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The Price Is Never Right

The Houses of Parliament used to have a (by all accounts) brilliant tour. Which very few people attended. But not because it wasn’t a great experience. The reason for this weak demand was that MPs had decided that ticket-prices should be extremely low to enable maximum access to their constituents (their ultimate paymasters). The only problem was, the general public were not aware of this deliberate pricing policy. And to anyone just wanting an afternoon out, and who quite fancied a fascinating inside view of the Mother of Parliaments, the assumption was: ‘if it’s that much cheaper than the alternatives (The London Eye, Madame Tussaud’s, etc.) it must be a pretty inferior experience.’ I tried on a number of occasions to persuade them to raise their prices, because my package sales were similarly depressed by this totally erroneous perception, and when they finally did put the price up, sales went through the hammerbeam roof.

Whilst none of the above is likely to surprise any of us involved in The Business of Pleasure, the way in which our decision-making can be influenced by an arbitrarily set price appears to be a uniquely human trait, as far as the latest research seems to indicate. Experiments have shown that our close relatives in the primate world are able to distinguish different ‘goods’ (items) at different ‘prices’ (tokens) and will ‘consistently shift preferences to cheaper goods when prices are increased.’ Unlike their human cousins, however, these wise old monkeys displayed absolutely no indication that their valuation of the quality of these items was effected by the different price.

So what is it that separates us from our relatives?

One theory is that we, unlike our evolutionary cousins, have some kind of in-built concept of markets, along with the notion that prices are established at the intersection of supply and demand, as per classical economic theory. So if the price for one product is higher than that for a similar product, this must surely be because demand is higher, which must be because it is a better product.

Whether this explanation of this uniquely human bias, the only bias that we don’t share with our close primate relatives, is correct or not is kind of irrelevant. The important fact for us in The Business of Pleasureis that it exists. So, for the vast majority of the audience, at the vast majority of gigs or shows, the quality of the performance/production will seem greater if seen from a higher priced seat than a lower priced seat, even if the seat locations are of identical quality. And because this price effect affects us humans at a neural level, it can be seen and recorded as varying levels of activity in a part of the brain which is generally thought to encode how we subjectively rate experiences. Just as, come the Interval, a glass of wine from a bottle with an expensive price tag will taste better than a glass of the same wine from a bottle with a cheaper price tag. Or the morning after, when we pop into the corner shop for an energy drink on the way to work, choosing a more expensive brand will not only seem to give us more of a lift than an identical drink in a cheaper tin, we will actually be able to perform our tasks more effectively (and/or finish the crossword quicker)

So when Sunset Boulevard opened at the Adelphi with a record top price for a West End show (£32.50 from memory) we had to increase the top price of our own newest show in response, albeit just for one row in the Dress Circle, and there was a similar flurry of repricing when Acorn Antiques opened at the Haymarket with a new West End high for top price (£65 per ticket?).

At the other end of the scale, Productions might well compete on cheapest lead-in prices, if only for half a dozen seats, or, alternatively, hike the price (or quantity) of some higher price bands in order to allow other seats to be sold at a lower, more accessible level. A good example of the latter is when we moved one major musical to a venue with 30% less capacity. The Producers wanted all the smaller House to be set at top price. My boss thought this was suicide, and sent me to persuade them to introduce at least one lower price. “But we can’t afford to do that with so many fewer seats,” they protested.

“Unless..?” I nudged them towards the obvious solution.

“…Unless we raise the top price?” they finally caught on.

I nodded.

“To … £40?”

I shook my head.


You get the idea. So did they. But when I saw the new seating plan I found they had jacked the prices up as agreed, but only set the back row of the stalls to second price! Nevertheless, the show is still running, at a third venue, so no harm done.

Fluctuating levels of demand, across the performance day, week, month and year add an additional complexity to longer running productions. I was widely credited with introducing yield management pricing to the West End back in the early 2000s. Having lovingly built a database for a number of shows, across many years (and decades) I was able to put up a strong case for dramatically re-pricing our off-peak performances. In fact they pretty much reverted to what they had been ten years previous. Equally importantly, I also had to put the case that all our box offices, and third party distributors, would have the technological capability to administer this incrementally more complex pricing across five or six major West End shows simultaneously. For the first time in the history of London theatre, each venue and major agent was working on computerised ticketing systems, rather than manually updated plans; so as long as the system had been set up correctly, then the box offices, agents and patrons, should, theoretically, be able to just read the correct price of those plans for any given performance and seat location. To test this theory I asked an independent expert, a.k.a. The Theatre Monkey, to sample prices offered across the board. Which he agreed to, but, with typical Monkey sense, insisted we give everyone two weeks to become familiar with the system before doing his sampling. The results, praise the Lord, fully vindicated my faith in both systems and personnel. Only one major player was getting some elements wrong, and they were immediately corrected. We ran the new pricing for approximately six months, and my boss, fair play, was very vocal in their support - issuing press releases and sending me to advise our European partners on repricing. We didn’t, however, run a major advertising campaign to promote the purpose of the repricing, i.e. create greater uptake on the off-peak performances, and, in consequence, we only achieved slightly higher sales and revenue across the period. And at the end of the six months we went back to our previous pricing.

