How Museums Can Optimize Revenue Through Dynamic Pricing

pricing-productsOptimizing revenue by increasing pricing for special exhibits or peak times (e.g. weekends) is widely adopted in the performing arts (e.g., matinee vs evening performances at the theater) but rarely used by museums.  A few museums, however, are beginning to experiment with dynamic or demand-based pricing to maximize their revenues.   For example, the San Francisco Museum of Modern Art increased their price $2 for the last four weeks they were open before renovation began and received no complaints.  In 2008, the EMP Museum dropped its admission fee from $30 to $15 and it did not affect visitation, so in 2011 they increased prices and in 2013 they moved to 2013 to dynamic pricing. During the last 3 weeks, they earned an additional $15,000.

In “What Price is Right?”, a session at the recent AAM annual meeting, Heather Calvin (Museum of Science), Jill Robinson (TRG Arts), and Jessica Toon (EMP Museum) discussed how museums can use demand-based pricing strategies to set admission prices, service fees, discounts, and membership dues.  It was a wide-ranging presentation so I’m sharing the highlights here to prompt you to rethink the standard admission fee structure based on age.

1.  Pricing can stimulate demand.  A common strategy is discounting. Discounts has to be part of an audience development strategy and build loyalty.  For example, use discounts or free admission to underserved community, don’t use discounts for group tour operators or in the popular Entertainment book. Discounts can be good if used strategically to attract new audiences, particularly in partnership with other organizations.  There’s no evidence that “eligibility discounts” (e.g., seniors, students) change behavior (that is, affect the decision to visit) but we may need to consider discounts as a way to optimize income over the long term (e.g., bequests). People are as important as revenue but you cannot figure out what price is right without looking at data. Push it up as far as possible, you can always bring it down. Most often it is an internal political decision; rarely results in visitor complaints or changes in behavior. Examples:

  • SF MOMA: providing discounts to the sponsor’s customers/clients to better distribute attendance to avoid sold-out exhibits.
  • EMP: Discounts for military and seniors; intentional military lower than seniors, but all the same for online.

2.  Pricing can encourage loyalty:  a return visit, retain members, upgrade membership. Visitors typically fall into three categories:  tryers (very little loyalty, typically 90 percent), buyers (members and annual fund), and advocates (leaders, board members, major donors). To understand your situation, create a “loyalty index” using data.  Example:

  • EMP:   In 2012 saw group sales as an easy opportunity to increase visitation and with additional staff focus, experienced a 10 percent increase–but it wasn’t sufficient to justify the expense.  They’ve now hired a data analyst to study information collected. Without collecting data of “tryers”, cannot find what will keep them engaged and invite them back.
  • Museum of Science: membership entirely restructured to encourage upgrades (people bought membership based on number of free admissions). Admission is now packaged for 2-5-8 persons to exhibits plus one-time-use bonus passes for planetarium or guests, with premier version for free parking; discounting only for automatic online renewal.

3.  Pricing can help you collect data. Most museums are not collecting or analyzing information on their visitors or customers, resulting in lost revenue or opportunity costs.  Data can help reduce anxiety and find what patrons value (programs, day of week, seasons, times).  Example:

  • EMP: Only wants local members because tourists who buy memberships reduces admission revenue and usually doesn’t result in a long-term relationship.  By using geotargeting (also called IP address locating), the website presents different offers based on residency (local vs out of town)–if local, offered membership; if tourist, offered City Pass.  Now collecting 40 percent of memberships online and the online admission is lower in order to collect data from visitors.

Some definitions

  • Demand management:  managing all demand factors to optimize revenue from every admission
  • Base prices: starting point for pricing
  • Demand-based pricing or dynamic pricing:  fluidly raising or dropping prices incrementally based on data-proven demand
  • Peak and off-peak pricing:  pricing differently based on specific factors like seasonality or day or week; not the same as dynamic pricing.

What’s your experience with dynamic pricing?  How are you using data from visitors to increase your revenue?

2 thoughts on “How Museums Can Optimize Revenue Through Dynamic Pricing”

  1. thehistorylist

    Thanks, Max, for reporting on this session. It’s a important topic. A few observations:

    – It’s not unusual to encounter decision makers in non-profits who aren’t familiar with the concept of marginal costs and who have no idea of the marginal cost of a member or visitor to their site or institution. That is the starting point for any discussion of dynamic pricing, followed closely by segmentation and estimating the lifetime value of a customer for each segment.

    – The “perfect” pricing scheme will fail if it’s poorly communicated, too complicated, or if people perceive that they’re being taken advantage of. In this regard, if pricing is based on IP address, be careful. It’s not unusual to have a company’s IP address tied to a location, such as a headquarters, that is far from a branch or regional office. This means that someone looking at ticket pricing from their home computer in the evening may very well see a different price than they saw when they looked at this same institution’s site at their office a few hours earlier. (There are some paid services that address this issue, but the problem is still likely to occur for some.) This doesn’t mean that pricing based on distance to travel is a bad idea, but rather, as with other schemes, people should feel that they’re being dealt with fairly and not just squeezed by an enterprising museum.

    – Admission pricing should be looked at within the context of pricing throughout the institution or site. It’s not unusual to have admissions, the gift shop, the restaurant, crafts, and other revenue-generating activities run by different individuals, each with their own P&L. While that’s easy for senior management, it’s never the way a visitor experiences a museum or site.

    – Along these lines, we should make it easy for people to come and “consume” the experience and share it with their friends. A high admission price may not seem to deter people, but if they came in expecting one price and find out that it’s higher, they may not turn around and leave, but any comments to others (or posts on Facebook, Twitter, Yelp, Trip Advisor, Google and elsewhere), may well include something like, “ . . . but they raised the prices so if you’ve not gone recently, it’s now higher. We didn’t know that until we got there . . . “ The single most profitable customer is not the one who pays the highest admission price but rather the one who shares their great experience far and wide and encourages many others to come to your site or museum.

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    1. Max van Balgooy Post author

      Thanks, Lee, for these additional insights into pricing. It’s a complex issue, especially if an organization wants to use it strategically to increase revenue or attendance.

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