How to master your event pricing strategy and avoid common mistakes in 2021

Across the variety of events and activities we have supported at Smeetz, one specific, but really important question was coming over and over from our main customers. How should I price my tickets?

As the objectives differ from one customer to the other, the results also strongly vary depending on the methodologies used, their execution and the goal they are supposed to achieve.

In this blog post, we will cover a theoretical part about pricing methods and strategies to optimise both your ticket sales and your profits. We will also share with you some key learnings we have discovered with our top performing customers and the worst ones. 

Finally, we will provide you with a “template” strategy we think is optimal and which should help you drastically increase your ticket sales. It will outline the steps you will have to take when setting up your prices, their timeline, and how to communicate them.

Let’s get started…

In economics, pricing models are based on different approaches, which range from cost-plus pricing to demand pricing. Without going through what you might have hated during your studies, let’s get through a quick refresher on these approaches.

1. Cost-plus pricing

A cost-plus pricing strategy is really vanilla. It is probably one of the easiest ways to define your pricing. On one side you sum up all your expenses, and on the other side you define your prices in order to create a positive margin compared to your budget.

Even if this method sounds pretty efficient from a financial perspective, don’t forget that customers don’t care about cost as much as you do, and therefore this calculation does nothing to put you in the sweet spot of the best price.

2. Competitor-based pricing

Competition based pricing is a pricing method that involves setting your prices in relation to the prices of your competitors. But are you really willing to let your competition choose your pricing strategy?

Competitors might not have a better clue than you about what price they want to charge. It also implies that your event is no more different than theirs, which is from a competition perspective not the most long-term oriented strategy for your business.

3. Demand-based pricing

Unlike the two pricing models above, demand-based pricing uses consumer demand (and therefore perceived value) to set a price of a good or service. Indeed, why sell your tickets below what your customers are ready to pay for, and why sell them above the value they perceive in the experience you offer?

Even if this method is probably the most difficult to implement, as you have to guess the perceived value of your event (and it changes over time!), it is also the one that produces the best results because it will take into account competition, market condition, and the quality of your event.

Demand-based pricing sounds cool...

But how should I move forward now?

Let’s take some time, and dig deeper into demand-based pricing since it is the technique that offers the best risk/reward ratio given it is based on matching your customers perceived value, and therefore achieving the biggest revenue.

Demand-based pricing might be a difficult concept to understand as demand evolves in function of different parameters like time, weather, competition, etc., but also in function of the targeted audience, which has probably not homogeneous preferences, spending powers, behaviors, etc.

These differences induced by different perceived-values have been thoroughly studied by academics and have given birth to a set of pricing concepts that fit within a demand-based strategy.

1. Behavioural concepts

Behavioural studies on humans state that we are not governed solely by purely rational decisions, but that we face numerous biais when confronted with a choice. Behavioural pricing concepts take advantage of these biais to optimise prices or product choices.

Charm effect

You probably have seen this trick used many times and think that it doesn’t work anymore in modern times. Charm pricing involves using pricing that ends in "9". For example, your brain processes CHF 20 and CHF 19 as different values.

How effective is this technique? Findings from an experiment led by MIT suggest that it is still very effective. A standard women’s clothing item was sold at the prices of $34, $39, and $44. To the researchers' astonishment, the item that sold the best was the one at $39, even if a cheaper option existed.

This is probably why when you visit Apple’s website, each product price ends with a “9”.

Decoy effect

Decoy effect is the phenomenon whereby consumers will tend to have a specific change in preference between two options when also presented with a third option that is strongly inferior.

Let’s assume your offer first the standard packages. B seems already like a good deal but your customers might not be sure they want to spend CHF 99. So you add a decoy of 2 concerts for CHF 89.

The decoy effect will be even more obvious with non countable object like hotel rooms when you cannot really do the math.

• Standard Room CHF 180
• Deluxe Room CHF 220
  

Your customers might think, "do i want to pay CHF 40 more? CHF 220 is a bit too much for a room..."

Add a decoy Premium Room for CHF 210.

• Standard Room 180
• Premium Room 210
• Deluxe Room 220
  

"Oh for CHF 10 more I can have the deluxe room."

The addition of decoy B — which consumers would presumably avoid, given that more can be obtained with a slightly higher price — causes C to be chosen more often than if only the two choices existed.

2. Discount concepts

Discount pricing strategy is about marking down prices, which might work against your brand image and your ticket sales if badly used. On the other side, correctly orchestrated discount strategies can yield impressive results, create a buzz and stress the sense of urgency.

Such strategies, by essence, should be set up only temporarily like a seasonal discount so your customers don’t feel that your prices are always marked down. It can also be exclusive to reward some loyal customers, or targeted towards volume to attract groups of people.

3. Time-based concepts

Time-based pricing refers to the fact of changing prices depending on time periods. It is mainly used in hospitality and tourism, where hotel room prices fluctuate depending on peak and low seasons.

In the event industry, it is becoming more and more the norm with early bird prices, which provide savings for attendees who are willing to commit early to your event, sometimes even before the line-up is announced.

This pricing strategy can be particularly interesting for you as it will drive interest for your event very early on, and will help build a network effect to drive more people to your event once real sales have started.

