost always) helpful. The two killer attributes which have endeared me to it for twenty years is its strapline – ‘Never knowingly undersold’ – and the fact that its staff are just as sweet and charming when I bring a few things back as when I buy armfuls of clothing. I trust them, and they trust me. They trust me not to spend a lot of my time choosing just the right top and then return it on a whim, and that I won’t make a habit of it and damage their overall sales figures. What it means is that I can take a bit of a chance and buy something that I think will match and then check it at home, safe in the knowledge that I have not permanently committed myself to a clashing white elephant. Just think how good it would feel when buying special-treat tickets for the panto, if you knew you could just change them if your kids had forgotten to tell you about the school disco that night. Wouldn’t it encourage you to take more risks and book more tickets? OK, it will take some box office time, so charge a reasonable fee. But, over time, can anyone really think that the few quid made charging for returns, with all the attendant staff time apologising or arguing (depending on how good their excuse is), is really going to be worth more than the extra tickets sold to people who feel they can safely take a chance on buying tickets for shows?

Credit card fees In fact, when we look closely, we can see that almost all common box office fees suffer from a perverse logic. I have been told of three separate venues where over-the-phone box office staff, trying to

132 Chapter Five: Selling tickets and influencing people provide the best customer care they can, have advised customers that the cheapest option is not to pay for the tickets then and there on their credit card, but to reserve them and pop into the venue in person and pay by cash or cheque. Let’s say you’re paying your box office staff £6 per hour. When we factor in PAYE and NI, heating, lighting, computer terminal, software licence and so on, it’s probably costing you, say, £12 per hour for each staff member. If your staff had taken the booking and accepted the credit/debit card payment, the transaction might have taken ten minutes (with data protection questions), thus costing you 33p debit card transaction fee + £1.20 in staff time = £1.53. A ‘customer-friendly’ staff member in a venue which charges a credit/debit card fee is having a ten-minute conversation (£1.20) plus spending 10 minutes opening the posted cheque and matching it up to the booking (another £1.20). Then you’ve got to pay for the time while your accounts department handles the cheque and banks it. And banks will charge a small fee for the privilege – another £1. So, by providing a good service, your box office staff have just cost you £3.40 in fees for selling the tickets. This has thus cost the venue more than twice as much in direct and staff costs. The customer has also been inconvenienced, and possibly convinced that the organisation is more focused upon maximising profits than making life easier for them. And all of this then assumes they remember to actually put the cheque in the post at all. If they don’t, a box office assistant will have to be paid to contact them. Tesco doesn’t penalise me for spending slightly more than I can afford and bunging it on my credit card, and it seems to be doing pretty well. Interestingly, I’ve recently been told that Ikea has started charging 70p for paying by credit card – but what impression does that give? It reflects Ikea’s brand values: it is not about top quality or service or convenience. I have yet to meet anyone who actually enjoys the whole shopping experience from queuing to get into the car park, to queuing to get out afterwards. But the design is nice and most of all it’s cheap. Ryan Air operates in a similar way and everyone I know who has flown on Ryan Air recently hates it. The introduction of the extra charge for carrying baggage in the hold really leaves you in no doubt that it is trying to keep those enticing headline prices as low as possible while making as high a profit as possible (it is the most profitable airline in the world) by slapping on the extra charges at the end. You feel ripped off. Are these the brand values of your venue? 133 Call it a tenner

The internet tipping point One of the most important issues which has cropped up when venues have been considering their internet ticketing fee is just how much the new equipment, training and software needed to provide this additional way of selling tickets has cost. This is perfectly reasonable. But what does not seem to have been factored into the calculation is the potentially huge savings on staff costs. The savings should far, far outweigh the costs. Probably the main reason for this is because these serious savings don’t seem to kick in until about 40 per cent of your tickets are sold via the internet – the ‘tipping point’. Then, you are able to reconsider your whole box office model and adjust staffing levels. A vicious circle has built up in some venues where fees are just high enough to put off the casual purchaser, so the level of sales never rises above 12 per cent. As insufficient savings are made to show the potential, the additional running costs seem like pure overhead rather than a potential revolution. I buy things via the internet when:  there is a slight price incentive  I have confidence in the company  there is enough information (well presented) so that all my questions are answered when I want to consider them and I don’t need to ring up to complete gaps  the buying process is logical and intuitive. I much prefer to buy over the internet but I am often stopped because of the absence of some of the features above. My most significant recent purchase was airplane tickets for me and two small children to Australia – all completed most satisfactorily via the web. I already knew which airline I was going to fly with, and was able to research prices versus dates at my leisure over a number of days. Having finally chosen and paid, I was able to look at a seating plan of the plane and choose exactly which three seats I wanted on lengthy flights, and could even pre-book the children some special meals. All in all, I must have visited the website six or seven times, printed out sections and sought deeper bits of information as I was ready for them and at times to suit me. I had much better service suited to my needs than if I had phoned up – and I did not have to pay the phone booking fee. I used to say that, if I was just buying something simple, then the web was quicker and easier, but if I had a complex enquiry I would 134 Chapter Five: Selling tickets and influencing people want to talk it through with someone. But this experience has shown me something new: websites are improving all the time and, when people put enough thought and effort into designing them, you are able to get more information. It can actually be better than talking to someone. Obviously, only a percentage of the population feel like this, but there is so much untapped potential here – happier, more informed customers who are saving you money every time they self-book and don’t require you to have a member of staff ‘waiting to take their call’. Surely we should be encouraging this. To argue that the initial outlay in technology might make unwelcome reading for the accounts department is to take a very short-term view. Over time, investment in new technology will reduce staff costs and make the company appear in touch with an increasingly computer-literate culture. We should be encouraging customers to use technology that makes our jobs more efficient and ultimately cheaper, not penalising with fees. Updating a website costs money, so you ideally need a good ongoing relationship with a friendly web company and need to put aside a few thousand pounds each year to incorporate your new great ideas. Compare this with the outlay on brochures. With a good website you can set up email lists and then contact people monthly with your latest offerings, deeper background on the current production, the latest great press review, the new brochure links and so on to encourage them to click that button and book right there and then. All this without print and postage costs. How much money would it save you in your marketing budget if you needed to print and mail one-third fewer brochures? ‘Print at home’ technology could well make a big difference in the next year or so. The major ticketing system suppliers are up and running, with cheap barcode readers. What happens is that customers (having been energised by your exciting marketing email and clicking through to buy tickets at once) select and buy their tickets and then chose either to be sent an email that they can print out later or simply to print a page now. This has a barcode which the venue can scan as the customer goes into the auditorium (with assigned seating venues, you may not feel the need to scan as there is only one ‘Stalls B12’). When you work this through (no ticket stock, no posting of tickets, no pickup on the door) this just might revolutionise the whole business. Spend your valuable staff time and expertise communicating with the right people in the right way and then let customers take their time to

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choose their own seat (and let them see the stage view from each seat) and complete the whole booking process themselves. Some venues are, apparently, offering the customer a £1 discount if they ‘print at home’. We might be looking at 70 per cent of most venues’ tickets ‘self-sold’ within a few years, so:  don’t charge credit card fees  don’t charge postage fees  don’t charge internet booking fees.

But instead:  make it cheaper to book online  make it cheaper to print your own tickets.

Inform and then empower your audience.

The relationship between venue and customer Is there really anyone out there who feels happy about paying fees? The important question, though, is whether this will affect their behaviour, specifically through discouraging them to book further tickets. The answer to this, in my view, lies in the type of venue charging the fees, and the sort of relationship it wants with its customers. At the risk of being contentious, many arts organisations tend to fall into two fundamental types and, while any one customer may well visit both types of venue, they may well feel a different level of emotional attachment towards them.

Type A venues These venues tended to be among the first to take up the option of charging additional fees for credit and debit card payments when the law changed to allow this. They mostly charge postage fees and increasingly charge general booking fees. If you wish to attend, you will pay the ticket price plus one or more additional fees. These venues report a relatively low level of comments from customers about the fees being charged. This is because the customers have little emotional attachment to the venues. Essentially, what these venues offer is a highly commercial transaction – premium prices and fees in exchange for a known quantity. The audience is not encouraged to feel any real ownership of the venue, since it is the product on offer which is the selling point.

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Type B Venues These venues will be trying to form lasting links with their audiences, through education programmes, membership schemes and an artistic programme aimed at encouraging audiences to try new and unfamiliar things. Essentially, they are asking us to trust them. Some of these venues now charge more fees and, according to many box office operators, introducing these creates some ‘slight resistance’. The fact that Type B venues receive more such complaints than Type A venues reflects the fact that their audience feels a genuine attachment to the venue. They complain because they care. It is my belief, however, that the introduction of fees in these venues has a very negative and damaging effect. If we can at least agree that no one likes paying fees, then we can assume that their acceptance at Type A venues is because their product is unashamedly commercial and the fees are just seen as a cost of doing business. At a Type B venue, however, the audience is being asked to trust the venue. To try new things. To experiment. All of these things seem to be in stark contrast with asking people to pay additional fees for the privilege of spending money with them. While all venues must, of course, be financially solvent, it seems odd for places that often pride themselves on their artistic content to then treat their customers as cash-cows. The type of fees associated with Type A venues are out of kilter with the sort of inclusive, risk-taking image that Type B venues want to promote. And who knows how many fewer chances an audience will take when they feel they’ll be charged to the eyeballs for the pleasure of trying something unfamiliar?

Conclusion It is my firm conviction that fees have been introduced as a knee-jerk reaction to new technology – which is actually supposed to make things cheaper and more efficient. By charging fees to cover these costs, venues are damaging their relationship with their audiences. Furthermore, since none of these fees has evolved out of a rational, thought-out strategy, they often penalise behaviour that actually helps to cut costs at the box office. Venues need to consider:  how much a fee-incurring transaction actually costs – both in staff time and direct costs  how you want to encourage the customer to behave  what sort of relationship you wish to have with your customers

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 as the rest of the world is in the middle of a huge internet revolution – eg what percentage of your audience has previously booked with Easyjet and printed their own boarding pass? – what kind of impression does your venue project? Charging fees is always going to make people unhappy. If you’re also asking them to trust you and take chances, don’t kid yourself that charging them to do business with you won’t have any effect.

138 Pricing in practice

Event by event Cost-based pricing at The Stables

The Stables in Milton Keynes is a major live music venue with a menu of jazz, blues, folk, rock, classical, pop and world music all served up in a purpose-built auditorium that seats 398 people. Its size is crucial to its pricing strategy.

According to its chief executive, Monica Ferguson, prices are usually set higher than other venues due to ‘our limited capacity and our proven ability to sell artists at a higher ticket price because of the intimacy of the venue’. This relies, of course, on the popularity of the artist and quality of the experience. Monica gives an example:

If we know that someone like Bill Wyman is playing here and is also playing Derngate twenty minutes up the road, we can afford to generally charge between £5 and £10 more, because there are enough people prepared to pay extra to see him in our intimate auditorium rather than in the 1,000-seater.

An emerging artist, however, will be priced low ‘to encourage experimentation’, as there is no benchmark to follow – ie how quickly it sold out last time and at what price. When a new artist is booked, the venue looks at what others are charging and what the cost of the show is before setting its own prices.

