Filling Seats at a Theater: Estimating the Impact of Posted Prices and Dynamic Discounts

Applying revenue management techniques for the entertainment industries, such as theaters, faces several specific challenges. Many theaters increase their audience and revenues through promotional discounts and pricing strategies based on the quality of the seats. Due to the varying quality of shows, and the high availability of seats, many customers purchase tickets or postpone their purchases in anticipation of future promotion periods and discounts. In order to respond to such purchasing habits, it is vital to understand the underlying process that governs the timing of the customer’s purchases. To this end, we develop a competing proportional hazard framework that models the dynamic effects of an organization’s show and time related pricing decisions on the customer’s propensity to purchase a ticket for a variety of dates and times during a specified timeframe. We test our model on data from a leading performing arts organization located in the Northeast USA, covering theater ticket sales over two seasons. We demonstrate the model’s descriptive capabilities by reviewing the effects of discounts, the timing of the show, the base price of the ticket category, and multiple factors for the sales figures for the fifty-three individual performances. Finally, we define dynamic pricing and discounting strategies to increase the organization’s revenues. For instance, we provide and empirically test our suggestions to identify attractive ticket price tiers for subscribers and occasional buyers over time; and to develop discount decisions that increase the revenues from each performance.