Marketing BS Podcast: Theatrical Dynamic Pricing

I realize there has not been an essay or a briefing in a while. I am trying hard not to let this newsletter distract me from writing comedy. It’s coming along nicely, but at some point I will pivot back to writing more here. In the meantime, I hope you continue to enjoy these short conversations I am having with Peter and we are hitting the more interesting marketing news in any given week or two.

In other news, my 1960s comic book podcast is re-branding. “Super Serious 616” is becoming “WHAT IF… MARVEL was real?”. I wrote a little about why we are making the change here. The big impedes was a big advertising push we are doing later this week that should (if all goes well) blast us to the top of the Apple Podcast charts. The hope is that after an artificial boost or two to the top of the charts, we can use the momentum to maintain that position naturally. It will be an interesting experiment. In the meantime I think the quality of those podcasts have gotten better and better. If you are at all interested, now may be a good time to jump onboard. In the latest episode we discuss just how fast Thor would have to fly in order to cross the Atlantic Ocean in three minutes, and what that means for situations like saving someone from a speeding truck.

Now onto this newsletter’s podcast:

Full Transcript

Edward: Peter, when was the last time you saw a movie in the theater?

Peter: Oh, we go every couple of weeks. Every now and again, it's a very different experience now with, the big crazy seats and having to pick your seats in advance. And it's just, it's not like it used to be, but still it's a nice getaway.

Edward: Nice. So you paused during covid, but then you're back at it the same frequency there before.

Peter: Actually, even during Covid we'd go a couple of times. There was one time we went to tenant. Only people in the theater .

Edward: My crazy tenant story is, for a buddy of mine's birthday, I rented the entire theater so the two of us could go see it.

Peter: There you go. Well, we didn't have to rent the theater, we just bought regular tickets and you still got it. Don't think or so, but during Covid when no one was going to theaters, it was like the safest place you could be cuz no one else was there. So fair it out. So we'll still do it, every now and again. But it is funny how the industry has changed and maybe not funny, maybe sad how it's changed so much.

Edward: Yeah, I think it's interesting how little theaters have changed over the years, and it feels like they're changing quite a bit now. As you said they've made changes in terms of the seats are fancier and more comfortable and they're serving better food and so on. But in terms of like things like pricing, pricing has been, Hey, pay one price. Everyone pays the price to walk in and sees the theater. When you're dealing with a product that has an expiration date, like after 8:00 PM on Thursday, anyone who's not bought the ticket, those empty seats in the theater are going unsold. It's very much like an airplane, but theaters have never been priced like an airplane.

Peter: I have never understood that. Yeah, they should definitely be using different kinds of dynamic pricing. And of course it's not just them. It's gonna be the same thing with sports venues and concerts and yeah. It's funny in those domains, you keep hearing a lot about it. Sometimes controversial, but movie theaters seem to be just clinging to their kind of dinosaur ways. Although I guess just now starting to change.

Edward: And then even things like. Not just dynamic pricing, but even pricing by title. If you go and buy books, books vary in price. Every book you buy, I don't know what the price of the book is gonna be until I look at the price on it. And they're all over the map. Whereas when you go to see a movie, whether you're gonna see a 500 million avatar sequel, or are you gonna go see a nice little small new indie. They're all the same price.

Peter: That, and that's why it's so interesting. So there's that new, 80 for Brady movie just came out and there's all this headline news about it's going to have a different price as if this is a radical. Even in the articles, it's saying this bold move just cuz they're charging a different price for movie. Yeah, they're absolutely right. That should be the way it always works. Not, this kind of one time weird.

Edward: And apparently it has been done in Europe, so in Europe they have priced blockbusters at different prices than like smaller indie, lower budget movies. But in the US there's been a tendency not to do that. And I think the logic is like right or wrong, the logic has been if we price a movie at a lower amount, it will signal that the movie is flawed in some way and therefore it'll drive, even though it's almost like the idea of a luxury good. If I go and start discounting a luxury good, then maybe. Price elasticity is a negative elasticity. It might drive people away because it's considered bad because it's a lower price and it seems like that was the fear in the US if we reduce the price of the movie, people are gonna think it's a bad movie and no one's gonna go.