Pricing in the main auditorium at The Stables is intended largely to cover the direct costs of running the event and to contribute to overheads. Most shows are priced according to the cost of the event and the perceived demand for tickets, and most are set in consultation with the artists’ management as they frequently involve guarantees, calls and box office splits. Certain types of events are priced to develop audiences and ensure diversity in the programme, such as world music, classical and contemporary jazz, but most are priced according to demand. Some events are given pricing structures that encourage advance purchase; others rely on targeted discounts; and, for yet other shows, pricing bands are moved according to demand. This, Monica explains, happens mostly on special one-off fundraising events with high prices where ‘we create tiered pricing to test the demand, then move the availability to maximise ticket yield’.

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The same demand-driven approach is taken to increasing or lowering prices. If a show is selling badly, Monica will consider targeted discounts, and each offer is tracked carefully to assess success and prevent a culture of discount expectation. She also uses this as guide in deciding whether to take the show again or as part of the negotiating tactics with the agent to lower future fees or, indeed, pay higher fees if the show has done particularly well and it is clear that demand for tickets has outstripped supply. ‘We rarely drop prices from year to year if an event has struggled, but we may consider introducing new price bands to provide greater choice.’ As every event is priced differently, The Stables has much greater flexibility to vary its pricing without creating price resistance.

The Stables is also about to launch a second space – Stage 2, which will seat around eighty, to support the development of emerging artists and new audiences. Monica explained that the pricing strategy for this space will be radically different from the main auditorium. Research has indicated that people seem to have a price threshold for this space of around £10–£15 and that the lower the ticket price, the more likely they are to experiment.

Fundamentally, while it would be desirable to cover costs in this space, we recognise the need for this space to be resourced in other ways and to take a long-term view of it as an investment in our future programme and audiences. This resourcing is likely to be achieved through funded projects and sponsorship or because it is driving additional secondary spend through bars and catering.

With thanks to Monica Ferguson The Stables, www.stables.org

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Everything must go CBSO’s January Sale

If a fashion store can have a January sale without damaging its year-round sales, then why can’t an orchestra or a concert hall do the same? According to Sarah Gee, the former director of communications there, that was the thinking behind the January Sale promotion that the City of Birmingham Symphony Orchestra, based at Symphony Hall Birmingham, launched in 2001. It was only after its iconic maestro, Sir Simon Rattle, had departed in 1999 that the steady drop-off in attendance that had been occurring each New Year in the eight years since the Symphony Hall opened was noticed.

In a startling move, prices were slashed by 50 per cent, yet the first week’s takings were nearly three times the usual weekly income. To mix metaphors, that finger in the wind had the orchestra’s marketing department holding its breath to see if this initiative would go on to wreck the following monthly sales figures. It didn’t. It also had the added bonus of drawing in a significant number of new audience members, tempted to take a risk, along with loyal attenders, most of whom didn’t seem to mind the cut-price approach. One who did – the managing director of a firm sponsoring the CBSO – thought it ‘cheapened the brand’, but the orchestra’s reputation has survived, the press was largely supportive and the January Sales have continued. Other than reducing that initial, rather hefty cut to 33 per cent off, there has been relatively little fine-tuning of the scheme; a two-for-one deal in the second year drew complaints from singletons and was dropped. In the world of classical music, it’s perhaps a brash idea, but one that is more than commonplace in retail. Where the shops get to clear out their old stock and bring in the new season’s, the orchestra has cleared out much of its enormously complex subscription offers for the second half of its season, and instituted an elegantly simple way of getting more people in to listen to really good music.

With thanks to Sarah Gee (former director of communications) City of Birmingham Symphony Orchestra, www.cbso.co.uk

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142 Chapter Six Squaring the circle

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Chapter Six: Squaring the circle

This book began by asking, among other things, whether pricing actually matters or not. It ends not with a definitive answer but with two contrasting full-length case studies that fruitfully keep that question open and alive. The first is the case of the National Theatre and its Travelex season, begun in 2002/03: ‘calling it a tenner’ seems to have paid handsome dividends financially and in filling summer seats, though whether it has, as yet, dramatically improved access to less well-off audiences is less certain. Price has mattered crucially to its success. The second is the case of the Barbican Centre, another flagship company in the capital, which introduced a yield management strategy, also in 2002/03, and which has demonstrated, at least to its own satisfaction, that price no longer matters as much as it did, as long as the product is right – and as long as people know where to find it. As the other chapters and stand-alone presentations here have demonstrated, there are no definitive answers in pricing, or for that matter in any other aspect of creating, producing, marketing or selling the arts. The two venues profiled here are comparatively vast operations, but the strategic process each has gone through – and which they constantly revisit, interrogate and refine – is one that every arts organisation and venue selling tickets needs to go through in their own way. Behind both case studies, contrasting though they may appear, is a tacit assumption, well expressed here by another experienced manager responsible for pricing: Pricing strategies only work when the thing being bought is precious. If the art is awful or the artistic strategy incomplete, there is no price at which tickets can be shifted and, therefore, no need for a strategy. There should be a major distinction between filling seats and selling them, which require two utterly different approaches.

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Squaring the circle Does pricing actually matter? Richard Ings

Price matters (quite a lot) The National Theatre Travelex season So, to summarise: you’ve got 90 per cent capacity, you’ve had a huge gross in the box office – and ticket prices have fallen. Overall, lots more people are visiting so you’re not just selling more tickets to your current audience, but you are appealing to a bigger audience. More new people are coming in but you’ve had no drop-off in your retention rate. So, although these new people haven’t been before, they’re still just as likely to come back as those who came five years ago, when all the prices were £37.50 or whatever. And you have some evidence that your subsidy is being shared over a more representative cut of the population. Sarah Hunt, Director of Marketing, National Theatre

A special case: the values of a national theatre The National Theatre is a special case. Despite the formal addition of Royal to its name, it remains the elegantly concrete expression of a long nurtured ambition to have a theatre for the nation. Even if it received no public subsidy – it does, of course, to the tune of £18,288,000 – it would probably still be expected to live up to the democratic implications of being a national theatre. Robert Hewison’s argument that arts organisations need to recognise that they themselves are ‘the creators of value through their relationship with the public’ could have no greater relevance than here – where pricing has to be seen to be ‘in the public interest’. Yet, the National has to fight its corner in a world that is founded rather more on profit-making than on high-minded altruism or on meeting social or, indeed, cultural responsibilities. Its most immediate competition, in terms of rival local theatre, is the West End, where the identity of an individual theatre is far less significant in selling tickets than the appeal of its current production or the stars involved in it. No one is surprised when a hot ticket in the West End costs a lot, but a decision by the National to introduce premium pricing for its own more popular shows would almost certainly raise hackles among its audiences and those who see themselves as their champions, the

146 Chapter Six: Squaring the circle critics, and beyond them, the public funding bodies. So, the National cannot blithely go where others may lead; a less accountable theatre experiencing an unexpectedly successful run might feel freer, for example, to dabble in yield management techniques and reduce the proportion of cheaper seats available over the last few weeks. The National is more inclined to improve the value of what’s on offer to the public than to squeeze them for profits. Artistically, too, the National has a lot to live up to in terms of public and critical expectations. The programme and the way it is presented by directors, actors, set and costume designers and the rest has to match an ideal; a national theatre should be showcasing and promoting the highest-quality work as well as making it available to the widest possible audience. So, on the one hand the perceived value of what is on offer at the National has to be high, while the pricing of it needs to be relatively modest. This is not always the case with a major performing arts venue; a short distance away, in Covent Garden, the Royal Opera House, which is also in receipt of generous public subsidy, is expected to seek and provide great value in its opera and ballet programme, but its pricing is also comparatively high. The cultural context in which these two venues exist may look similar but each takes – has to take – a different strategy to sell tickets and build audiences. It is not just the National Theatre that is a special case – every venue and every touring organisation are special cases. Each one has to devise its own solutions to the conundrum of satisfying both ‘access objectives and income optimization’ through its own pricing strategy. When someone gets it right, however, the temptation might be to borrow that strategy wholesale. The National Theatre’s Travelex season seems, in many ways, to have got it so right that it has created a ripple effect across not just the theatre world and not just in this country.

One simple idea: what led to the strategy Travelex had repercussions for us throughout the whole organisation but what was so good about it was that it was just incredibly simple. That was the genius of it. It was one simple idea which was inclusive, not exclusive. The Travelex season was the brainchild of Nicholas Hytner, the newly appointed artistic director at the National, and Nick Starr, executive director. Looking back on it, Chris Harper, who took up the post of director of marketing not long afterwards, believes that the original impulse was as much to solve an artistic problem as a financial one, 147 Call it a tenner

and more to do with developing audiences than increasing box office income – a philosophy his successor, Sarah Hunt, adheres to. As a subsidised organisation, if we can secure more or less the same income but draw in 25 per cent more people, it’s good evidence that we are making public subsidy go further. That’s a tremendously important factor in our thinking. Back in 2001, the National had shifted from an increasingly expensive repertory system to a new pattern of long runs. Classic musicals – like South Pacific – were relied on to make up the financial shortfall over the summer and achieve an average 65 per cent capacity. To the sales and marketing eye, this meant primarily rather too many empty seats – and, turning to the membership database, which showed a loyal (and valued but ageing) audience, it seemed likely that there would be even more empty seats in the not-too-distant future. From an artistic and promotional perspective, there was a distinct lack of buzz around the summer season. Of course, the two views were reflections of the same problem and led to the same question: how to attract a larger audience to a more adventurous repertoire if they were, as the data demonstrated, unwilling to try out other kinds of shows on the National’s menu? There was the added challenge of the auditorium itself. Of our three theatres, the Olivier was the most difficult to programme. We were finding that playwrights weren’t writing for it, because it was just too ambitious a space. Musicals were a good answer but just how many more musicals could you programme? We knew that this was not a long-term solution. We needed to find a concept that made the Olivier Theatre an attractive place to work in and to write and design for. We were looking for an artistic answer to our problems as well as a financial one. Beyond trying to solve all this was the desire, as Chris puts it, ‘to create something that would make the National Theatre national – something that would really grab the headlines’. So, once again, this was a question of how to sustain the National’s reputation for public value. The answer was simple and it came down to price – just the one price. A low one.

