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Handling the Big Gun: Strategies to Return Higher Revenue Yield
If you’re responsible for setting ticket prices for your organization, chances are that you agonize and sweat over the task. Price – as any professional marketer knows - is “the big gun.�
As a purely practical matter, ticket pricing drives revenue budgets, at least on the earned income side of the budget. Since price is a strategic variable, little adjustments yield big consequences. Without a doubt, smart pricing matters. But setting prices is only half of the yield equation.
After you set prices, you’ve got to manage revenue yield.
Unless you set one price, and then sell only at that price, ticket price is an imaginary number. This means no subscription discounts, no promotions, no two-fers, no pricing set to reflect a scaled seating plan, and no advance purchase reward, or day-of-show up-charge.
What most marketers create is not a normative price, but a price array. That price array – and the subsequent management and enforcement of the array policies – returns a revenue yield.
This semantic distinction is important. Price is what you plan to sell at in the beginning. Yield is what you actually wind up getting. As we all know, when it comes to forecast price versus actual yield, there is “many a slip ‘twixt the cup and the lip.�
Most marketers construct their pricing strategies so that the array returns a desired forecast average. In the beginning, when prices are set, the forecast yield is an average price that is weighted by the number of tickets estimated to be sold at each point in the array.
But, unless pricing policies 1) are set in stone, 2) accurately reflect planned promotions and discounts, 3) reflect an uncanny prescience about how much inventory will sell at what price point, and 4) are stringently enforced, your actual yield is going to be different from your forecast yield.
If you find yourself holding a fire sale to get an audience for a tough sale, your actual yield is going to be much less than you forecasted. An important point We're not talking about your gross sales number being lower - though that is also the case - we're talking about the per ticket yield. That is the number you must track and manage over time in order to master yield management.
Experienced marketers know that revenue budgets erode between forecast price and actual yield. Finance officers quickly learn that ticket sales budgets – if they’re going to approximate reality – ought to be adjusted downward from array averages. Over the course of a year, the best-laid plans go by the wayside. Shows tank. Marketers run promotions to capture the revenue they can, believing that lowering prices might just boost sales.
What usually happens here? Finance officers, working with their marketing colleagues employ experience estimating to create final revenue budgets. Sometimes, but not nearly often enough, these downward adjustments come closer to forecasting what will actually occur, but only because they are downward adjustments. Discount-driven erosion is, sadly, almost a sure thing these days.
As a very smart financial colleague of mine used to say, “I might as well have used a Ouija board to do this work.� He was frustrated and I didn’t blame him.
At the Roan Group, we believe that vigorous management of revenue yield is a critical competency for marketers. Marketing executives ought to track yield returns on a daily basis, if they want to return the best possible yield for their organizations.
Paying attention pays off.
Mark Twain once quipped, “Some people advise that you should never put all your eggs in one basket. Well, I put all my eggs in one basket. Then I watch that basket!�
That’s how we approach yield management. “Watch that basket.�
When it comes to returning a required revenue yield, promotions are Public Enemy Number One. They are the principal cause of yield erosion in the performing arts industry.
Ask yourself this: Will a lower price compel an already-apathetic or actively uninterested prospect to buy something? What’s more likely is that late buyers are likely to enjoy rewards for buying late. Every time a promotion comes along, the late buyer re-learns that waiting pays off. But, I digress. This is another blog subject.
We admit that we are suspicious about the effectiveness of promotions, but we recognize that sometimes they’re necessary to build attention and awareness for an event. Often, they’re an excuse for an organization to pay attention to a tanking event. We suspect that many times it’s not the price break that’s creating sales, it’s the attention capital being expended toward actively selling. But since sales happen as a result of the promotion, promotions re-occur.
Since promotions seem to be a necessary evil – or at least they are perceived that way by many marketers - we advise that our clients treat promotional discounts differently in order to be more effective in managing yield.
Ticket discounts are typically treated as foregone revenue. As such, the money foregone just disappears into the ether. Since the foregone revenue isn’t accounted for, it’s not tracked. Organizations don’t create systems for ongoing learning about the costs and returns of promotions, nor the cost and returns of other pricing strategies. We think that there is a very big missed opportunity here.
The Roan Group advises its clients to adopt a very different strategy. Treat discounts as an expense item. What this means is effectively creating an expense line item in both institutional and event budgets for discounts.
Why create this extra work?
Most organizations are much better at accounting for expenses than they are in forecasting revenues. Forecasting methodologies are not nearly so advanced as are accounting strategies. Another reason is that organizations don’t pay attention to what they don’t measure. Do you know what the sum of foregone revenue was, due to promotions? I doubt it.
By creating a budget line for discounts and promotions, marketers force themselves to bring intention, discipline, and mindfulness to discounting. One literally decides to spend a certain amount to attract further sales. This strategy enables marketing managers to measure cost-per-dollar-captured.
Discounts can be added to costs of advertising and operationalizing promotions. These sums will more accurately reflect the real cost and/or benefit of running promotions. Over time, the organization learns and makes better decisions about when, where, and why the promotion or discounting trigger should be pulled.
The more important reason to adopt this strategy is simple. It puts a mechanism in place that ups a marketer’s odds of returning a higher revenue yield across a whole season. It compels a marketer to keep a running tally of the actual yield being returned. It helps build useful knowledge and experience that can be put to use in next year’s pricing exercise. Most importantly, it reduces the likelihood of revenue budget shortfalls and the likely deficits that occur as a result.
Posted on April 13, 2006 11:35 AM | Permalink
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