This article was written by Mitchell Osak and was originally published in the Financial Post.
Over the years, the Rolling Stones have shown the world about what rock ‘n’ roll is all about. Last year, they looked to prove this again by embarking on a 50anniversary concert tour. This time, however, the band discovered that they can’t always get what they want. For the first time in their history, the Rolling Stones had difficulty selling out venues especially the premium seats. Their difficulties selling tickets offers valuable pricing lessons for other entertainment, sports and premium-product brands.
Initially, ticket prices included $600 for arena seats up to $2,000 for general admission seating in front of the stage. Not surprisingly, sales lagged from the outset. The band had to discount prices to fill their first venue, the Staples Center, and subsequent dates. For the Stones, the impact was lost revenue, a tarnished image and irate fans who resented others getting the same tickets for a lot less money. Though normally aggressive pricers, the Stones clearly overstepped this time. No wonder some promoters were having a 19 Nervous Breakdown.
The band’s predicament is one that all premium brands can relate to. It is not uncommon for pricing to occasionally overshoot the perceived value or the customer’s ability and/or willingness to pay. The challenge is how to set or recalibrate your pricing and value proposition in a way that maximizes revenue, doesn’t damage the brand or anger customers who paid full price.
Here are a few successful strategies we’ve employed in the past:
Understand your patron
Given economic and demographic realities, the ability of thousands of fans to pay exorbitant concert ticket prices may be a thing of the past. The Stones incorrectly assumed their fans would continue to see the same value and pay record prices for 70-year-old rockers performing a 40-year-old music catalogue. A more thorough understanding of their customer needs could have led to more segmented pricing levels, early-bird discounts, smaller venues or more delivered value.
Boost your value
The value of a concert experience is reasonably understood. You pay high prices and get one or two bands performing in a stadium for two hours. Instead of lowering prices, the Stones could have increased the real and perceived value delivered by providing a free gift with purchase (high perceived value with low actual cost), more product (i.e. longer show) or offering bundles (sell a limited edition t-shirt with premium seats).
Communicating high, experiential value is also critical to maximizing sales. Premium quality goods have sophisticated brand values communicated through packaging, advertising and merchandising. On the other hand, most musical acts tend to have generic brand values, lacking in authenticity or exclusivity. To sustain premium pricing, brand managers need to ensure all elements of their marketing mix convey an exceptional brand image.
“Succeeding with premium pricing requires that customers clearly understand how your product is superior to substitutes or competitors,” says pricing expert Claire Johnson, senior vice-president and chief financial officer at CIBC Mellon. “The right price point compensates sellers for delivering a better product while leaving buyers satisfied with the value received — and a willingness to repurchase.”
Sell through other channels
When facing unsold tickets or extremely high demand, many acts and teams will use scalpers to distribute their tickets and protect their image. Acts will use scalpers to sell the best seats (so that fans blame scalpers, not the bands themselves, for inflating prices) or to unload excess inventory (so bands don’t look desperate). Making this strategy work requires the bands to offer bulk blocks of seats and discounts to scalpers. This tack is analogous to premium brands selling their discounted merchandise at outlet stores.
Selectively, lower prices
Price is an important signal of performance, exclusivity and quality. Reducing the price like the Stones did, especially through clumsy discounting, may provide a short-term revenue and volume lift but may end up doing long-term damage to the brand. However, there are times when a price decrease is the right strategic move. The Stones were publicly accused of gouging their fans. Cutting the price may end up restoring some brand equity by demonstrating fairness and transparency. If you do decide to follow in the Rolling Stones footsteps and slash prices, you should keep a close eye on your books to ensure that the decision is the right strategic move.
The Rolling Stones invested 50 years of hard work to be crowned the “greatest rock ‘n’ roll band.” It would be a shame if poorly considered pricing decisions ended their run amidst accusations of greed, weak sales and sloppy execution.
Photo credit: Flickr user xiquinhosilva.
For more of Mitchell’s thought leadership, please visit his blog.
Mitchell Osak is managing director of Quanta Consulting Inc. Quanta has delivered a variety of strategy and organizational transformation consulting solutions to global Fortune 1,000 organizations. Mitchell can be reached at email@example.com.