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A joint effort: creating the strategy The genius of the £10 season is that it wasn’t a discount. It was just the price. Chris Harper Historically, the National’s ticket prices shadowed the West End. Its top price in 2001 was £32; the West End’s was around £42.50. The practice of setting prices to match those of peer organisations, still pursued by many venues, is based on a very narrow analysis of what the competition actually consists of. The benchmark that the National now set for this new pricing venture was not a rival theatre’s pricing breaks but a much simpler equation: the cost of a cinema ticket. We felt we were potentially losing an audience to cinema. Or an audience who might go and buy a paperback for £9.99. There had also been a precedent for lower pricing at the National itself, set by Nick Hytners’s predecessor, Trevor Nunn. This was a season called ‘Transformation’, where new work was done at reduced ticket prices; in retrospect, this appeared to be a tipping point, showing that people could be tempted into taking a risk and book for a play that they didn’t really know very much about. Nicks Hytner and Starr decided to go for simplicity: a new single price offer – a £10 ticket – to draw in enough people to fill the Olivier’s seats over the summer. Selling the whole auditorium at that price wouldn’t work financially, but by looking at the architecture of the building they were able to price two-thirds of the auditorium at £10 and charge £25 for the centre stalls. As a lot of members were perfectly happy to pay an increased rate for the better seats and as centre stall seats had been priced previously at £32, this also represented a substantial reduction. When they worked out the numbers, they discovered that if they managed to sell all the tickets at these new rates, they would make as much money as they had normally budgeted for with 65 per cent capacity at conventional prices. (The removal of discounts meant that there would also be a much smaller percentage point difference between physical occupancy and financial yield; ultimately, it dropped from 15 per cent to around 5 per cent.) Overall, this was a risk that looked worth taking artistically and in terms of audience building, but it was still a risk financially, especially for a publicly subsidised company. Which is where Travelex came in. Sponsorship is, of course, the essential ingredient without which any attempt to emulate the National’s approach may well come undone (and, apparently, has in some cases). Travelex, the world’s leading international payment and foreign exchange company, agreed to

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underwrite the risk (to the tune of approximately £2.5m over six years of sponsorship) for a number of sound business reasons, based ultimately on shared values. As Chris explains, this new price offer was truly inclusive. It was available to everyone – you didn’t have to be someone to get it. You didn’t have to be young. You didn’t have to be old. You didn’t have to come on a Tuesday. You didn’t have to come on a midweek matinee. It was just a big, open, democratic space. It was about customer experience, good entertainment, quality… Travelex felt that its own values fitted very much with ours. A good enough fit, in fact, for a three-year deal to be renewed for a further three years at the end of 2005. What made the deal sweeter for the sponsor was the National’s decision to call it the ‘Travelex £10 season’, not ‘the National Theatre’s £10 season, sponsored by Travelex’ or even just ‘the £10 season’. Counter-intuitively, perhaps, this has also proven useful to the National. Rather than confusing the public by introducing an alternative – and cheaper – brand to rival its own ‘core’ operation, the Travelex £10 season has had what Sarah calls ‘a halo effect’. The latest available figures indicate that income is up throughout the National’s operation and that this may be due, at least in part, to the long-term impact of this scheme. That impact was, it should be remembered, electric from the outset. In terms of filling the auditorium, the first Travelex £10 season, in 2003, succeeded like a dream. Even the unknown quantity among the first four productions – Tales from the Vienna Woods, which ended the season – sold 75 per cent of tickets, because the risk had paid off for audiences as well as the theatre. Shows sold out over that first summer and attendances have since averaged out at 93 per cent capacity. Price can never be entirely disentangled from product, nor can product be free of financial considerations. The decision that Nick Hytner made, to mount not the tried and tested classics he had first mooted but more unusual dramatic fare, played a vital part in the success of that and later seasons’ success. Indeed, for Chris, the most important aspect of the Travelex initiative was its artistic impact – again confounding expectations, a tighter budget paid artistic dividends. Nick felt very strongly that these shows needed to have a bold muscular feel to them. We reduced the production costs to between a third and a quarter of what we might have spent on an original Olivier Theatre show. That forced directors and designers to think of the play that they were doing in a very bold muscular way. It was about a reinvention of the play rather than relying on 150 Chapter Six: Squaring the circle

scenic design to provide the look and feel of the show. That was one of the things that appealed most to directors and designers. Any worries that this enthusiasm would be short lived have since been dispelled, according to Sarah and her colleagues. Would there be a shortage of directors and designers who were prepared to go for that sort of aesthetic? No – in fact, quite a number are really keen that their shows are part of Travelex. In one sense, it’s an emotional thing – they want to be part of a good thing. And then there’s the creative challenge of staying within the budget – as a designer, you come into it knowing that the budget is going to be, say, £75,000 and that, if you’ve got a cast of twenty, all of that could easily be used up on costumes. This sense of joint effort – each element in a production pulling together to make it work – seems to reflect the way in which the National as an organisation, driven by the personal involvement of the artistic director, has taken on the Travelex £10 season and its implications. Nick’s direct appeal to arts editors and theatre critics over the National’s new approach also paid off handsomely: usually the subject of ill-tempered complaint in the press, theatre pricing for once earned glowing headlines. Above all, the simplicity of the offer made it much easier for the National to market it to the public.

A price, not a discount: audience development We just wanted the Olivier Theatre to be full. As Chris’s comment makes plain, the Travelex season was, in one (reductive) sense, simply about multiplying the proverbial ‘bums on seats’. And new people certainly came in. In the first year, 32 per cent of the audience had, according to the data available then, never been to the National Theatre before – and these newcomers have since been responsible for the considerable increase in box office income; members’ spending has remained relatively static. Although numbers of first-timers were growing before the Travelex initiative, there was a sizeable leap in 2003 from just over 30,000 to over 45,000; a smaller increase on that figure, taking the number over 50,000, occurred the following year, though it dipped back by that same amount in 2005. The challenge, of course, is to turn first-timers into repeat visitors. Remarkably, the data demonstrates that, despite the inflation in audiences, the retention rate of around 30 per cent has remained unchanged over the last five years. In other words, there are more

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people attending for the first-time and a substantial proportion have come back for more – in 2005, nearly 28,500 of them. This has been achieved despite – or perhaps more accurately, because of – a less traditional repertoire with different production values being on offer. According to Sarah and her colleagues, a growing trust in this repertoire and the price are equally responsible for people coming back for more. It has to be about price as well, because one of the reasons for going into this originally was that we had had very disappointing returns for straight plays in the Olivier during the summer period. The strength of the price offer is hugely important, particularly as we’re not saying, this is a really difficult play, so we’re only going to charge you £10 for it, because we don’t think you’re going to enjoy yourself that much. We were just trying to get people back in and we were sort of socking them with two things. One was saying look at the prices and the other one was saying now look at what’s on offer. Audiences have certainly recognised how reasonable the £10 price is – including the National’s core audience. When someone suggested giving existing members an option to make a donation on their membership forms, it generated, in the first season, £40,000 from members who added donations when they filled out their booking form. Income from donations has fluctuated somewhat since (only £7,500 in 2005/06 but back up in 2006/07, to £26,000), but it serves to indicate an impressive level of goodwill towards the National and its new attempt to build audiences. Observers of the Travelex phenomenon have sometimes assumed that the National wanted primarily to attract younger or less well-off audiences; a few believe that this is something that the National claimed to have achieved right from the first season. Hence, the excitement in some quarters that here at last might be a more reliable and lasting formula than many of those tried out, for example, as part of the Arts Council’s New Audiences Programme. However, even at the early stages, the riskier programming choices and the flavour of the directorial approach smacked of a desire to draw in a younger, hipper crowd – and keep them coming back. Whether it might draw in new people from poorer socio-economic groups in the process was moot; in terms of diversity, programming, rather than price, was seen as the prime way to develop more ethnically diverse audiences. The National had, in the past, tried its fair share of pricing tactics to fulfil its commitment to accessibility: a ‘Playmate’ scheme for students, Paul Hamlyn nights for young people from disadvantaged 152 Chapter Six: Squaring the circle backgrounds and a range of what might be called boutique schemes. As attempts to rejuvenate and grow audiences, they ran into the usual sands. They were all very good in their intentions and on a report they looked great, but did they really deliver a new audience? Many of them allowed you to, say, book a ticket for a fiver on a particular night if you hadn’t ever been here before. However, they were a very expensive and labour-intensive way to build a new, long-term audience. Such one-off initiatives also tended to be costly to market and, overall, produced a somewhat scattergun approach to building audiences and increasing ticket sales. The Travelex £10 season was, in contrast, a pricing weapon of mass seduction aimed at new audiences – but would it prove too blunt a weapon to do more than give more well-heeled punters a cheaper ticket than they would be expecting (and happy) to pay? Charging only £10 for a theatre ticket certainly takes a lot of the risk out of going to see something you don’t know much about. At the very least, it may encourage occasional attenders to visit more often than usual – the turnout for the riskier shows in the season suggests this is the case. If research indicating that price is more of a barrier for less well-off groups in society than for As, Bs and C1s, then – in theory – such a low price could also play a part in getting C2s and Ds at least through the door, perhaps for the first time. As Chris recalls, the National certainly went to a lot of trouble to make the whole experience of going to the theatre cheaper, from the ticket (no fees charged) to the price of the programme (reduced) to the cost of a meal in the restaurant (pizza and salad for £5). We knew we needed to just bring more people in – a new audience that hadn’t been here before – but we looked at the whole customer experience: how they book their tickets, how we did our marketing and what the offer was when they got here. The current team at the National has been understandably nervous about over-claiming how far they have managed to shift their demographic from its traditional audience, which historically has been older and more affluent than London theatre audiences in general. Now, however, through data-mining research recently carried out, using Mosaic profiling (based on postcode analysis) to analyse its database of 300,000 customers, it has discovered that while the overall share of its traditional audience – coded as ‘symbols of success’ – has fallen by nearly 4 per cent since Travelex, the share of younger educated and

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professional people – coded as ‘urban intelligence’ – has grown by around 3.5 per cent. So, while it is true that the poor are not yet breaking down the doors at the National, it seems that the theatre has widened its demographic to some extent and, according to its latest figures, is reaching a modest but growing number of C2s and Ds.

A good price? Impact on income Although the Travelex season was intended to grow audiences, not to maximise income, it wasn’t set up to lose money either, so it has been important for the National to analyse its performance carefully and set it within the wider pricing context over the rest of the year and across all three theatres. It is relatively simple to show that, taken by itself, the Travelex season has not cost money (or, to put it another way, that it has managed to break even). It is trickier to determine how it performs in comparison with the rest of the theatre’s output, as generally no two shows are alike. However, there is one play that has appeared both in and out of the Travelex season, which – with some caveats over variables such as timing and small cast changes – serves for such a comparison. Measure for Measure had different posters for its run in the Olivier (Travelex) and in the Lyttelton (normal pricing, ie up to £35) in 2004, but the productions of Shakespeare’s drama were virtually identical, as was the length of each run. Allowing for different capacities, the lower prices in the Olivier were compensated for by larger audiences. It implies that we could have priced either one the other way and we’d have made roughly the same amount, give or take £30–40,000. It shows that you can have a dramatic price change and, as long as you have the capacity and the show is the same sort of thing at the same sort of standard, you can have it either way. Simon Rhodes-Johnson, London Business School placement Selling more tickets at a cheaper price seems to have matched selling fewer at a higher price. This exhibits almost textbook price elasticity of demand. The neat relationship between lowering and raising ticket prices and the audience growing and declining as a result depends, however, on the particular assets of the National, which has the capacity to do this – it wouldn’t work so well in a 300-seater theatre. And, even at the National, it would still be possible to cut prices too far and lose money. The big question, then, is how long the theatre can stick to £10, which is looking cheaper all the time. For the time being, that simple, 154 Chapter Six: Squaring the circle audience-friendly round sum of a tenner is too good to lose, as Chris commented, not long after the renewal of the Travelex sponsorship. It was an issue for us when we were looking at the next three years and the impact of inflation. Should we call it the ‘£10.99 season’? The ‘£15 season’? It doesn’t exactly trip off your tongue, does it? It would mean, effectively, re-branding and we just felt that wasn’t the right way to go. So, to maintain that price, a better deal was struck with Travelex while the National took some internal measures to balance the books – maximising prices in other areas, tightening discounts at certain shows, removing group concessions (coach parties are not a key area for audience development), and so on. Financial pressures might mean that the National will have to look at reducing the £10 area of the auditorium and introducing more tickets at £27.50; for now (the 2007 season), two-thirds of the tickets for every performance in the Olivier Theatre are £10, as are two-fifths of tickets for the Lyttelton Theatre, which is now participating in the scheme for two shows. As suggested earlier, the Travelex season as a brand seems to have had a positive effect across the board. Any early worries that customers would begin demanding £10 tickets for anything at the National were soon dispelled. Apart from the fact that, in any case, £10 seats are available for all productions at the National (though obviously in more limited quantities than for the Travelex season), it does not seem that people have been put off going to other shows – quite the reverse, as the latest figures suggest a correlation between the increase in box office income and people attending non-Travelex shows. If you assume that Travelex hasn’t made or lost any money, which we think we’ve proved, then the increase in revenues over the past three years must be coming from all the other stuff. Therefore, either Travelex must have had a knock-on effect or the other stuff has been so superb that this would have happened anyway. It’s probably a combination of the two. It is intriguing, in this context, to note recent customer research which indicates that a good many audience members believe that they have attended a Travelex show when they haven’t.

