In most of the consumer markets, pricing is guided by a supply – demand fit. Price a product too high and there’ll be less demand, price it too low and you’ll miss out on potential profits (of course, there are lots of exceptions to this too). Pricing is therefore more of finding that fit as opposed to a perfect science.
Last weekend, I went to watch ‘Wake up Sid’ at a nearby theater. For a Saturday night show, the theater was reasonably crowded and I would have expected it to be more crowded. On my drive home, I started wondering – why is it that theaters follow a fixed price model ? For instance, lets say a ticket costs Rs 250/-. You pay the same price no matter if you watch the movie first day first show or 3 weeks later (assuming its still running). The only price variations theaters offer (in the US) are for students, senior citizens and matinee shows. That just doesnt make sense.
Seats in a movie theater are ‘perishable’ inventory. What I mean by that is all the unsold tickets for a particular show translate to unsold inventory that is wasted – meaning wasted potential revenue. Its just like airline tickets. If a flight is not full, all the unused seats mean wasted revenue for the airline. Ditto for hotel rooms. So, while hotels and airlines offer incentives like last minute deals and sell through other opaque channels like Priceline etc., why dont movie theaters do something similar ? One might argue that last minute opaque selling for a movie theater is difficult since the actual unsold inventory can only be found out after they have sold tickets to a particular show. So, the opaque selling has to be a truly last minute, real time channel to meet the unique constraints of movie theaters.
If opaque selling is not a viable option, movie theaters should at least consider gradually decreasing the ticket prices for each subsequent week that the movie is aired. But if customers knew that movie ticket prices were to drop in subsequent weeks, why would they watch a movie first day / first week ? Wouldnt everyone wait just for the subsequent weeks to watch it ? Well, the answer is no. For two reasons:
1) just like die hard apple fans want the latest gadget as soon as Apple launches them, there will be movie fanatics who want to watch as soon as its released
2) In this scenario, you also throw in a dynamic pricing element. So, for instance, you keep it uncertain whether there will be price drop in the subsequent weeks or not. For a super hit movie like Harry Potter / Batman etc., it might not make sense for the theater to drop the price – there will be hordes of moviegoers who would pay the full price to watch the movie in the subsequent 2-3 weeks as well. Its for the other movies that you are most likely going to have unsold inventory that you try to price dynamically.
There might be aspects of this that might need more research, but just jotting down my thoughts as they flow. Let me know what you think.