Businesses all over the world are approaching 2021 with a mix of fear and optimism. There is no doubt that, with the COVID-19 pandemic still raging, conditions remain tough for commercial interests. Another year like 2020 would make the outlook very bleak indeed.
On the flipside, with the arrival of vaccines, there is hope that we may soon see light at the end of the pandemic tunnel. But businesses cannot afford to wait and hope. They need to act now to protect their futures, whatever may happen.
In our last blog (COVID Response Strategies for Ticket Sales), we explored the impact the pandemic has had on the leisure sector, particularly those operators that rely on ticket sales. Based on an in-depth survey of ticket selling organisations, we offered practical strategies companies could follow to protect their businesses against the main impacts COVID is having on ticketing operations.
In this blog, we want to look at one more strategic opportunity businesses have to dial in success for 2021, regardless of what course the pandemic takes – pricing optimization.
Again, our analysis is based on in-depth industry insight gained from more than 100 pricing projects we have been involved in with customers including FC Bayern München, ODEON Cinemas Group, Friedrichstadt-Palast Berlin, Thermengruppe Josef Wund, Zermatt Bergbahnen and many more.
Before we jump into the pricing strategy tips we have been able to pick out from this analysis, let’s remind ourselves why pricing optimization matters. Here’s a graphic that explains it perfectly:
In other words, assuming variables such as cost and sales volumes remain constant, a small uplift in price can be multiplied significantly in the impact it has on profits.
However, it’s not as straightforward as bumping up your prices and watching your revenues soar – if it was that simple, we’d never see an end to inflation! Adjusting your pricing, downwards as well as upwards, will only have a positive impact in certain conditions. In general, we say there is an opportunity to do something different with your pricing if any of the following three conditions apply:
- You experience significant fluctuations in demand, i.e. sometimes your event or attraction is oversubscribed and tickets sell out quickly, while at other times some of the available allocations remain unsold.
- Your current pricing does not, or only limited, match your customers’ willingness to pay for your product.
- You usually base pricing on ‘gut feeling’ and experience, rather than on robust analysis of sales data.
If any of those apply to you then read on – it’s time to revisit your pricing strategy to boost demand, revenue and online shares in 2021. Here are our five tips for using pricing to make a difference.
1. Clarify your business goals
Before you approach pricing, you should be really clear about your business objectives. What are you aiming to achieve in 2021? How have your goals changed in the face of COVID, and what will constitute success a) through to the end of the pandemic and b) in the medium term beyond? Once you have a set of business goals in sharp focus, then you can start to devise the right ticketing and pricing strategies to deliver them.
2. Understand your customer’s buying behavior
This is where robust analysis of historical ticketing data comes into its own. As the MD of a large Swiss ski resort we work with put it: “Your ticketing system has all the information you need to get detailed insights into customers’ buying behavior. You can see which tickets have been sold when, at what price, and through which points of sales.”
What the MD’s words sum up is that there is a complex relationship – illustrated in the above graphic – between customer purchasing behavior and ticket type, ticket price and time. All of these factors interact dynamically to cause peaks and troughs in purchases.
What data analysis like this allows you to do is align price, ticket type/product offer, customer segment, time and other variables in a way that will maximize those peaks and minimize the troughs. For example, if you can see clearly that customers are prepared to pay more for tickets at certain times of year or at a certain distance from the event, you know you can focus price increases there without affecting demand.
3. Evaluate the feasibility of various optimization measures
There isn’t one single way to optimize pricing. Some methods are easier than others, but as a general rule of thumb, the approaches that have the bigger impact on your bottom line are likely to be more complex to run (illustrated by the graphic below).
Dynamic pricing, for example, which adjusts pricing on a sliding scale according to time or the number of tickets sold (think ‘Early Bird’ discounts), might well help to keep margins constant as sales volumes change. But it is a difficult solution to implement, and even harder to get right (e.g. how many tickets / for how long do you offer each discounting step?)
For that reason, we always recommend businesses carry out a thorough feasibility analysis of any proposed pricing optimization approach. As the COO of a large European cinema chain puts it, “estimate the revenue impact and check with your tech team how feasible an implementation is in your IT environment.
4. Simulate impact on overall revenue and sales
Following on from the above, we don’t believe feasibility analysis is enough to dive into any pricing strategy. Once you have shortlisted your options, it is time to dive back into your data and run an impact analysis – or in other words, retrospectively model how the chosen measures would have affected your business outcomes. As the Head of Ticketing at a top Bundesliga club told us, “this way you take an informed and data-driven pricing decision.”
In practice, nearly all pricing optimization strategies require a suite of complementary measures, rather than just one, in order to cover the complexities of the relationships between time, type, demand and so on.
The above graphic shows that the aim is to achieve a net gain across all measures. So although in this model online discounts and a new discounting structure have a negative impact on revenue in their own right, that is not enough to cancel out the revenue boost achieved by the other measures (and we might assume that discounting contributes to these by driving more online traffic and higher sales volumes etc).
This is the kind of nuanced insight that makes a robust simulation of optimization strategies necessary. If, for example, it turned out that discounting completely cancelled out all revenue benefits, this is the sort of thing you would prefer to know about in advance so you can revisit your strategies, rather than after they’ve been implemented.
5. Communicate your new strategies clearly
Finally, once you are ready to go live with your newly optimized pricing, it is critically important that you make your strategies fully transparent to your customers. People can get very prickly about unexpected price changes (especially if they go up). Equally, they will quickly complain (quite probably on social media) if they notice prices for the same tickets changing, as happens with dynamic pricing, without adequate explanation – especially if they happen to buy at the more expensive price!
Conclusion: Don’t lose sight of why you’re optimizing pricing!
Pricing optimization can have a big impact on your business – big enough to bolster your revenues to see you through the rest of the COVID-19 pandemic, in fact. In many ways, pricing strategy boils down to understanding the market you are operating in, whatever the conditions are. If you offer the right product at the right price, people will buy.
What pricing optimization shouldn’t be seen as is an end in itself. Rather, it is a means of achieving broader goals that matter to every business – maintaining demand, sales volumes and margins. With that in mind, while following our five-step plan to getting your pricing right in 2021, we would urge all businesses to remember that your optimization strategies should:
- Be aligned with your overall business goals
- Incentivize customers for the behavior you desire
- Match the market’s willingness to pay
- Reflect the perceived value of your service
- Support your brand and market position