Conclusions As an avowedly low-pricing strategy to bring in new audiences, the National Theatre’s Travelex season has, ultimately, not devalued what the National offers but reinforced the value we expect from our national theatre. In the process, it has broadened its demographic, 155 Call it a tenner

overhauled its artistic programme to favour riskier material and can now offer the public tickets that are, on average, around 15 per cent cheaper than in the West End. So, while some, more commercial operations continue to target prices at the high end of their market and essentially try to make a virtue of high prices for particular shows or particular seats, the National believes that its particular marketing strength at the moment is offering a good-value proposition. You can charge £60 for Judi Dench in the West End because there’s no brand to bend: people don’t know they’re seeing one of your productions. But here it would be uncomfortable for all sorts of reasons to put a premium on ticket sales just because we’ve got Michael Gambon and people will pay that extra £10 or £20 to see him. I’ve worked in places where you would think of doing that, simply because you needed to in order to balance the books across the whole year. How far then is the National’s experiment relevant to other venues, which might more urgently be trying to balance the books and to square the virtuous circle of developing audiences and maximising income? Both Chris and Sarah are adamant that its Travelex £10 season is a unique response to a unique set of problems that the National had been trying to solve – and that the risk would have been too great without sponsorship. It is not a model that can be replicated wholesale, although Chris believes that the National’s experience does offer some pointers to the wider sector. What can be learned from us is that the planning and the artistic programming and the ticket pricing and the marketing are all so closely linked now, much more than they ever were ten or fifteen years ago. If we had reduced all the tickets to £10 and not dealt with all the operational issues – numbers of performances, changing sets overnight to save money and so on – I don’t think it would have worked. The organisation has to embrace the whole change and you have to examine every aspect of your operation to find out how you can work for the benefit of customers and put them centre stage. Only you can create something that is right for your venue.

Acknowledgements and thanks are due to Sarah Hunt (Director of Marketing), Chris Harper (former Director of Marketing), Simon Rhodes-Johnson (London Business School placement) and Lisa Burger (Finance Director) for agreeing to be interviewed for this chapter.

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Price doesn’t matter (quite so much) Yield management at the Barbican Centre Its once notorious complexity of public access is reproduced behind the scenes in the labyrinthine warren of narrow corridors and sudden offices where the people operating the venue work, yet the Barbican Centre is now recognised one of the nation’s better arguments for concrete. Its architecture aside, the programme here is remarkable for its diversity – from the Great Performers series, featuring such varied luminaries as Sonny Rollins and Itzhak Perlman, to the cutting edge theatre season BITE, which includes everything from Cheek by Jowl to site-specific artists Lone Twin, and on to thematic extravaganzas like Tropicália, a celebration of Brazil’s short-lived but hugely influential Sixties cultural revolution that ranged from gallery to theatre to outreach work. The Centre is also notable for its lack of direct Arts Council funding, as it receives its main subsidy from the Corporation of London, which maintains a careful but comparatively light-touch watch on its work. Surrounded by the edifices of the City, one of the world’s great financial hubs, the Barbican complex houses a goodly portion of the area’s relatively few residents in serried apartments that line its lakeside. This is undoubtedly an area of London given over to the manufacture of wealth and most passing trade would be city business people, but the Barbican Centre claims the most diverse audience of any peer venue in London, with 12 per cent of its audience base drawn from ethnically diverse categories. Chris Denton, the Barbican Centre’s head of marketing, believes that this diversity, which includes a wide age-range among attenders, is a response to the diverse product on offer. He claims that the Barbican’s international theatre programme, for example, is of a different order to what can be found at the National or in the West End. It’s one of the factors that ‘make it difficult for us to benchmark against other venues in terms of pricing’. The pricing strategy group, which has been meeting since 2001, is clearly very proud of the quality and strength of the Barbican’s artistic programme. It is this, far more than price, which they believe has drawn first-time (or single attendance) audiences back for a second visit. At the beginning, however, that was not at all clear. The group’s remit was to enquire into pricing in all its manifestations at the Barbican, from broad concerns, such as how prices were set and who set them and how they then linked into audience development, to more specific questions, such as price breaks, how

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many complimentary tickets were issued, and so on. It drew together a core of three crucial managers: Chris, Niki Cornwell (Head of Finance) and David Duncan (Head of Customer Experience). There followed an intensive period of research and radical change over the following three years, as the group began to realise just how unconsidered the Barbican’s approach to pricing had been. We weren’t looking at pricing in any kind of strategic way. Now, David in Customer Experience and Niki in Finance have much more of a role, but back then it was not always dealt with at a senior management level. I guess we were in a rut. Considering it’s such a critical part of the mix, I think we would hold our hands up now and say that five years ago we were really missing a trick. Although it swiftly becomes clear, when the conversation turns to audience development, that price is not seen as the main lever bringing people into the Barbican, Chris’s admission here that pricing is ‘a critical part of the mix’ reflects the group’s belief that it can play an enormous role in maximising revenue. It was the Barbican’s adoption of yield management techniques in 2002/03 and the concurrent leap forward in website technology generally that has shaped and driven the Barbican’s new pricing strategy, dovetailing with a new approach to direct marketing and audience development based, not on focus groups and opinion gathering, but on results analysis. What sparked off the decision to use yield management and to jettison much of the paraphernalia of discounts and special deals, however, was not the result of a dry debate but discovering something extraordinary about their customer behaviour: there seemed to be virtually no evidence of price resistance – quite the opposite, in fact.

The adoption of yield management We often had a situation where the top prices had sold out and there was continuing customer demand for the top price that we could not fulfil. We have also found that some cheaper seats remain unsold until they move up into the top price bracket. There is a section of our audience who just want the top-priced seats – no matter where that seat actually is. David Duncan still seems a little surprised by this development, of a swing towards the high end of the market, but it inspired him to introduce yield management techniques to make the most of it. Previously, there had been no way of varying prices in this way: everything was ‘in black and white’, other than making reductions to shift a poor-selling concert. No one had ever asked: why not match supply and demand? 158 Chapter Six: Squaring the circle

The introduction of yield management has given us a huge amount of flexibility, even for one-off events that we haven’t had before. If you don’t know what the demand is going to be, you haven’t tied yourself to a starting point that can’t be changed. So you can react if there’s suddenly a huge demand or, if it’s not selling well, you can dress the house. Of course, it’s also important to ensure you always provide value for money and retain accessible prices. The strategy also informs the pricing for repeat events and return visits. If something has done well, the Barbican can adopt a more ambitious pricing structure the next time around – and reap the financial benefits. This approach gives the box office staff a real opportunity to react to supply and demand. As the team gets familiar with the events and the seating plans, they know which ones need to be looked at on a daily basis and which ones can be left a week or so. This all has a really good effect on income, with returns on some events increasing by up to 30–35 per cent. The only downside for those staff is that, until more automated monitoring systems are in place, this process is still labour intensive, particularly as an event gets closer, with the need to check sales on a more regular basis. The decision to allow customers to select their own seats online has strengthened the ability of the box office to gear prices up or, less often, down. According to David, the impact of online booking ‘really blew the floodgates open’. Responsible for 4 per cent of sales in 2001, online business has now shot up to account for more than 65 per cent. Analysing those sales has also provided further evidence that customers are not as highly price sensitive as had been assumed. You’ve got your online seating plan where you can clearly see the divide and the price bands, so you might think that people would jump two seats to the side to secure a lower price but no, they would rather pay the extra. Seeing this happen changes your thinking. Traditionally, customers would phone up to discuss available prices and then find out where they could sit for a particular price. Customers now look at the seating plan, decide where they want to sit and only then do they consider cost. It is more about value. All the fears among venues about letting customers see their availability have proved unfounded and what has emerged instead is a sea change in customer perception.

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Audience development and the ‘red herring’ of price Around the time when yield management was being introduced, Chris was also doing some research for the classical music sector. I was trying to see where price came in the marketing mix and how much it was influencing audiences and whether it was a barrier to attendance. We did qualitative and quantitative research and it was absolutely conclusive: price just wasn’t an issue. If people are motivated to come and are interested in the product, then they will pay whatever it costs. This was equally true of students or younger audiences, where you think you’ve got to price down because they can’t afford it. In fact, they told us that, if they really wanted to go, they would do it properly – even if that meant paying £25 or £30 for a ticket. It seemed that, for this particular group, who would, after all, spend serious money in clubs, the problem was not price but the low profile of the Barbican. Even though they were culturally up to the mark, ‘we weren’t on their radar of things that they could go out and do’. Hence, the current ‘Do something different’ campaign, which encourages people to add the Barbican Centre on to their list of leisure options. For Chris and his colleagues, developing audiences is very much about providing a product and then promoting it in a way that they will hear about it – and want to go and experience it. You could offer me a flight in a hot air balloon for a fiver but I’m paranoid about heights and would be terrified. So, unless you could find a way of selling it to me in a personally motivating way, I wouldn’t pay one hundred quid or two quid. It’s the same with us: you sell difficult concepts by creating the desire for them. It comes down again to the nature of the product. It’s never price – I think that’s a real red herring in terms of audience development. So, the queues for standby tickets have disappeared along with the ‘three hundred different discount types’ on offer and all this has simplified the entire process of setting prices. There are only three or four different scales in the main theatre but within that there are a variety of seating plans and different layouts to generate the maximum possible income for a particular event. Although customers on a budget can obtain cheaper tickets (at around £6–£8) at every Barbican event – often on the front row of the stalls and at the side, as well as in the upper gallery and (the lowest price) up in the balcony – it is not something that the Barbican feels the need to lead with in its promotions.