Peter: And that's why we shouldn't teach economics courses cause people jump to these ridiculous conclusions, you know? You know, it was the same thing with professional sports a lot of major League baseball teams were saying, oh, no, no, no, no. We can't change the prices. Same issue that we don't want to devalue the product. And now they're doing it all the time, not only charging different amounts for different games. But changing the pricing as the game gets closer and even based on weather and who's pitching and so on, that's just become the rule. Now. It's just a matter of how you do it. It's just weird that some sectors, like movies have just stayed behind and just haven't gotten with the times.

Edward: I went and saw, David Chappelle and Chris Rock were in town here in Seattle in December, and we went to get tickets. They like most of the seats in the house were at set prices now. Like the better seats were, better prices and so on. But the best seats in the house, it said this on the website, our top seats are dynamic pricing changing on a day by day basis based on demand.

Peter: That's kind of interesting cause like go to a restaurant where they have fixed prices for everything, but then there's that, special steak or fish market price, which implies that everything else charged isn't at. Prices, everything should be in a market price and people get used to it. That's The Thing a lot of these venues hesitate to do it because of some sense of fairness or something. It's like, oh no, we don't wanna go down the same path as the airlines, but people get used to it. People understand that, as long as they're not being gouged, the fact that they bought the tickets later or they're buying better seats they should be willing to pay a little bit more.

Edward: That's right. And, I think, maybe the airlines get us used to it, to a point where now it's not a big deal when it happens in the movie theaters. I remember it was probably 2003, 2004 was the first time I went to movie theater where I bought my ticket, like I bought my seat of where I was going to sit. Prior to that, I think every time I went to the movie theater you'd buy a ticket and then it was first come, first serve for where you were gonna be in the theater, of course. And it was around that time, 15 years ago or so where they said, Hey, no, you can actually buy your seat and now you can buy in advance. And now you can show. Just before the theater, just before the movie starts. And I think the concern at the time, at least what I heard prior to that was we don't want to do that because we want people to get to the theater early so we can serve them the ads. And if we start letting them buy their seat, they can show up at the last minute and they won't be able to advertise to them.

Peter: Wow, that's such bad logic given how much of a premium they can make for those better seats. It's a whole lot more than putting a couple of eyeballs in front of ads. And in some way the psychological weirdness of having to choose the seat, I think is actually less painful, less cognitively taxing than the idea of paying a little bit more money because, you're closest to the showtime. It's a different kind of process and people adapt to it and become second nature just as dozen these other domains.

Edward: And what's fascinating too, I think is who controls this pricing. When I was at Proctor and Gamble, we could go to the retailer and say, Hey, we want Swiffer to sell for nine 90 but we couldn't tell them that Walmart would, whatever price we told them, Walmart would put it lower and we'd be like, please don't put it lower. We're like, we want this be higher. We want this be high margin product. We want everyone else to charge more money for it. But they could do whatever they wanted. We couldn't force 'em to do anything. Now, we could rent ads on television saying, go to your local retailer and pick up your Swiffer for 9 99. But at the end of the day, the retailer decided, and it's that it's the same way with theaters. And so Paramount, you mentioned 80 for Brady. They can't set the price.

But what they did is they went and spent a whole ton of market research and then put together a research pack. Basically it was a sales pitch. So they went all the big theater change and said, we did some research and it shows that the price sensitivity for 80 for Brady is really, really high. And if you reduce your price, you can fill seats with older people who otherwise wouldn't even go to the theater at all. And they had to make a pitch. And apparently, I guess that pitch. .

Peter: That's great. And that's the way it should be, to get, whether it's the theater owners or again, any kind of venue, to run experiments that take chances, I think there's a real opportunity, whether it's the studio itself or some third party to come on in and start offering that, that kind of pricing expertise. Now, the next thing you gotta wonder about is will there start being a secondary market? For movie tickets. You know it's the idea is ludicrous right now, but anything's possible.

Edward: Yeah. It just, it feels like, at least right now, the supply of seats is so much higher than the demand for seats. And also you have a zero marginal cost electronic product that you can just put more showings, right? So if you don't go and see it at a certain time, they can run another showing at another time. Like unlike live shows like a Beyonce show or Taylor Swift show, like Beyonce can only be in so many places at once. It can only be so many shows. They can keep showing avatar forever and ever and ever. And you're gonna get this almo, if not the same experience. Pretty close to the identical experience. No, no matter when you. .