As technology moved swiftly forward, it soon became possible to introduce the more responsive dynamic pricing that we know today. Led largely by the success of innovations in airline and hotel pricing, theatre attempted to get closer to the optimal price per seat per performance per day per week and per month. But there were barriers. As part of the debate, I remember chairing a conference session in Madrid on dynamic pricing. I’d arranged for the European Head of Pricing for the world’s largest hotel group to explain how they did it in their firm. You could hear the envious moans from the audience as she painted a picture of their operation: her hand-picked team of super-graduates, resourced with NASA knock-off super-computers, monitoring every transaction across their continent-wide accommodation network. It was only after the session, as I carried her cases to the cab, that I got a chance to ask her what the reality was for her team, day-to-day. “Well, David, we do have some of the best brains, and technology, on the planet to inform what we should be charging at any hotel at any time …and then our marketing colleagues will say “But we need to go out at sixty-nine pounds, or ninety-nine pounds rate, because those are the prices that stick in the public’s minds.”

Another argument against 100% dynamic pricing, which I myself made several times during this period, was that, in order to ensure the longevity of most shows, you need to encourage adoption across as wide as possible a spectrum of remunerative segments. There are exceptions, of course. If a show is extremely popular to a sufficiently affluent (and time-rich) segment, then it is possible to price to the hilt, and, quite possibly use that steep pricing as a sales ploy for that same affluent segment. But to do this you need to create, or tap into, a tsunami of demand several orders of magnitude greater than the venue’s monthly/annual capacity. For the rest of the shows, you generally need to establish a foothold within a number of consistently returning/renewable segments in order to maintain a sustainable level of business across the performance year; and by simply looking at the price, split by performance, across each week and month, it should be possible to see if a show is predominantly Boomer, Families with Younger Children, or that rarest and most wonderful of shows, a ‘Lion King’, which appeals to all remunerative segments.

One early instance of more dynamic pricing models was the introduction of Premium Seats. From memory, and unattributable rumour, it was Stoll Moss’s then new owners, Robert Holmes à Court’s Heytesbury, that pioneered the concept. Like so many Australian entrepreneurs at the time (except Rupert Murdoch) there was a fashion to move people from one role and put them in charge of something completely different. So you might move the head of your stud-farm, for example, to head up your theatre empire …having first, hopefully, explained that ‘Stalls’ has a completely different meaning in the two spheres. It was one of these recently relocated Antipodeans who, with the fresh eyes of a new arrival, saw the touts charging a fortune for tickets outside the theatre and reputedly remarked; ‘If they can sell for that price, why can’t we?’ Or words to that effect. In doing so, the extra revenue could go straight to the production/venue rather than into the swag-bags of the spivs.

It must have been about a decade later that a couple of Stanford Business School MBA students added a West Coast perspective to the issue, and StubHub was born. One consequence of which was that the Secondary Market, and how the Primary sector and/or UK Government might respond to it, went on to dominate practically every ticketing conference agenda for what felt like a thousand years. It is a supposedly immutable law of economics that whenever the market price exceeds the ‘official’ selling price a black market will ensue. This law was obviously set in a tablet of stone before information media advanced to rotating barcodes, QR codes, Blockchain and Facial Recognition. But having spent many years on the front line, and witnessed first-hand the level of ingenuity with which both the Secondary Market, and its camel-hair-coated forebears, have leveraged those market forces, I won’t be writing them off quite yet. And, frankly, what you or I might regard as a ridiculous price, someone else will see as a badge of honour, a token of their great success in the world, and/or their love for their partner, or maybe the value they place on a commercial partner.

But the biggest problem, in my experience, is not unauthorised dealers so much as unrealistic expectations. Let’s say you’re planning the year ahead. You’ve done your homework, factored in your costs, and know what you need to earn from your however many performances (less 1.5 perf contingency) in order to cover them. You then have to sit down with the person bankrolling that year (including your salary) and get them to tell you what minimum revenue level above those costs is acceptable to them and/or their investors. And it is only once that minimum has been agreed that you can adjust the balance of higher and lower price seats, across the full range of higher and lower demand performances, and start planning the activity needed to realise those sales month by month, week by week, performance by performance. Of course, things can, and will, go wrong. And probably right from the start. But because you’ve got your road map laid out, and know exactly where you’re trying to get to, you are able to factor those unforeseen elements into the big picture and take steps down the line to (hopefully) get you back on course. Similarly, if demand actually proves to be higher than your forecast (please God!) you will also see that immediately and can take steps to optimise revenue further by adjusting prices upwards and/or increasing available inventory (by extending booking periods).

Of course, there will be very few occasions (if any) when anyone can sit back and feel they have achieved the absolute optimal return on an event or season. And at those times there can be some crumbs of comfort in the words of the fabulously wealthy financier JP Morgan: “I made a fortune getting out too soon.”

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