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Overall, the Barbican’s approach to audience development seems to be based on a counter-intuitive combination of customer empowerment and manipulation. On the one hand, Chris and his fellow managers give customers a lot of room for making their own decisions – a good example is the sprawling multi-artform festivals that the Barbican is known for, where no festival ‘season tickets’ or crossover deals are offered, in the belief that customers today like to create their own programme. This freedom extends from putting online customers in control of their booking to refusing to allocate them en bloc to niche markets. Its database of a million transaction records is a huge resource and much of the Barbican’s marketing is direct, using that data to present individuals with promotions tailored to their personal price and booking patterns. However, Chris exposes how this is also useful to the Barbican as ‘invisible’ customer research. We’re driving much more towards trying to personalise content and looking at triggered marketing: we send triggered emails now, so that, if the customer behaves in a certain way, they get a certain response by email from us. So, in a sense, we’re researching them without them knowing it. In the end, Chris concludes, however responsive the Barbican is to its customers – and, of course, it does want to provide them with the best possible arts programme – audience development is also more and more about hard-headed business considerations in a funding environment which is getting tighter and tighter each year. Audience development is about how we deal with you as a customer, regardless of your background, but also how we can gain your loyalty and make you come back. For me, audience development is a business-driven thing about developing a profitable relationship (artistically and financially) with customers over the lifetime of a relationship and getting people to come back as often as we can. It is not just about ticking boxes. While continuing to attract first-timers remains important, the highest financial payoff is in persuading people to make a return visit. When Chris joined the Barbican in 2001, the ratio of new to returning customers was 70/30. Now the balance has shifted the other way, with 58 per cent returning and 42 per cent new each month. The focus is now turning to Barbican members – and, once again, old assumptions are being re-examined, again around price. This time, there is a debate about discounts and how important they are as a benefit for members.

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Apparently, since doubling the price of membership, the Barbican has seen it double in size to around 15,500 members, who provide 28–30 per cent of the Barbican’s earned income in the shape of £2m ticket revenue per annum. Maintaining and growing membership is therefore vital, especially as the data shows that the average annual spend of about £100 drops to about £12 once a member lapses. To tinker with discounts is therefore a bit risky, but the current system is inconsistent and overcomplicated – and member discounts are not always offered if the event is likely to be a sell-out. It is a debate about added value, triggered by that surprising discovery that its customers are going to come because of the event, not the price. So, if they aren’t particularly influenced in that decision by a discount, how can their loyalty be rewarded? The final answers to this are not yet in place, but they are likely to credit the customer with a greater desire than just getting a cheap ticket.

Pausing but not stopping David feels that yield management on the scale practised at the Barbican may not be particularly appropriate or useful for smaller venues. With fewer events, it might not be worth all the work needed to administer it, although the number of events is relative. However, for larger organisations, it seems odd that more have not yet adopted it. Part of this, he thinks, might be that the relationship to airline yield management techniques is sometimes misunderstood. I think a lot of people are trying to emulate the airline model, which is a completely different kettle of fish. It is based on deliberate over-booking and relying on no-shows and all that sort of stuff, so it can’t be translated direct to the arts industry. Pausing a moment, however, he acknowledges that there may be further yet to go in applying such techniques at the Barbican Centre. Although yield management allows us to match supply and demand, we don’t actually change the base prices as such. Doing that would be another step forward, especially for events that are sold at one single price. You could start off low and then, once you’ve sold out some of the tickets, bump the actual price up, so that the closer you get to the event, the higher the price of the ticket… perhaps that time will come. There is clearly no plan to wind up the pricing strategy group just yet.

Acknowledgements and thanks are due to Chris Denton (Head of Marketing), Niki Cornwell (Head of Finance) and David Duncan (Head of Customer Experience) for agreeing to be interviewed for this chapter. 162 Pricing in practice

Look – no prices! Sydney Theatre Company’s approach to airline yield management

When an ex-CEO of Qantas took over as the chair of Sydney Theatre Company, he had an agenda: to see how and whether airline yield management could be applied to a theatre company. He brought in two consultants to examine the theatre company’s pricing and yield management techniques. One was, coincidentally, a subscriber to the theatre company anyway, knew how things worked there and asked rather predictable questions. The other was – in the words of Craig Hassall, the then deputy general manager – ‘a complete theatre ignoramus’… and thus hugely useful. He would ask different, more challenging questions. For example, on the topic of variable pricing, he asked why a price could not be changed once tickets have gone on sale. When the theatre responded that it just wasn’t done, he said that that was not a good enough reason: why couldn’t it be done?

Craig recalls with amusement his realisation then that there was ‘this sort of moral thing hanging over us that, as a subsidised company, we had an obligation to be transparent about our charges’.

Putting price last Subsequently, in perhaps its most startling application of airline practice, the company decided not to advertise ticket prices, on the basis that an airline can never say what a seat is worth, only what it costs to book it now. The arts industry’s norm is to advertise prices, but Craig is now not sure why – except that this is how it has always been. He takes up the tale.

So, we experimented and started taking prices off everything. None of our brochures had any prices in them, nor were there any on the website. The only place you saw the price was on the ticket – after you had bought it. Was there any resistance in the market? None – not one complaint. This approach extended to the scripts for the phone operators in the box office. We made sure that the price was the very last thing mentioned in the sequence of purchasing the ticket – once the customer was hooked. Unless the person asks, there’s no need to mention the price until you reach the end, because, unlike the show or the good seat, it’s not going 163 Call it a tenner

to be an incentive. I think we all feel morally bound to tell people the price in case it scares them away. But why? In fact, customers would generally go along with it because they felt that they had got exactly what they wanted – and they’d rung us in the first place, so we knew they wanted to go ahead with it.

Varying the price Emboldened, the company took the next step: variable pricing. As it wasn’t advertising a price, there was, in theory, no limit to what a show could cost. Having already sold half the tickets on subscription, it already had a very ready indicator of what was the most or least popular show – and where prices could be varied, usually upward.

We would simply put the show on sale at a nominal price and then look at demand across the week and then just adjust. And, internally, we’d agree, for example, to start charging more for the Monday early evening because actually people are responding to that and selling quite well. So we’d add $2 to that price. If there was no resistance in terms of the volume of sales, we’d push it a bit more.

This is, of course, what the airlines do so effectively. Just as people no longer question why a flight costs more today than yesterday, theatre attenders learned to accept paying different amounts, on the basis that price changed to meet demand.

Maximising loyalty Of course, this daring approach would not work half so well for a venue or company which lacked the loyal and fairly regular audiences that the Sydney Theatre Company had built up. They accepted it – as those new to the company would also accept it, having no expectation of price. It also would not lend itself to audience development strategies, which are trying to reduce the barrier of price. As a way of maximising revenue, though, it seems hard to beat.

We weren’t being cloak and dagger about it. We’d say: this is a very popular show. People are very keen to see it and we can charge more. As a publicly funded company, we have an obligation to be as resourceful as possible in raising revenue.

With thanks to Craig Hassall (former deputy general manager) Sydney Theatre Company, www.sydneytheatre.com.au 164 Postscript The American scene

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Postscript: The American scene

This chapter analyses current arts pricing practices in New York, demonstrating that once again we are, to some extent, ‘divided by a common language’. Although organisations over the pond are experimenting in a similar variety of ways to maximise income and improve access, they are doing so with notions of value and price that have been shaped by a very different history and culture. Although it, therefore, tells quite a different story – there is, for example, little subsidy of the kind provided by the UK arts funding system – this study offers useful comparative insights into how North American organisations are tackling the challenge of maximising income in the midst of a rapidly diversifying population with a vastly increased range of leisure and entertainment options.

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The American scene New York trends in arts pricing Chris Lorway and Geren Raywood

The United States is a consumer-driven market where the pursuit of profitability and customer satisfaction determines almost every strategic business decision. More and more, these business practices are being adopted by the arts and entertainment market. Since the late 1990s, a confluence of factors has made it increasingly challenging for the performing and visual arts to increase earned income and build audiences. The volatility of the US economy, together with rising production, healthcare and security costs, have resulted in organisational programme cuts and increased operating deficits. At the same time, the explosion of the internet and other home entertainment innovations have placed the traditional artforms on a much wider competitive playing field, making it more difficult (and more expensive) to draw in new audiences while retaining current attendance levels. In this increasingly competitive, commodity- driven market, finding a core audience and building experiences that will keep bringing them back is critical to long-term survival. Outside of their tax-exempt status, the majority of US non-profit1 cultural institutions receive little in the way of government funding.2 Annual operating expenses for US cultural organisations are covered through a combination of earned income activities (ticket sales, space rental, cafes, shops, etc) and contributed income from foundations, corporations, board members and individual donors. Reliance on multiple stakeholders (each with their own agendas) for contributed income has led to increased pressure on commercial and non-profit cultural institutions alike to demonstrate greater sophistication in business practices. Companies and their management teams are expected to actively engage in sound strategic planning, to adapt to trends in technology, to illustrate increased operating efficiencies and, perhaps most critically, to demonstrate to either board or backer the ability to generate revenue. Using marketing research to understand how arts consumers value their experience in relation to its cost and how to effectively communicate that value through marketing and pricing can be a significant challenge for arts managers. An increased focus on creating an overall consumer experience is a difficult balancing act for organisations that struggle to remain loyal to an aesthetic while

168 Postscript: The American scene providing more competitive value. And the pressure to accurately predict consumer behaviour and purchasing trends has had a significant impact on ticket-pricing strategies in both the commercial and non-profit sectors. Managers are increasingly driven to seek new approaches and innovations that maximise revenue and create sustainable audiences. It is within this framework that we look at ticket pricing in the US – and for the purposes of brevity, New York City – market. The traditional arts scene in the US is large and diverse; the variables of marketing practices and pricing strategies around the country could easily fill its own book. We have purposely chosen to focus on New York City, knowing that:  it represents the biggest cultural market in the US, with the widest range of institutions in terms of size and sophistication  it bears out some of the more interesting and innovative examples of pricing strategies and practices  it is often the incubator for new ideas and largely sets the pace in arts administration practices for the rest of the country. In this chapter, we have attempted to provide a small sample of commercial and non-profit pricing schemes that either complement or differ from current UK practices described in other parts of this book. We have also tried to illustrate how particular pricing strategies play out, positively or negatively, in the US market by including current case studies from the performing and visual arts.

Highs and lows – premium pricing and discounts The interdependence that exists between audience development and marketing (and therefore pricing) in the strategic activities of most cultural institutions in New York City and the greater United States cannot be overstated. An increasingly crowded and competitive arts market demands that cultural institutions function as disciplined businesses for whom building and sustaining audiences is paramount to survival. For non-profit arts groups, getting people through the door is the first challenge. From there, the goal of cultural marketing managers is to convert occasional attenders into repeat attenders with the hope of eventually converting them into donors. The traditional core audience in the US – white, middle aged and affluent – is both ageing and insufficient in size to maintain the revenue needs of the sector. The US is also currently experiencing a major demographic shift that will redefine the profile of the average

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American over the next fifty years.3 As a result, it is imperative that the cultural sector illustrates its ability to attract and retain an audience that is more diverse racially, economically and in age if it wants to remain relevant to future generations. Achieving this will have an impact not only on pricing strategies but on how cultural institutions think about integrated strategic planning – including targeted programming, community and educational outreach, and marketing. Management teams that are armed with good quantitative and qualitative information, institutional buy-in and the ability to think creatively and realistically about potential opportunities will go much further in their audience development strategies than those that aren’t. The determination of ticket and admission prices as part of overall financial planning will play a key role in these activities.