Peter: No, that's a good point. That there's not as much of a necessity for a secondary market as there is for sports or concerts. But on the other hand, there's a lot of people who are becoming accustomed to buying their tickets through the secondary market. You know, they'll start by going to StubHub or SeatGeek, and to see what's available. They, don't want to go to the primary market. Maybe it's cuz they don't trust the venues who are selling the tickets, or maybe they have a good experience with the secondary market. So I think it will emerge even if it's not quite as vital.

Edward: So we've talked about this, these companies that have been very reluctant to move into this direction. Right. So Airlines did this decades ago. Hotels did it decades ago. Cruise ships have done it decades ago, like movie theaters took a long time to do it, like athletic venues like baseball and stuff took a long time to move in this direction. Is there any example of a company that started moving this direction or an industry that started moving this direction where it was a mistake? We keep talking about, everyone's like afraid to do this. They're like, oh, I'm afraid to put them, buy their seats in advance cuz they'll will miss the ads. Or we're afraid to do this cause our customers will hate us. But is there an example where they were right, where like they should have moved more slowly or not moved?

Peter: Well, in terms of the overall movement, I don't think it's ever a mistake, but there's no doubt there's specific times, you know, specific games, specific sections of seats that are either gonna be priced too high or low. That's just the chance that these organizations take. I mean, let's face it, every game or movie or concert, they're never gonna get the pricing exactly right for every seat. So you just have to hope on average that works out in their favor. But, it's not an exact science, but it's a hell of an interesting science, no doubt about it.

Edward: But is there an example of where dynamic pricing wasn't the right choice? That like, Hey, we had fixed prices. Oh, everyone wants us to move to dynamic pricing. We think it's a bad idea. Every example that we're talking about. It was actually a really good idea. Theaters are slow. They should have done it earlier, but is there an example where someone moved too fast and they shouldn't have done

Peter: Oh, yeah. I'll tell you where the third rail is. Personalized pricing. Yeah. A lot of people mix that up with dynamic pricing. Of course, with dynamic pricing, as we get closer to the date or if it's a better seat or whatever, anybody would, would pay that higher price but personalized pricing to say, based on, given your characteristics, we're gonna charge you differently than me, even though we're coming in to buy tickets at the same time. Back around, right around the turn of the century Amazon experimented with that little bit and they got caught. They were charging two different people at the same time, different prices. And they, boy, oh boy, did they back down on that? They apologized, never again. It was just a little experiment. So yeah, that's a real danger zone. Not, to say it can never happen, but given our kind of how naive we are, even with just regular dynamic pricing. That's a step too far.

Edward: Well, it's interesting you say it's funny, I remember that when that happened at the time, I didn't make the connection, but you're right, they did that. Where they got nailed, I think, was personalized pricing where some people were paying higher prices than others. We do personalized pricing where some people pay lower prices than others all the time, and no one gets upset about it. Like if rather than charging $8 for this CD for most people, but $10, if you, we knew you're like a high level, like a adamant CD buyer and you're priced in sensitive. They could have just priced it at $10 and offered $2 off coupons to a whole bunch of people. Instead of pricing at $8 for everybody and 20% of people paid 10, they could just price it at 10 for everybody and 80% of people got $2 off, and everyone would've been fine with that.

Peter: That's a great point. As long as you separate out the list price from that discount from the coupon or whatever, then it's okay as long as people have to do something. But when it's just offered. And then when the face value is different for different people at the same time. And you're right, it might sound a little, hypocritical, but, that's the reality that we, haven't yet come to grips with.

Edward: One thing I see on Amazon all the time now, not all the time, but fairly consistently, is I'll go to buy a product and on the main pages listed at one price, after I click through and go onto the product page, there'll be a little box and it says, Hey, click 5% off coupon, click here. Yeah. And I see that regularly. I wonder. If I imagine that's probably personalized that I'm getting, I'm seeing that coupon and other people aren't

Peter: that's right. And that again that's fine. That's totally kosher and people are good with that. It'll be interesting to see it. At what point though, do we graduate from that to just showing different prices and calling a spade a spade?

 I still think we're a long ways away from that.

Edward: Fair enough. This has been fascinating, so think we're agreed that theaters are smart to do this. They should have done it a long time ago. The consumer backlash is going to be negligible. Theaters are just coming up with excuse, that's the word I'm looking for. It's an excuse rather than a reason.

Peter: That's right. They're not willing to do the hard work. They're not willing to figure it out. And given the state that they're in economically, man, they better do some homework. They better find these kinds of revenue opportunities if they're gonna stay afloat. Cuz the old rules do not apply anymore and they get a adapt or die.