4. Segmentation concepts

People are different and are ready to pay a different price for your events. It is therefore very unlikely that a single price is the right price for all your attendees. You should rather offer a variety of ticket types to attract customers who perceive more value in a higher priced ticket, while still being able to satisfy those who perceive less value. 

Also, offering tickets that have different prices might increase the perceived value of your events as expensive packages makes cheaper options look very attractive.

Well that’s a lot of different theories and concepts…

But how to implement demand-based — behavioural pricing in real life?

Easier said than done, but not impossible. Technology is now allowing us to apply demand-based — behavioural pricing in a quite easy and straightforward way with the use of dynamic or smart pricing.

Dynamic pricing sets flexible prices for goods or services based on real-time demand thanks to forecasting algorithms and machine learning. Event organisers can factor in things like demand changes, weather forecasts, time to the event and other market conditions to help set ticket prices automatically.

To date, this is the most innovative, but also the most performing pricing strategy, since it accounts for parameters that wouldn’t be possible to take into account altogether manually. It’s a drastic evolution of standard pricing strategies to increase ticket sales and profits, while optimising prices.

The drawback to this strategy? As you can guess, it is probably the best, but also the most difficult strategy to put in place, especially if you have no automated tool to help you implement it.

Alright, Understood!

Where do I start? And how not to make mistakes?

1. Common mistakes

Let’s keep in mind that the price of your tickets should always tend to match the perceived value of your customers in order to maximise ticket sales and profits.

The most common errors we have spotted from our event organisers are the ones where the organisers don’t take the time to strategically think of objectives beforehand and don’t assess the perceived value. Learn from them and don't:

1. Launch ticket sales too closely to the events - Not letting an appropriate time to determine if tickets are mispriced compared to the perceived value.
2. Start ticket sales with a price which is too high - Thus closing the door to price revisions in order not to degrade brand image.
3. Have only one ticket type cause it’s “easier” to manage - Neglecting some customers who would have been attracted by different types of offers.
4. Ignore previous sales data and patterns - Missing out a lot of very valuable information to define and fine tune your pricing strategy.
5. Avoid active communication on pricing strategy - Forfeiting the chance to have attendees aware of opportunities and optimal purchase windows.

2. The start

As stated previously, start working on your pricing strategy as early as possible. For instance, for a festival, we recommend that you start brainstorming on the topic a good 6 to 8 months in advance in order to plan effectively and in a timely manner.

Gather as much information about your previous ticket sales if you are able to access them. By any way, always prefer a ticketing solution which gives you access to all these sales data, and ideally provide you as well with detailed analytics to spot the piece of information which will make the difference.

3. The context

Let’s say you organise a four-day festival with a capacity of around 2’000 people per day. On the 4 days, you never reached 100% capacity. In the previous year, you didn’t feel comfortable with your ticketing solution and decided to keep it simple with one price per day at EUR 40 and one price for the festival pass at EUR 120.

Ticket sales usually started 6 months before the festival and the line-up was made public at the same time.

4. The plan

Download our full 10 months plan here for communication tips and to better understand each step.

You will find below a brief summary.

Stage 1: Reward loyalty

• Launch a hidden and limited offer for the festival pass for your previous year attendees
• Set a max quantity in order to not be able to serve all the demand
• Set your prices with an important discount and don’t forget charm pricing with prices ending in “9” (for example EUR 69)

Stage 2: Early-bird tickets

• Publicly launch early-bird day tickets (for example at a price of EUR 29)
• Publicly launch early-bird festival passes (for example at a price of EUR 89)

Stage 3: Cross-sell and upsell

• Add up experience packages to your offers with items you have a good margin on (cocktails, merchandising, VIP, etc.) - they might never be redeemed by your consumers
• Create three packages to fit different tastes and budgets, including one decoy.
• Try as well to cross-sell add-ons such as hotel nights, transportation, etc.

Stage 4: Normal tickets

• Launch normal price tickets with day tickets at EUR 39 and pass tickets at EUR 119
• Depending on the period, you can launch specific offers, such as  Christmas gift cards that are valid on your tickets
• Launch a promo campaign that will allow a limited number of buyers to still purchase at early-bird prices

Stage 5: Conservative smart pricing

• From now on, price your tickets dynamically using smart pricing with a conservative strategy (mostly time and capacity)

Stage 6: Set discounts

• Create some promo code campaigns targeting defined audiences (student committees, good customers, tourism offices, etc.)

‍Stage 7: Aggressive smart pricing

• Create a last type named “Last call ticket” and set up a more aggressive smart pricing strategy (weather, acceleration of sales, etc.)

Hopefully, you will announce the sold out way before the festival starts !

5. The execution

Like any project, execution is key and requires the most adapted toolset in order to allow event organisers as much as possible freedom and creativity.

We recommend event organisers to opt for a ticketing solution where they can execute the whole strategy themselves, without ongoing and slow communication with customer support. The solution should be highly flexible in terms of ticketing, while providing all the necessary analytics to perform a close monitoring of the pricing strategy.

Indeed, organisers should stay focused on their conversion rate to spot any deviation from their target rate, and in case refine their pricing strategy accordingly. At best, They would also benefit from sales forecasting models to guess the impact of their changes and decisions. Indeed, it would help the most risk-averse ones overcome their fear biais, and deliver outstanding results with new pricing strategies.