It costs how much? Pricing in the performing arts Attending the performing arts has become an expensive habit. Since 2000 alone, the average top ticket price for a Broadway musical has increased by a staggering 31 per cent. The average ticket price has advanced even faster, by 36 per cent. Non-profit cultural institutions both in and outside of New York City have followed suit. Even off- Broadway, historically the place to go for affordable theatre, has (nearly) crossed the $100 mark.

Broadway ticket prices over 7 years

$120

$100

$80

$60

$40

$20

$0 2000 2001 2002 2003 2004 2005 2006 Average ticket price Average top ticket price Week 21 (mid-October) was used each year for comparison

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Paying for capital projects Jazz at Lincoln Center’s top-ticket price jumped from $65 to $150 when the organisation moved to its new home in the Time Warner Center. In year two, the top price dropped to $130, which many audience members feel is still too high. JALC is currently conducting audience research to create a new ticket-pricing model to maximise revenue while addressing audience concerns.

There are a number of reasons for this, the most obvious being that the fixed and variable costs of producing live entertainment have grown exponentially and revenue streams have had a hard time keeping up. In addition, ticket prices are often raised following a major capital project when organisations need additional income to cover higher operating costs and/or to cover capital campaign shortfalls. But how much should the public expect to pay for culture? There is an ongoing debate over the ownership of culture. One side claims that a nation’s culture, possessive of great social value, should be subsidised, while the other side argues that anything of value, including art, comes at a cost and should not be merely ‘given away’. A third, somewhat cynical position contends that, as a whole, the US cultural industry has gone the way of sport and priced itself at a level out of reach for many consumers. Enter variable pricing. Variable pricing is playing an increasing role in allowing for the diversification of new audiences through its ability to create multiple points of entry for different consumer segments and empowering those segments to attend at an acceptable price. If managed carefully, pricing models that pair premiums with significant discounts have been found to create better alignment between supply and demand. In the last decade, variable pricing has been evolving, particularly in commercial Broadway theatre. The level of sophistication now being employed can be attributed to advances in technology and accompanying market analysis tools. Box office managers now have the ability to analyse purchasing trends – who is buying what, where, when and for how much – and to place them in a larger context of market factors such as hotel occupancy rates, geographic composition of audiences and seasonal variables. Technological advances in online ticketing software are also giving marketing directors the power to more accurately forecast demand and vary ticket prices accordingly, to ensure maximum revenue and minimum inventory loss.

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Accurately pricing tickets to capitalise on market demand without over-exploiting the success of a show is a fine line to walk and one that requires almost continuous evaluation of sales patterns and cycles. Variable-pricing schemes may still lie beyond the means of many smaller institutions that don’t have the resources to maintain a box office equipped with the latest technology and staff capable of monitoring these trends. In many cases, these organisations are outsourcing these functions to third-party vendors such as Telecharge.com or Ticketweb.com, which, in addition to facilitating online sales, can provide important buyer information.

Premium pricing – how high are you willing to go? In some cases, the popularity of a show can offer an opportunity to organisations to capitalise on demand. Aggressive ticket pricing is nothing new. Broadway musicals, major orchestras and opera companies have historically charged a premium for the best seats in the house for the most popular programmes. Creating a sense of urgency around a show that leaves the audience with a perception that what they have is hard to get, and therefore worth the money, has also long been common practice in both the commercial and non-profit sectors. And most marketing managers will tell you that the hotter the ticket (in other words, the greater the perceived value of what is being offered), the less price-sensitive your audience will be overall. Major rock concerts and sporting events illustrate this theory effectively. One popular trend that began on Broadway five years ago is the concept of premium seating. Premium seating is a demand-driven pricing model which ensures that, on any given night, a number of the best seats are reserved for last-minute sale at a premium price – often more than double, and at times up to five times, the cost of the most expensive seat. Using up-to-the-minute sales information, a box office can hold or release the number of premium seats available based on current demand. In order to ensure that the house is filled to capacity, unsold premium seats are released over time at the regular price as the performance date (or hour) approaches. This kind of pricing ensures that a patron willing to pay a steep premium will always find a seat available at the last minute. From a marketing perspective, if done correctly and backed with the appropriate advertising, premium pricing can sometimes create the illusion of a hard-to-get ticket, even if it is not. There have been examples of shows selling at half capacity but still able to sell premium seats (at least for a time), creating the appearance of ticket frenzy when there really isn’t one. The target audience for premium seats is

172 Postscript: The American scene understandably limited and usually includes patrons either unwilling or unable to plan in advance, those with expense accounts for whom price is not a factor, occasional theatregoers who regard the night as an ‘event’ and those rare individuals (and they do exist) that take pride and pleasure in paying a high price because they can. Premium pricing plays on the 21st century cult of luxury and exclusivity – and it helps to be operating in a city that thrives on, or at least supports, those attitudes. A study conducted by the League of American Theatres and Producers, an industry trade group, found that during the 2003/04 season the average annual household income for Broadway ticket buyers stood at $97,300 (actually down 10 per cent from the previous year),4 making $300 tickets seem perhaps less outrageous. But, as the performing arts continue to compete on an ever-expanding entertainment stage there is a danger of out-pricing both core and new audiences with inflated prices that reach beyond the value of the product being sold. If a pervasive use of premium pricing were allowed to create a perception, true or false, that the arts is unaffordable, that perception could deflate value and result in lower overall ticket sales. The question becomes at what price, no matter what the perceived value, will the consumer simply walk away?

The Producers The Producers, a cult movie classic transformed into a Broadway musical starring Nathan Lane and Matthew Broderick, was a hot ticket even before it opened. In 2001 it became the first show to break the $100 ticket ceiling on Broadway and take in $3.3 million in advance sales the day after opening (the highest daily take in Broadway history) – and at its peak boasted an unheard of $37.8 million in advance sales. Historically, to secure last-minute tickets to the most popular shows on Broadway, a theatregoer relied on third-party ticket brokers and scalpers who charged exorbitant rates for hard- to-get tickets and pocketed the profit. Producers of hit shows watched huge sums of cash walk out the door. With the power of its popularity (and its two leading men), The Producers undermined traditional brokers/scalpers by holding select orchestra seats for every performance and selling them for $480 each (another Broadway record), thus introducing Broadway to the concept of premium seating. To some this was logical and a long time coming – a stroke of marketing brilliance. But to others it was a sign of hubris and

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greed, by its very nature reinforcing the idea of theatre being only for the elite. At its public relations worst, it was seen as price gouging. But despite the critics, the producers of The Producers were successful and several other top-tier shows soon followed suit. The ability of the market to absorb these prices, as it did, has raised both Broadway ticket prices and profit expectations to a new level. Non-profit boards of directors, often comprised of community business leaders, wield a tremendous amount of power over their cultural organisations. In some cases, there has been increasing pressure from certain board members to adopt premium-pricing models to increase earned revenue. In commercial theatre, the goal is to keep a show running for as long as possible so that, once initial production costs are recouped and running costs covered, a profit is returned to investors. Where, historically, the price scaling of a house had been more complex (meaning there were more price points available), now producers are looking more and more at a minimal pricing model (often with only one or two price options) coupled with premium pricing and discounting to reap the same revenue goals. In non-profit theatres, where the length of a show’s run is predetermined, the role of premium pricing is different. Where demand warrants, a non-profit theatre can utilise premium pricing for a hit show to meet the increasing financial demands of producing art in the current environment while at the same time pricing other sections of the house at more affordable rates. There is, however, a risk for non-profits. Premium pricing may create a question around the charitable remit of many organisations (on which their tax-exempt status is based) and run against the spirit of subsidised arts by reducing access to a greater cross-section of the population interested in attending but priced out of the market. It can reinforce the idea that the performing arts are largely elitist artforms, reserved for the well-heeled. Most non-profits do their best to ensure patrons can either purchase the same seats in advance for less or have enough affordable tickets left at a lower price point to give reasonable access regardless of the show’s popularity or the consumer’s economic means. At the end of the day, premium pricing only applies to a small echelon of the most popular shows. If you are the lucky backer of a wildly successful show, then this type of demand-based pricing allows you to maximise profit without being held to one ticket price for the show’s entire run.

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Discounting – let’s make a deal! Having Julia Roberts star in your show will create demand for tickets, but the more substitutable a product in the larger entertainment market, the more its price becomes a factor. A weak economy, a savvier consumer and a wider cultural acceptance of free-market pricing have pushed many arts-goers to seek out discounts.5 For the resourceful Broadway theatregoer with a flexible schedule, finding the best price for a Broadway show has become a sport, with half- priced ticket booths, rush tickets, lotteries, coupons and discount codes. The following paragraphs describe some of the ways in which discounting is being used in the New York market. Half-price ticket booths had their start in Manhattan in the early 1970s, but have sprung up in other major cities such as San Francisco, Toronto and, of course, London (since 1980). Manhattan’s discount ticket booths (TKTS) are widely known and used by tourists and locals looking for a last minute theatre fix. In a cultural market with the capacity to support one, a discount booth can provide producers with the ability to maximise capacity by unloading unsold seats on the day of the performance. One potential downside is that booths operating solely on cash transactions represent a lost opportunity to gather any customer information – a critical tool for future audience development. A number of commercial and non-profit organisations have a rush ticket policy, typically aimed at students (and, less often, senior citizens) with tickets being sold at a steep discount right before curtain time. In the US, rush tickets are often looked at as ‘mission- related’ discounts intended to draw demographically desirable audiences (read: young) who are perceived to be highly price- sensitive. The hope is that this segment will eventually transform into full-price buyers when they have the means to do so. The institutional return on investment is the prospect of building the next generation of attenders and donors. Lotteries are a fairly new phenomenon in the US. The opportunity to purchase heavily discounted tickets (often in the first several rows of the orchestra) is ‘won’ by putting your name in a hat and leaving success to chance. On Broadway, lotteries were created to perpetuate and extend a ‘buzz’ for popular shows and to attract repeat attenders. In cases where tickets are still available, producers hope that those who are not so lucky but who still have a strong desire to see the show will purchase a full-priced ticket.

