The move towards a dynamic pricing model for cinema tickets is undoubtedly going to be one of the hot topics at CinemaCon 2016. One of the leading companies in this field is Smart Pricer, which has been running a very successful trial with a major European cinema chain. Celluloid Junkie caught up with Christian Kluge, the company’s co-founder and CEO, to discuss dynamic pricing, customer acceptance, how to price “Star Wars” and ticket booking ‘hacks.’
Celluloid Junkie: Your background is in airlines, where dynamic pricing is more established. Can you tell us a bit about Smart Pricer’s history and what made you expand your focus to cinema?
Christian Kluge: The concept of Smart Pricer came into being while Franz and I were working in the management of Lufthansa’s and airberlin’s product and pricing departments. Our experiences there taught us the potential that dynamic pricing has to increase revenue. We found that this concept could be applied to many industries outside of airlines, car rentals, and hotels.
After founding Smart Pricer, cinema was one of the first industries we explored because it has a perishable product and highly fluctuating demand. Our initial discussions with exhibitors showed that we need to adjust the way the model works a bit. Together with exhibitors we developed two approaches: dynamic ticket allotments that work with three ticket types (early-bird, saver and normal) and dynamic seat categories where we dynamically steer the size of three seat categories. This means in both models we are not actually changing prices, but the quantities of tickets available.
CJ: So do you feel that time is right for cinemas to engage with dynamic pricing?
Christian Kluge: I believe it is the right time for two reasons.
First, the digital customer has become acquainted with dynamic pricing models from airlines, hotel, eCommerce, etc. We have conducted surveys with moviegoers that showed that the majority understands that a Saturday evening blockbuster is more valuable than a ticket for a B movie on Tuesday afternoon.
Second, as more and more people buy their tickets online, dynamic pricing incentivizes people to book early. It’s a win-win really, cinemas can reduce operational costs at the box office and get money in the door earlier, while early birds especially for low-demand shows, get a cheaper ticket.
CJ: What are the data factors that come into play when a change of price is determined for a particular venue?
Christian Kluge: We work in two steps to optimize the price mix of every individual show.
First, after the exhibitor has released their film schedule, our demand forecasting algorithm predicts attendance for each show based on the movie, number of weeks since release, day of week and time of the day. Based on this prediction our software sets the initial price mix for each show.
Then it monitors the number of bookings coming in over the week to constantly update and adjust the price mix to the actual demand situation.
However, we do not provide a black box of pricing. It is important to us that exhibitors retain control of their prices. Therefore, we first align the price strategy (e.g. price points, ticket quantities, etc) with them and then provide a web-based price control panel to allow them to adjust price settings if they wish.
CJ: Does dynamic pricing only mean that prices will go up given certain factors or can audiences also find a bargain?
Christian Kluge: Dynamic pricing is effective because it elicits the willingness to pay of different customer segments. This means that some customers will pay more, while others will make a bargain.
Depending on our client’s strategy, we prefer to offer some tickets cheaper than the currently offered ticket price. The result is that cost conscious customers who are willing to book early or to come to a show with lower demand can find a bargain, while the overall average ticket price is increased slightly.
CJ: You have been doing extensive testing with a major European cinema chain. What can you tell us about the outcome of this testing?
Christian Kluge: After one year of live operations we have achieved a significant revenue increase and good customer acceptance. During that time we have learned a lot about what cinema fans value by measuring price’s effect on booking behavior and conducting surveys. We look forward to expanding our product to more theaters in the coming months.
CJ: Is there any kind of tension between distributors and exhibitors in terms of implementing dynamic pricing for cinema?
Christian Kluge: Actually we found that that both sides share the same goal to increase box-office revenues. This is exactly what dynamic pricing is proven at doing. In our conversations with distributors, we were excited to learn that they support dynamic pricing as long as prices for cheaper tickets do not decrease substantially and we limit the number of cheaper tickets available.
CJ: What about customer acceptance? I know for example that for online retail prices might be higher if the site detects that you are accessing it from a Mac rather than a PC.
Christian Kluge: To achieve customer acceptance we have “played with open cards”. Through website and box-office we have communicated the “rules of the pricing game” to movie-goers along with tips how they can make a bargain: book early, check expected demand for your show and use your loyalty card. In our experience, customers accept dynamic pricing if they understand the reasons for price changes.
Your example of using device type as a price determinant is something many people do not understand. Such a price discrimination does not does not apply to our way of doing pricing.
CJ: How do you see the overall evolution of cinemas as they embrace dynamic pricing and big data for customer insights? Where will we be three years down the line?
Christian Kluge: It is a critical time for cinemas. When you look at the overall trend in the European market, attendance is stagnating for various reasons. In order to stay competitive, exhibitors need to better understand the value of their services to customers. Big data can help determine that value based on demographic group or previous purchase behavior.
Dynamic pricing is picking up speed in many industries because it is effective. I think 3 years down many of the major exhibitors will price dynamically. Eventually, I see a combination of dynamic prices with targeted marketing to offer the right price to the right customer at the right time.
CJ: So an exhibitor considering how to price the next “Star Wars” film, what should be the three major things they should keep in mind when deciding the ticket price?
Christian Kluge: First, understand that a Star Wars ticket is not just a Star Wars ticket. Customers willingness to pay depends on many factors such as the cinema’s location, weeks since release, day of the week, time of the day, quality of the seats, just to name a few.
Second, try to reflect these factors in your static pricing scheme or go straight to the dynamic world.
Third, tell your customers the rules of the pricing game and explain how to make a bargain.
CJ: Finally, has dynamic pricing had any impact in terms of how you personally make purchase decisions, whether cinema or airline tickets or anything else? Any “hacks” you can share with us?
Christian Kluge: The general rules of rewarding early bookings, loyal customers and bookings at low demand times apply in virtually every industry.
From my past with airlines I can share the following “hack”. Do everything to no appear as a business traveler. Try to avoid same-day returns, ideally stay over Saturday night (there is a Saturday night stay rule in most airline pricing systems) and book your ticket a few weeks in advance. During the last 3-4 weeks for short-haul and 6 – 8 weeks for long-haul prices typically increase every day.
CJ: Thank you for talking to us.
Smart Pricer will be attending CinemaCon 2016 in Las Vegas.
Update: April 5, 2016
This post has been amended to remove the following information; the name of the theater operator with which Smart Pricer is presently conducting a trial, the exact discount percentage at which tickets are offered, the exact revenue increase percentage achieved during the trial.
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