Thoughts from a Los Angeles Theater Producer

Less is Less

Posted in Producer Tools, Producer's League by Rick Culbertson on September 9, 2009

As I promised yesterday (click here for yesterday’s post), today I will talk about the devaluation of the theater community due to the current wide-spread sale of half-price tickets.

Now, this isn’t meant to be a full lesson in economics, but we need to understand a few things first:

One of the most important jobs a producer has is to set the market price of a show’s ticket.  We need to make sure we can afford to run our show from week to week.  We need to try to save a little extra in order to recoup the pre-production costs so that we’ll have money to produce again.  We have to gage the market and try to determine what it will bear.

To do this, we must look at the weekly running cost of our show and average it across the number of seats. We take into account what we will need to recoup the initial production cost.  And we look at other shows and see what price their tickets are selling for.  Finally, we build a demand curve to see if our market price is sustainable and realistic.

When you build a demand curve, the basic theory is this: the higher the price the less you sell, and the lower the price the more you sell.  The market price that we want to reach is that sweet spot at which the amount you sell, multiplied by the price you sell, makes you the most money. If your market price ends up being lower than your costs, then you did something wrong.  If your market price is higher, then you are in business.

Here is an example of pricing points on a completely made-up demand curve for ticket sales: (This does not take into account cost per ticket)

Point A = 100 tickets sold at $5.00 (Gross Revenue = $500)

Point B = 50 tickets sold at $25.00 (Gross Revenue = $1250)

Point C = 10 tickets sold at $50.00 (Gross Revenue = $500)

In this example, we see that it will be ideal to set our market price at $25 (Point B) because doing so will maximize our income.  Yes, we will sell fewer tickets than if we were to set the price point at $5.00, but we will end up making $750 more. You get the idea.

So in this example, we know we should be selling our tickets at $25.00.  But often, one of the first things we do when we open a show is cut the price in half, for every performance in the entire run.  Often even after getting great reviews!

Why?  Marketing.

Marketing is expensive.  It’s time consuming.  It’s hard. So here come Goldstar and Plays411 with their massive lists of subscribers that want to go see theater.  These companies send out lists every week by email.  They promise to take care of everything and deliver butts in seats! They promise to reach tens of thousands of people on our behalf, maybe even hundreds of thousands.  All we have to do is give them a few half price tickets to sell.  And, best of all, their service is free!

Except, it’s not free.  It comes with a huge cost that I don’t think anyone sees.  That cost is the perceived value.

“Perceived value” is the value of a product to the individual consumer.  It is not the market price, it is not the cost.  It is not based in reality, but rather, on the perception of each individual patron.  Nonetheless, perceived value is extremely important.

When we cut our ticket prices in half, for all performances, in exchange for Goldstar to include us on their email list, our patrons see this and begin to think that the price should be half.  After all, if it was a valuable ticket, the price wouldn’t be cut in half.  They think that the patron’s demand (or lack of demand) for the ticket is what’s lowering the price.  In reality though, it’s the producer’s demand for free marketing that’s at work– marketing that is only attainable by lowering the ticket price.  The individual patron, meanwhile, begins to create a perception around the idea that they should always be able to get half price tickets. And after seeing many productions, the vast majority of these patrons are no longer willing to buy a ticket for more than half price.  They perceive the value of ALL tickets to always be at half the full “market” price. The patron doesn’t understand the producer’s cost per ticket, nor the marketing forces that make us offer half price tickets in the first place.  They don’t even understand the real reason why they have the perception that theater should always be half price. All they know is, they’re used to getting a deal.

As a result, our market value drops.  We can no longer sell our tickets at full price, and the new perceived value of half price tickets becomes the new market price.  Often, this discount is well below our actual cost.

One night when I was working as house manager for my own show (Divorce! The Musical) one patron approached me, furious that I wasn’t offering more half price tickets. (Early in my run I offered very few at half price, they sold very fast and then they were not available for several weeks.)  This particular furious patron waited and waited for me to release more half price tickets. When I didn’t, he got angry.  He eventually bought the full price ticket ($35), but he was so angry about it, that when the show started, he was STILL angry.  Yikes!  That is not the mood I want my patrons in when the show starts.  The reason he was angry, though, was not that he paid $35– it was that he didn’t get a discount.  Full price, no matter what it was, was higher than his perceived value of the ticket — and this perceived value would always be “half price.” If I had set my full price at $70, and then sold him a half price ticket for $35, he would have been happy.  It’s all about the perception. Just look at Broadway: their ticket prices have doubled in the last 15 years largely in response to the rise in half price ticket volume.

The real detriment to lowering the perceived value of our tickets, is that is it makes it harder to produce real quality theater. You simply need to charge higher prices in order to pay for higher quality theater. If we can’t sell it at the price we need to sell it, we won’t produce it.

And at the end of the day, discounting our tickets should be a marketing tool that producers are always in control of.  We can use this tool to help a struggling performance (like many on Thursday nights), and we should be able to experiment with different discounts (like only 25% off), and to entice people to put together groups who can pay at a discount.  Discounted tickets should not be a generic commodity that we trade for simple marketing lists.  This is an unbalanced trade that is not in our favor.  It’s a lazy way to market.

And it lowers the value of the entire theater community.

Tomorrow – my thoughts on what we can do to raise our ticket’s perceived value, and stop half price tickets from being the norm.

(Click here for the next post.)

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2 Responses

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  1. Paul Doble said, on September 9, 2009 at 5:49 pm

    Bingo. Right on the head of the nail. Good job Rick.

  2. Kerri-Anne said, on September 9, 2009 at 10:28 pm

    Well written, well thought-out, succinct, and made economics easy for those of us with a degree in tap dancing. I like your style Culbertson, I like your moves.


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