Dynamic pricing hits Broadway...is the end of the world far behind?

This past weekend,  a New York Times story written by Patrick Healy described how Broadway is adopting the newest trend in pricing models - dynamic pricing. The article--Broadway Hits Make Most of Premium Pricing--highlighted the recent success of performances like “Hugh Jackman; Back on Broadway” in leveraging dynamic pricing.

The producers of Hugh Jackman’s song-and-dance-and-bump-and-grind show on Broadway were so bullish about his popularity that, even before the first performance last month, they raised prices from $155 to $175 on dozens of orchestra seats for the 10-week run. The bet is now paying off handsomely, so much so that the producers are increasing premium prices for the best seats in the house: what were $250 tickets are now going for $275, $325 or even $350, depending on the demand at particular performances.

All four shows are making huge sums because of dynamic pricing, a supply-and-demand strategy that is a primary reason why Broadway has weathered the economic downturn unusually well.

The strategy involves increasing or decreasing prices for certain seats based on week-to-week, or even day-to-day sales trends. A staple of airline booking and the concert industry, dynamic pricing is still relatively new to Broadway, where prices have rarely fluctuated except on holidays.

And it’s not just Broadway that has fallen in love with dynamic pricing.

The practice has spread to other performing arts as well. American Ballet Theater began the practice during its spring season at the Metropolitan Opera this year and will continue it at performances this season at City Center and the Brooklyn Academy of Music, where the company is presenting a run of “The Nutcracker.”

No longer content to have just one premium-ticket price, theater owners and producers are using the variable-pricing model to set multiple prices for premium and regular seats. They then change those prices — or put more seats on sale at higher prices — on a weekly basis.

In an earlier SpruanceQuarterly essay, we talked about dynamic pricing and the dangers of extrapolating its success in the airline industry to other sectors - most notably the sports and entertainment industries.

Supporters of dynamic pricing always point to another (relatively) successful pricing model as their guide – airline pricing. This comparison may be valid, but there is one important distinction between baseball [and entertainment in general] and air travel that they need to always be aware of. People, for the most part, put up with the complexity of airline pricing because flying is a means to get somewhere; you’re not getting on that airliner because you enjoy flying. With baseball, it’s different. You go to the game because you want to, not because it’s a conveyance to a more important goal (like getting to your destination). If fans end up hating the dynamic pricing model for baseball as much as they hate the airline model that it’s patterned after, they will stop going to games long before they stop flying.

Remember, people fly because they have to; people attend sports events, concerts and other live performances because they want to. The difference is important when it comes to the effectiveness of dynamic pricing.

Here’s the takeaway: While dynamic pricing seems to work for airlines—at least from a business perspective--it doesn’t automatically mean that the same results can be replicated in other sectors. As entertainment executives look for ways to increase revenue, the distinction between airline customers and their audience needs to be completely understood.