King of the Lions: Seat quality is an important price factor
In the run-up to the study, Prof. Riekhof conducted an interview with Sönke Scobel (photo), Analytics and Optimization Director at Stage Entertainment in Hamburg, which will soon appear in the report volume of the Pricing Study 2018. This interview provides very exciting insights into the pricing of the “King of the Lions”, one of the greatest successes in the history of musicals. That’s why we publish it here in advance.
Professor Riekhof: What is the importance of pricing at Stage Entertainment for the operational control of the business? Asked differently: what proportion of your operating result do you attribute to the special techniques in pricing at Stage Entertainment?
Sönke Scobel: Pricing is quite important to us, we have been doing yield management for 10 years. This is not common in our industry. We also make price changes when the shows are already on sale. However, it is difficult to estimate the contribution of pricing. But I can give you an interesting comparison: “The Lion King” on Broadway has experienced a price increase of more than 100% in the past 10 years – with the same number of tickets sold. Pricing does have a great leverage effect.
Riekhof: To what extent do you use the price to select customers or certain target groups? Do such considerations play a role at all?
Scobel: The utilization is important and is also in the foreground. In the musical, the price is not the only decisive variable, because there is basically no direct competition to the musical selected by the visitor. The immediate influence of the price on sales is limited – a halved price does not automatically generate significantly more ticket sales. In the peak, the prices have already gone up, and we have a new price category “Premium”, which enjoys great demand. However, it is difficult to differentiate target groups based on prices. Of course, there are also student prices and school prices. But we differentiate more about the seat quality. Customers who book the best seats do not have common sociodemographic characteristics, as we find them in target group marketing. There is rather a kind of musical affinity that determines the price willingness. It is interesting in this context, for example, that families tend to pay more attention to the seat quality than to the price.
Riekhof: What are the most important factors that play the biggest role or have the greatest influence in setting prices?
Scobel: The seat quality. Historical references are the starting point for our pricing scheme. Immediately after the start of sales, we react and adjust the pricing system. Demand is ultimately decisive for our pricing. The demand varies by weekdays depending on the audience of the show, whether it is families or pensioners. During the holidays, however, the weekly price scheme completely dissolves: during the holidays it is always Saturday. Late bookers tend to pay more, cheap tickets are available with more lead time.
Riekhof: Do you rely on last minute tickets?
Scobel: No. As in many other industries, we try to avoid last minute tickets. Offering bargains at the end makes no sense for us. On the day of the performance is the highest demand of each show. The last 50 seats are single seats that are left over. But it’s ok if 50 or 100 single seats of 2,000 remain unsold. We can also vary the capacities depending on demand by releasing the ranks. 30 – 40% of the total seats are variable, they may also go on sale later.
Riekhof: How high is the spread of prices between the cheapest and the most expensive ticket? Has this price spread changed in recent years?
Scobel: At Stage Entertainment overall, the factor is 8, over a production or show like “King of the Lions” it is 3 – 4, in a performance about 2.5 – 3. The price spread has expanded with the introduction of the premium price class. These are now about 10% of the seats sold. In the price categories, we are also variable to some extent. This then becomes the inventory game. In the USA on Broadway, this game with the capacities is much more extreme.
The demand for the “King of the Lions” has not been declining for years
Riekhof: Are there new price categories that you have created? How have these new categories proven themselves?
Scobel: Yes, as mentioned, we have indeed created the premium category, which has found very good acceptance. In individual cases, we have also set lower price points, for example, we have created a cheaper one with the price category 5 at “Aladdin”.
Riekhof: Does the life cycle of your – extremely successful – product “King of the Lions” play a role in the pricing strategy?
Scobel: There is no life cycle for the “King of the Lions”. The demand is stable, it does not decline over the years. With other shows, this plays more of a role, you react a bit with the price, but the price elasticity is limited: you do not create additional sales through price reductions. So we have a limited effect of the price.
Riekhof: How is pricing organized? How big is the team, for example, and who do you report to as the head of the pricing team?
Scobel: In our case, this department, which I am responsible for, is called Yield Management. This is rather the complete marketing analysis with 15 employees. This already shows that the topic has a high priority. As head of this department, I report directly to the Germany boss of Stage Entertainment.
Riekhof: How do you document the experiences you have made with certain pricing strategies? Are these experiences transferable to the next fiscal years at all?
Scobel: Everything we do is based on historical information. All price changes are recorded in a relational database, and we continuously document the effects of all price changes. We have written a pricing framework that now covers 50 pages, in which all our pricing experiences from all our European markets are recorded. This is our price strategic framework, and it is constantly supplemented by newly gained insights. We also value the exchange of experience with other companies in our industry. These are then private theaters like in Hamburg the Schmidts Theater, ticket system providers, but also completely different industries like football Bundesliga clubs or publishers. We are happy to share the mechanisms behind our pricing.
Riekhof: Do you work with price-sales functions and price elasticities?
Scobel: No. We do not report price elasticities as a key figure. But of course we have corresponding experience values. For example, we know that for comparable dates (e.g. the afternoon show on Tuesday and Wednesday) 3 euros make a big difference in demand. However, raising or lowering the price by 1 – 2 euros across all performances of a show has almost no effect on sales.
Riekhof: What kind of IT systems support you in pricing?
Scobel: We have a relational database, and we use Excel very intensively. On this basis we have developed our own tools. That’s enough. We do not use third-party systems. If you have sold 100 million tickets, then in terms of data volume that is not so much. You don’t have to work with artificial intelligence.
Riekhof: Is there a pronounced price controlling at Stage Entertainment, e.g. in the form of analyses and reports for the management?
Scobel: Yes, there is, e.g. when new shows go on presale. Also with more radical changes in prices or when implementing new corner prices, this is prepared and commented on for the management accordingly.
Riekhof: What will the pricing at Stage Entertainment look like in 3 years? Will there be fundamental changes?
Scobel: No, there will not be. It is ultimately about the seats in 400 shows a year in 5 or 6 price categories and several price levels, which we use for different pricing according to weekdays, times of day, holidays or vacation times.
Riekhof: Will there be dynamic pricing with you, as we know it from Broadway?
Scobel: No, we will not do that. Price changes do not have to be made within a few minutes. It is enough if we change the prices the next day. And there are ultimately no more than about 10 price changes a week across all shows. We usually do not sell more than 5 tickets a day for a specific price category of a performance. So a second-by-second dynamic pricing would be exaggerated. This also means that we do not go towards individualized pricing. Of course, individualized prices are theoretically correct and optimal, but with 2,500 tickets per show you do not need that. By the way, we know from Broadway, where dynamic pricing is used, that the system only makes a price proposal, which is not implemented automatically. Even there, the prices have to go through three manual authorization steps.
Professor Riekhof: Thank you very much for the interview!