The 2/26/2013 edition of the New York Times published an article by Daniel J. Wakin that reports the Metropolitan Opera is lowering ticket prices by 10 percent but the really interesting part here is the reason behind the decision.

According to the article, The Met “decided they made going to the opera too expensive.”

So in a rarity in the rarefied world of the performing arts, the Met said it would reduce ticket prices next season. The average cost of admission will drop by 10 percent, or to $156 from $174, Peter Gelb, the general manager, said in a recent interview.

The article continues with additional insight from Gelb but in a nutshell, it appears that The Met determined recent increases were responsible for the lion’s share of audience decrease and the expected bump in income was offset by the overall drop.

We’ve examined this issue before when via the ticket price topic where organizations attempt to fill drops in revenue by artificially increasing average prices. Most groups expect average attendance numbers to drop but the increase in earned income is usually enough to justify the decision.

The problem here is that this approach is only productive via short term implementation and should only be used as a tactic of last resort during periods of crisis management. Instead, some performing arts orgs have been internalizing this as a long term policy and if left unchecked, many groups will cross a tipping point where the attendance falloff accelerates faster than any reasonable price hikes can keep up.

Painting Your Way Out Of The Corner

Perhaps unsurprisingly, the trend of average audience decline was exacerbated by the economic downturn. As a result, groups adopted price increases as a short term strategy to help manage cash flow but this isn’t something most groups can sustain for more than five years. And the longer groups continue with artificially inflated average ticket price strategies, the harder it is to back away from them without causing just as much damage.

In short, it is like painting yourself into a corner with a prolonged lie.

On one hand, an organization has to justify price increases and the longer those increases remain, the firmer the reasons become. But once the group crosses the threshold of diminishing returns, how do they back away without contradicting everything that came before to justify the previous increases?

Simple, they can’t; and more to the point, they shouldn’t. For now, the Met is taking the right approach by chalking it up as an error.

Mind The Bear Traps

During the transition, The Met will need to be mindful of maintaining overall revenue goals. Granted, that’s a profoundly obvious point but it is good to see The Met referencing it in Wakin’s article. According to the report, The Met is apparently relying on added sales to help fill any revenues holes related to the price correction and since that group isn’t too far along in the artificial increase game, they stand a good chance at reaching those goals.

At the same time, and in an ideal strategy, they have a backup plan to help subsidize slower than predicted gains with temporary bumps in contributed revenue.

Case in point for how a group shouldn’t implement a price correction strategy, when the St. Paul Chamber Orchestra (SPCO) instituted big cuts across the board for ticket prices, they did so without any firm plan in place to offset a known drop in revenue. There were assumptions that unearned income would increase but it never materialized to necessary levels.

As a result, the group hobbled along via a series of budget cuts until they arrived at where they are now: a bitter work stoppage and the strong likelihood of losing all but a shred of the 2012-13 season.

Conclusions

It will be fascinating to see how things unfold for The Met’s new strategy; likewise, reaction across the field will be equally fascinating. After all, if The Met successfully demonstrates that the strategy works and prices were increasing too fast, how will that make peers with similar price increases and audience decreases look?

Then there’s potential concern that The Met may be attempting to use the ticket correction announcement as a way of deflecting attention from other strategic decisions that may have more to do with recent revenue shortfalls. Reader May Catherine expressed those very concerns in a pair of comments to yesterday’s post on this topic.

Simply put, those sorts of concerns could be accurate and if so, the real loss will be the missed opportunity to examine the artificial ticket price syndrome outside the confines of closed doors and hushed tones.

More on this tomorrow but the 2/26/2013 edition of the New York Times published an article by Daniel J. Wakin that reports the Metropolitan Opera has announced that they are lowering ticket prices by 10 percent. Acknowledging that the prices have risen to artificially high levels and were now counterproductive for raising revenue and increasing access, the Met is acting proactively. We’ve been discussing these issues for years now and seeing the Met’s decision is a welcome breath of fresh air. More on this tomorrow, in the meantime, be sure to read Wakin’s article.

