Price setting for intangible music related products like concert tickets is a critical step in developing an event budgeting plan. If the price is set too low, customers classify the event as product of poor quality and think it is not worth to attend. If the price is set too high, customers won’t be able to afford to attend. In this context, it’s important to determine an appropriate price-quality relationship with the aim to educate customers about the value of the event and to ensure that demand meets supply:
Cost-plus pricing of events: This might bet the most popular method of pricing products. The marketer simply adds a percentage (or margin) to the total cost of the production of the event to reach the break even point and gain a profit.
Market skimming (price skimming): This method is used when demand for tickets far exceeds the venue capacity. Concert promoters can charge very high prices for shows in venues they know will easily sell out. Promoters maximize the profit margin per ticket until demand meets supply and ensure, that there are no empty seats left.
Market penetration: This pricing method is used for events, which have no premium market position. The prices are set low to maximize sales. Market penetration is widely used in highly competitive event markets i.e. touring of a new pop act introducing a debut album. Premium buyers, such as opera visitors have generally more money to spend and don’t expect to pay a cheap price for a high quality event.
Service quality leadership: The events, which use this method, have a high level of actual and perceived quality. Their consumers are willing to pay the highest prices to have the best quality. The highly coveted seats at concerts of A-status artists (like U2 or Alicia Keys) are sold in this premium and super-premium pricing segment.
Professor Larry Robinson from the Ohio State University says in an interview on YouTube:
“Value-based pricing starts with educating customers about the additional value, that they get from your product, that they can’t get from the next best alternative.“ Further he says, he knows about cases, where customers switched to another company/ brand because of increased prices. They recognized, that they can’t get the expected quality from the competitors and returned, now willing to pay a higher price for the product/ service of the company.
References:
Robinson, Larry (2009). How value-based pricing works.
Retrieved July 11, 2011, from:
Beard, Mark & O’Hara, Ben (2006). Music Event & Festival Management.
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