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The lottery snake Broadway lotteries began in the late nineties with Rent, a hit show about New York bohemian life. From the beginning, Rent seemed to attract a particularly young and loyal audience, many of whom saw the performance several times. Producers wanted to make sure that this group – an audience that mirrored the characters in the show and who normally would not be able to afford theatre – would be able come again and again. They began to sell the first two rows of the house at every performance for $20. Tickets were sold through a lottery system, where hopefuls put their names in a hat and the first twenty drawn got the right to purchase two seats. The Rent lottery was wildly successful and other shows with similar cult allure soon followed suit. The lottery process has become its own phenomenon among Broadway fanatics, at times attracting an impressive 300–400 people to each performance. A collective of shows now stagger the timing of their lotteries, creating an audience snake that hops from one theatre to another each night in hopes of getting into a show. Discount coupons have long been a staple of Broadway and larger non-profit arts institutions. These are marketed toward corporate, education and tourist segments and are typically distributed through corporate human resources departments, college residence halls and student activity centres, hotels, restaurants and visitor information centres. The strength of coupons is their potential to work as an advertising vehicle delivering a discount incentive for casual and ‘fence- sitting’ (ie undecided) buyers. Discount coupons also allow a company to measure the success of a promotion (coupons are coded so they can be tracked). The potential downside to discount coupons is that they cannibalise revenue when used by savvy consumers who are in a position to afford a full-priced ticket but seek out discounts first. In addition to coupons, discount codes are also offered through direct mail and online marketing campaigns and through online clubs (eg Playbill.com, TMInsider.com). These offers typically give frequent theatregoers reductions of as much as 50 per cent. Discount codes are usually part of a pre-opening marketing campaign aimed at building a strong advance for a show, prior to its being reviewed. They also tend to appear after a show has run for a while and is losing steam. Discount codes, especially those tied to online purchase, are an easy way to collect buyer information, track purchase trends and measure marketing campaign success. The potential downside (again) is the savvy consumer who seeks out discounts first.

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Taking a cue from airline and credit card member programmes, the Nederlander Organisation (a major Broadway producer/booker) recently announced plans for the creation of an Audience Rewards programme that would allow frequent theatregoers to earn and exchange points for various benefits including discount tickets, access to special events and non-Broadway merchandise. Customer loyalty programmes are ambitious and would require producers and theatre owners normally engaged in direct competition to come to mutual agreement on what discounts and benefits to offer, how much producers should pay for collected marketing information, whether and what proprietary show information is shared, and how the overall system is managed. While still in the somewhat distant future, it is nevertheless a good example of cultural organisations embracing and adapting mainstream marketing techniques.6

The dilemma of subsidised tickets – revenue cannibalisation? Marketing managers are split on how to address price sensitivity, particularly when it comes to discounts. An internal survey for a major performing arts organisation in New York City found that if their ticket prices were cut by a quarter to a half, they would gain market share. But to what extent would there be revenue left on the table from those who were not price-sensitive? Raising base ticket prices and creating complex discounting programmes, as the airlines have discovered, can be a detriment to overall profitability because over time it creates a shrewder customer that will make the effort to seek out discounts rather than pay full price. Finding a middle ground is critical and, in general, New York’s performing arts organisations have been successful in developing pricing and subscription models that provide a range of prices and price packages based on different markets. A few recent examples follow.

Signature Theatre Company: 15th anniversary $15 ticket initiative One of New York’s successful off-Broadway companies, the Signature Theatre Company, wanted to attract young, ethnically and economically diverse theatregoers in an effort to build the next generation of audiences for the company. Taking a cue from the National Theatre’s £10 Travelex seasons, Signature set out to underwrite every seat for each performance of its 15th anniversary season in an effort to provide affordability and accessibility in an era where pricing has made theatregoing prohibitive for many. To do this, the company brought together a consortium of funders to underwrite7

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its regular $55 ticket price. Time Warner, a major media corporation based in New York City, stepped up as principal underwriter, believing that the combination of Signature’s programming (which included a season of August Wilson plays) and audience development goals fit well within its own philanthropic goals to foster diverse voices in the arts and broaden public access to them. To date, the programme appears to have been very successful. The first three shows of the $15 season played to 100 per cent capacity and Signature saw a 250 per cent increase in group sales over the previous season. But the really good news was that 50 per cent of single-ticket buyers and 30 per cent of subscribers were new to the company and 99 per cent8 of ticket buyers surveyed said they would attend another show at the Signature in the future. Time Warner is interested in helping the company continue the programme in some form into the future and Signature’s success has led other regional theatres –including the Phoenix Theatre Company in Indianapolis, Indiana and True Colors in Atlanta, Georgia – to create similar programme initiatives. Signature’s $15 ticket programme has been lucky enough to coincide with a run of critical successes and extended runs (where the price reverts to $55). While ticket prices alone may not bring in and retain new audiences, the proper alignment of price, programming and promotional strategies can have a significant impact.

New York City Center’s Fall for Dance Festival There is the some concern in the industry that heavily subsidised tickets could lower the perceived value of a company’s product. New York City Center’s Fall for Dance Festival is an excellent and successful example of the ability of ticket subsidies to generate new audiences without lowering perceived value. Each autumn, the Fall for Dance Festival, underwritten by Time Warner, The Peter J Sharpe Foundation and other funders, produces ten days of mixed performance bills that pair City Center resident companies with visiting dance troupes representing a variety of forms (classical/modern). Tickets are priced at just $10 and the intended outcome is that audiences exposed to multiple and diverse dance companies and styles will ultimately create a larger New York audience for dance. Audience research conducted in autumn 2006 suggests that the initiative has been successful; 37 per cent of audience members surveyed over the course of the Festival indicated that it was their first time at City Center. Of the 28 per cent who had attended a previous Fall for Dance Festival, 40 per cent indicated that the Festival had directly influenced the number of dance performances they had seen in general, and 45 per cent indicated that they had gone on to purchase 178 Postscript: The American scene tickets to one of the companies featured on the bill. Finally, 37 per cent of total respondents indicated that price was the strongest motivator to attending the performance. City Center has also created an email club called New York DanceLink, which enables Fall for Dance audience members to opt into an email service that provides information about what is happening in fourteen of New York City’s top dance venues.

Subscriptions – a model on life support? For a long time, subscription sales constituted the largest percentage of earned income for non-profit arts groups. Subscription campaigns gave organisations the ability to control cashflow because the majority of available seats were sold in advance of a season opening. From there, single-ticket campaigns were launched to attempt to sell what remained of inventory to last-minute buyers willing to pay full price or through ‘day-of’ rush programmes. Nowadays, US consumers want more flexibility to accommodate last- minute schedule changes and increasingly buy on impulse as opposed to longer-term planning. This trend has flipped the subscription model on its head and has created a serious dilemma for many organisations reliant on advanced revenue for stability and planning. In addition, uncertain economic times tend to make people more reluctant to make big financial commitments in advance. Recent research conducted by a number of larger New York arts organisations show that a significant percentage of arts consumers are choosing to purchase tickets within ten days of an event. As a result, marketing directors are left with significant inventory the week before an event and little indication of how it will ultimately sell. As the event nears and the anxiety of undersold shows increases, many organisations begin liquidating their tickets through online offers. By doing this, they reinforce consumer behaviour by incentivising last-minute purchasers with significant discounts and thus erode the subscriber base even further. While there has been a major decline in subscription sales over the last decade, there still remains significant institutional (and to a certain extent consumer) loyalty to the subscription model and many arts marketers are reluctant to abandon it. But cultural shifts will continue to make the stable revenue subscription schemes provided at their height of popularity more unpredictable and precarious, forcing managers to rethink how they set prices, allocate marketing dollars, plan seasons and approach customer service. The challenge for arts marketers will increasingly be to develop a model where subscriptions or other relationship initiatives offer buyers the flexibility they require. Understanding the incentives driving people

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to subscribe is critical to developing appropriate initiatives. People traditionally subscribe for the following reasons:  organisational loyalty  ticket discounts  anticipation of, or fear of missing out on, hit shows  the ability to keep or upgrade specific seats  the desire to have pre-scheduled activities through the year  membership perks such as lounge privileges, shop/cafe discounts, etc. Marketing directors are increasingly trying to capitalise on the idea of using social networks and communities to increase attendance by offering packages that include pre- or post-show receptions aimed at specific audience segments (such as singles nights, LGBT9 nights, wine- tasting events and lectures). These types of initiatives complement an already complex system of multi-tiered programmes, rush tickets and student discounts and group sales, and represent a new trend in vertical marketing where the overall social experience of the night is as important as what’s happening on stage. While the factors behind the decline in subscriptions are varied, one of the more interesting, but perhaps overlooked, factors is that in many cases supply exceeds demand, even in a city as big as New York. According to the New York City Department of Cultural Affairs, there are ‘roughly 500 arts galleries, 375 off-Broadway theatre companies, 330 dance companies, 150 museums, 96 orchestras, 38 Broadway theatres, 24 performing arts centres, 7 botanical gardens, 5 zoos and 1 aquarium’10 – all making for a crowded and noisy market. In addition, many of New York’s great performance spaces were built for audiences before the existence of multiplexes and big screen televisions. Lincoln Center alone has nearly 15,000 seats for sale on any given night,11 and, despite the current struggle to fill seats, the inventory of performing arts seats in New York City and other major cities in the US continues to grow. Over the past three years alone, Carnegie Hall’s Zankel Hall and Jazz at Lincoln Center’s Frederick P Rose Hall has added an additional 2,500 seats into the market. A performing arts centre at the World Trade Center site and a new home for New York City Opera – if and when they happen – are projected to add more than 3,000 new seats. With all of this supply available, audience members are increasingly finding themselves sitting in houses only half to three- quarters full. This provides little consumer incentive to purchase in advance, particularly when good seats (which are often discounted) are available within a week of the performance.

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City Opera – The Big Deal City Opera’s Big Deal membership offers significant discounts to 21–39-year-olds who are interested in opera. The programme has three tiers: Basso (no annual fee) Through email, Basso members receive offers for $30 tickets to a limited number of performances throughout the season. Mezzo ($75 annual fee) Mezzo members have unlimited access to two $30 orchestra tickets per performance (subject to availability). They also receive invitations to parties and events throughout the season. Maestro ($300–$500 annual fee) Maestro members have guaranteed access to two $30 orchestra tickets per performance. They also receive Green Room Patrons’ Lounge access, invitations to special parties and events throughout the season, invitations to dress rehearsals and donor recognition in programmes. Two single orchestra tickets to a City Opera production cost $230. Alternatively, if you are aged 21–39, you can purchase a Big Deal Mezzo membership for $75 and purchase the same two orchestra seats for $30 each (bringing the grand total to $135). Becoming a member actually saves you $95 and all future performances are only $30 per ticket. The New York City performing arts market is a constantly shifting landscape that will continue to be affected by new technologies that make pricing and marketing an ever-more complex art and by new competitors that will force organisations to think long and hard about what they have to offer and how it fits, in both price and value, into the broader cultural landscape.

It’s not just the other guys – higher admissions in the museum world Just as the United States has seen a shift to higher ticket prices across commercial and non-profit performing arts, the trend has been mirrored in a rise in admission rates in the nation’s art museums, beleaguered in recent years by flat attendance and chronic operating deficits exacerbated by rising insurance and security costs. The fear that higher admission prices will alienate a more diverse patron group is again not exclusive to the performing arts. While museum operating costs have outpaced price increases in nearly every other

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form of entertainment in recent years, the reality is that, aside from some minor public griping, there has been no discernable fallout in the core audience despite admission fees now averaging between $12 and $15 across the country. What is of concern to administrators is keeping collections accessible to the broadest cross-section of the population. The core audience for museums (as with theatre, music and other performing arts) has always been skewed towards white, middle-aged and upper income. Historically, this demographic segment has been relatively immune to most economic downturns and willing to expend the additional cash as admission prices increase. The loyalty of the core audience and its ability to continue to pay higher and higher rates is the gamble museum directors take when raising admissions to cover budget deficits. The other gamble is undercutting their ability to attract more socio-economically and culturally diverse patrons.