Two items of note to point out today; first up is an article by Matthew Klein in 1/12/2013 edition of The Economist which provides an overview of some of the fiscal hot spots in the field right now. Next up is an article by Zachary Lewis published in the 1/19/2013 edition of the Cleveland Plain Dealer which examines the Cleveland Orchestra’s recent growth in ticket sales for children and students.

Lewis’ article is particularly interesting because it identifies a correlation between the orchestra’s attendance growth and a decrease in ticket prices, all of which reinforces what we’ve discussed here on numerous occasions: one of the greatest barriers to attendance is price.

Hopefully, Cleveland will be able to make the subsidized lower ticket prices a permanent fixture without suffering the sort of debilitating loss in earned income revenue that helped put the St. Paul Chamber Orchestra into its current labor dispute.

If they can do that while simultaneously increasing average ticket sales and improving overall earned income, then it will be among the first organizations in the business to quantifiably demonstrate the value and impact of subsidized ticket prices.

Following up on last Monday’s Placebo Pricing article, the ever sharp Lisa Hirsch from Iron Tongue of Midnight started doing some digging around in her neck of the woods on ticket price issues and turned up some very intriguing results. In a post titled Pricing and Audience Resentment she provides a few apt observations on timing and steep price cuts.

In a follow-up article, A Bit More on Pricing and Audience Segmentation, she takes aim demand pricing strategies and I know, it’s a topic that for some is well worn but for others it is still relatively new. Add Hirsch’s candid assessment to the mix and it’s a very worthwhile read.

For those of you who haven’t been following this topic thread, here’s a chronological list of where it’s getting cross blogged along with related comment threads (which in many cases are as equally fascinating):

Regardless of your view on whether or not the average ticket price at professional US orchestras is an accurate representation of the overall experience’s value or is artificially inflated to help pad earned income shortfalls (or a little of Column A and a little of Column B), Joe Patti presented a fascinating point of view on all of this at Butts In The Seats in a post from 1/18/2012. Whether intended or not, Patti presents a potentially useful option to help groups take a permanent step back from current pricing levels without looking like they’ve been gouging ticket buyers all along.

Patti ponders the notion of Placebo Pricing; which, in a nutshell, is a permanent discount offered off of artificially inflated prices.

Although Patti examines the notion from a general pricing point of view, his ideas could easily provide the foundation for strategic solutions geared toward reducing attendance barriers related to average ticket prices.

Can it really be as easy as having a perpetual 50% off sale?

We are all aware on some level that when a store has a sale with deep discounts, the original price they are quoting was probably inflated. We may grouse and think it is a little dishonest, we are still out there buying from that store on a regular basis.

And this feeling of being in a dishonest situation can be ameliorated by providing sincerely good service (leavened, perhaps with a little bit of the personality that appeals to the specific customer). The other thing is, no one actually ever pays full price, even accidentally, and everyone knows it. That isn’t something you can know for certain when it comes to airplane tickets, a pricing model it is often suggested performing arts organizations adopt.

So the big question is, do you take advantage of customer psychology to provide audiences with a satisfying experience?

Oh, actually, you already do in a thousand different ways with your marketing, pricing and other practices. Question is, do you do something so blatant?

Given that in some cases the placebo effect works even in the face of full disclosure, it is tempting to try out such simple way to create an experience. Many ticketing systems, including my own, make it very easy to print one price on the ticket and set the actual price much lower.

This has terrific potential as a solution because it allows orchestra to focus on the core concepts of doubling down on their strongest asset: the concert experience.

In the end, the devil is certainly in the details; not the least of which being what to do about reduced earned income from lower ticket revenue. But this is still a fascinating notion and one that deserves attention from one or more of the major philanthropic funders out there who are interested and willing to help an orchestra with the combination of a hot concert experience and crack marketing team put something like this into place; then write a paper about the entire process and subsequent results.

Let this rattle around in your head a bit and weigh in via a comment with your thoughts.