What price art? The following exchange was taken from a roundtable discussion at Harvard University several years ago with some of the nation’s top museum directors. Glenn Lowery, Museum of Modern Art, New York: ‘On one level it’s almost a moral duty that museums should be free. Our collections are part of everyone’s cultural heritage. We should make them available in as broad a way as possible. And an admission fee is one of the greater barriers to attendance.’ Phillip DeMontebello, Metropolitan Museum of Art, New York: ‘Wait a minute. Can we be both practical and philosophical? On the matter of barriers, the people who squawk the most about the cost of a museum pay huge amounts of money to go to rock concerts, sport events, all of which are very expensive. I don’t buy that “barrier” thing. Philosophically, what is it about a work of art that makes it mandatory that it should be available for nothing, whereas the C Sharp Minor Quartet Opus 131 of Beethoven should be paid for, that Aida should be paid for, that Ibsen should be paid for? What is it about art that it shouldn’t be paid for?’ There can be a public backlash when performing arts institutions are perceived to not be working toward making programmes more affordable, and therefore available, to a broader audience. But in the museum world this backlash can take on a particularly virulent tone.

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In the United States, there has been a running debate surrounding museum admissions where pricing decisions are framed – and criticised – in terms of moral choice. There is a nationwide shift towards the idea that visual arts institutions have an obligation to serve and educate the public by providing relatively unfettered access to their collections and, in this way, make the arts a more meaningful presence in people’s daily lives. It’s a nice sentiment and an ideal to strive for, but the reality is very different. There has always been a high cost for culture in the United States and operating an institution is expensive. With limited public funding, there are few museums in this country in a financial position to suspend admission fees.12

One museum’s decision to raise admission rates When the Museum of Modern Art (MoMA) closed its doors in mid- town Manhattan for a two-year $858 million overhaul, it moved to a temporary space in Queens, one of the city’s outer boroughs where it drew a more socio-economically and ethnically diverse audience – the kind many urban museums work hard to attract. But renovation costs left the museum with a yawing budget gap that directors felt could only be filled by an increase in admission fees. There was internal debate over the best way to bridge the gap and the types of admissions models that would best serve the museum’s fiscal needs and the needs of patrons at the same time. An à la carte model similar to that of the Tate and other London museums, where visitors would be charged separately for various experiences, was considered and rejected, as was a demand pricing scheme that set variable time- sensitive rates for admission and special events. It was finally determined that, for MoMA patrons, these approaches would be an irritant and would put the greatest price pressure on local New Yorkers, something the museum wanted to avoid. In the end, the simplest scheme won out – raising the basic admission price and making it all-inclusive.13

Membership has its privileges Group A Seven friends decide to go to the MoMA on a Sunday afternoon. At $20 per person, the visit costs a total of $140. If Group A decides to come again within 12 months, they will once again pay $140 to get into the museum. Group B A couple purchases a Dual Membership for $120/annum (100 per cent of which is tax deductible). One Sunday afternoon, 183 Call it a tenner

they invite five friends to join them for a special exhibition; including the couple, that makes a group of seven. The cost for up to five guests per visit is $5 per person. The total cost of the visit for Group B, including the couple’s membership fee, is $145. So, for $5 more on the total bill for this first visit, Group B can then return to enjoy year-round access to the institution for a total of just $25 per visit. And, of course, the couple can also come back as many times on their own as they want for free. This calculation does not factor in additional benefits, including free film screenings, invitations to member’s only events and discounts on programmes and at the MoMA shop. While a higher admission served to satisfy the museum’s budget demands, some critics believe it put the museum in the unfortunate position of limiting access to the collection and largely abandoning the visitor diversity it had built in Queens. MoMA has tried to soften the blow with stable membership rates and several discounts – a low student rate, free admission for children under 16 and students from local universities, and free admission for all on Fridays from 4pm until closing. However, a base admission price, regardless of additional perks, still has an impact on the perception of value – the higher the price, the higher the expectation of the visitor and the greater the risk of disappointment. The $20 ticket price at MoMA and other museums in New York City, such as the Metropolitan Museum of Art and the Guggenheim, may mean that a narrower slice of the local population is currently visiting these galleries, or visiting less frequently than in the past, restricting the popular use of New York’s signature institutions.

When it all goes horribly wrong – lessons from the Neue Gallerie The Neue Gallerie, one of New York’s newest art institutions, is a tiny Fifth Avenue museum focused on Austrian and German art. It is also a museum that found itself in the middle of the very public debate over rising admissions prices in the summer of 2006. That summer, the museum added a new and important painting to its Klimt collection. Purchased at auction by the museum’s founder, the cosmetics magnate Ronald S Lauder, the painting attracted a lot of media attention, not least because it was purchased for a record- breaking $135 million. The Neue Gallerie can only accommodate 350 people at a time; the gallery where the Klimts are on view, only 184 Postscript: The American scene about seventy. Because of the media attention surrounding the sale of the painting, museum directors saw an opportunity to reduce the heavy lines of patrons and generate extra revenue by charging $50 to view the Klimt on the museum’s closed day, when the gallery would be less crowded. This idea is not without precedent. The Metropolitan Museum of Art has long offered the ability to view special exhibits for $50 admission on its members’ day. But for several reasons the Neue Gallerie seemed to hit a tipping point that caused a public uproar. There were cries of crass opportunism, price gouging and naked elitism and what began as an effort to increase public access and generate revenue ended in a public relations nightmare that forced the museum to do a quick about-face and retract the offer. To attempt to pinpoint any one reason why the Neue Gallerie tipped the balance of what the public will accept as reasonable is difficult and, indeed, any number of factors were at play. In New York City, as everywhere, a museum does not act in isolation; it exists within a larger framework of other museums and cultural institutions that share patrons, resources and press. In deciding to introduce a special $50 admission, the Neue Gallerie may have overplayed its hand with a patron group already fatigued by a $20 admission at both the MoMA and the Metropolitan Museum of Art, $18 at the Guggenheim and $15 at the Whitney. The fact that this painting sold for what some considered a sum offensive to their sensibilities, particularly in the time of war and a weak economy, may have been another contributing factor to the public’s overall disdain. There are those who believe the museum has a right to protect itself from competition (or an operating deficit), as any institution does, and, by charging $50 to enter the gallery, its directors were acting with the organisation’s best interests in mind by capitalising on the newest addition to its collection and the publicity surrounding it. But this sentiment brings us back around to the core debate over admissions – that even though a museum has the right of self- preservation, does it not still have a responsibility as a contributor to the growth and understanding of culture? Should it aim to ensure that its collection is available to the widest cross-section of the population at a reasonable fee? When evaluating all of the contributing factors side by side in an attempt to determine which are dominant, the simplest explanation is often the right one. It might be best, therefore, to conclude that what happened with the Neue Gallerie was the case of a management team that overestimated the perceived value of what

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they had in their Klimt and what the public was willing to spend to see it. It is somewhat ironic that in a city otherwise known for its excess, paying $50 to view a painting that cost $135 million was more than the public could bear.

Conclusion Pricing alone does not determine attendance. What most cultural organisations – performing and visual arts – understand is that it is the thoughtful and strategic mixture of marketing’s four Ps – programming, promotion, placement and price – which is critical to building and maintaining audiences. If an organisation is to remain viable and competitive, variable and demand pricing, flexible subscription and membership schemes, and the vertical integration of additional amenities are only parts of a marketer’s toolkit that must work in tandem with all of the components of the larger strategic planning mix. There are many financial and competitive pressures affecting the New York City arts market, but overall it is healthy and robust. It may be a noisy and cutthroat place to do business, but it’s still considered one of the most innovative and forward-looking cultural centres in the world. It is also a landscape that will continue to change and be changed by new technologies, new competitors and new pressures forcing producers and managers to stay ahead of the curve with new and creative ways of scrutinising audience behaviour, creating diverse cultural experiences and pricing them accordingly.

References 1 In the United States, non-profit is a tax status designation given to mission- driven charitable institutions. The business activities of non-profits, whether cultural, religious or socially based, must be in direct support of the organisation’s mission, and all earned and contributed income must support mission-related activities. In exchange, non-profit organisations are 100 per cent tax exempt. 2 The US government supports the country’s cultural institutions primarily through tax exemptions as opposed to direct funding. The National Endowment for the Arts, the country’s federally funded grant programme, has an annual budget of only $125 million (£1 = $1.86 as of December 2006), which represents cultural spending of a mere $0.42 per US citizen, per year. 3 By 2060, according to the projections, non-Hispanic whites will make up 49.6 of Americans, with Hispanics at 26.6 percent, non-Hispanic blacks at 13.3 percent, and Asians and Pacific Islanders at nearly 10 percent (Time Magazine, 31 August 2000). 4 ‘Who Goes To Broadway? The Demographics of the Broadway Audience 2003- 2004 Season’, p 5, LiveBroadway.com 186 Postscript: The American scene

5 Discounts have softened the price increases of recent years. While the top ticket price for a Broadway show has risen 31 per cent since 2000, the average price actually paid for a ticket in the same period has risen only 24 per cent. 6 Campbell Robertson, ‘Broadway Weighs Plan to Reward Frequent Theatregoers’, The New York Times Online, 18 September 2006, p 7 7 The company has been careful not to label the tickets ‘cheap seats’ but rather to promote the programme as one where $40 of a full-priced $55 ticket has been underwritten so that it may be offered to the public for $15. 8 Statistics provided by Signature Theatre Company 9 Acronym for Lesbian Gay Bisexual Transgender 10 New York City Department of Cultural Affairs, Nyc.gov, p 11 11 This number includes Jazz at Lincoln Center’s new theatres but does not include the three performance spaces at the Juilliard School. 12 James Cuno, ed., Whose Muse? Art Museums and the Public Trust, Princeton University Press and Harvard University Art Museums, 2004, p 12 13 David Leonhardt, ‘The Shock of the New Entry Fee’, The New York Times Online, 26 September 2004, p 13

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New thinking about the strategic role pricing can play in the arts This first major publication on pricing in the arts offers no easy answers or failsafe formulas but sets out to challenge assumptions and to provoke debate. ‘Written intelligently and with enough points of contention to stimulate debate, I think this publication will be a good reference for arts managers, including CEOs and directors like myself. It alerts us to the issues and practices that our own teams will be studying and, in case they're not, raises questions that we can explore in terms of tailoring our pricing and related strategies to our twin artistic and financial imperatives.’ Tish Francis, Theatre Director, Oxford Playhouse Pricing, once barely researched or mentioned in the arts, is increasingly recognised as a critical marketing and financial tool. In terms of maximising revenue, the growing adoption and adaptation of yield management techniques suggests that a new, more dynamic approach to pricing is emerging. In terms of developing audiences and, beyond that, achieving wider social access to the arts, price also has a part to play, though how significant a part is still a matter for fierce debate. By exploring current theories about pricing in the arts and describing actual examples of practice, this book is intended to inform and inspire arts organisations, whether or not they are publicly subsidised, to develop their own strategic thinking with greater confidence. Edited by Richard Ings Contributors include Beth Aplin, Tim Baker, Angela Galvin, Robert Hewison, Paul Kaynes, Chris Lorway and Geren Raywood

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