The reception sots are the only costs that can be meaningfully allocated as a cost per audience member (all other costs are assumed to fixed costs). The SO concert will appeal to lovers Of popular classics while the NH concert will have more appeal to ‘serious’ classical music lovers and those who prefer more contemporary and potentially dissonant (atonal) compositions. Howard, the orchestra box-office and marketing manager has provided you with profiles of four representative customer groups and their willingness to pay for the two types of concert. Some of the orchestra’s patrons are the
Wolfgang Amadeus Mozart lovers or as Howard calls them, ‘Whams’. Whams have a strong demand for “light” classical programs and place a low value on most music composed after 1900. Another identifiable group of patrons are the ‘Melody Lovers’, who like popular classics but are likely to give more contemporary composers such as Stravinsky a try. A third category of patrons are the ‘Boomers’, viewed perhaps somewhat stereotypically as aging professionals who like going out often, but are less fussy when it comes to the actual content of the entertainment. The fourth and last group of preventative patrons is what Howard calls the ‘Sophisticates’.
This group is on average more knowledgeable about contemporary classical music and includes musicians or consumers who have spent some time studying or playing music. Table 1 below summarizes the average reservation prices (maximum willingness to pay) for each type of patron for each type of concert. Patron type WHAMS Melody lovers Boomers Sophisticates Table 1 Reservation price (willingness to pay) for a concert ticket (including pre-performance reception) by concert content Solid Gold New Horizons $90. 00 $10. 00 $80. 00 40. 00 $50. 00 Howard wants your suggestions about how to price these two concerts.
He is waiting for estimates of the per-person cost of the pre-concert receptions but has asked thou proceed in the meantime to evaluate the revenue implications of various price alternatives (independent of all cost issues). He currently has no data on the distribution of potential audience members across the four patron types shown in table 1 thus he has ;k Associate Professor, School of Business and Economics, Wilfred Laurie University. Professor Morrison prepared this exercise for MBA students as art of an integrated class discussion of pricing problems and strategies. @ W.
Morrison 2015 requested thou assume a uniform distribution of patron types for now. That is, for every 100 randomly drawn potential audience members, we expect there to be 25 people from each of the four patron types. Question 1: Based on the orchestra’s tradition of charging one ticket price for all seats at a concert, what ticket price should it charge for each concert separately? Howard is of the opinion that it would be better to replace individual concert tickets with a single price for admission to both concerts; e says “offer them an all-or-nothing deal’ and they will buy the bundle! Howard suggests calling the bundled concert series ‘Classics and Beyond’. Can the orchestra generate more revenue this way given what we currently know about patron types? Hint: Make your calculations based on 100 audience members with 25 individuals in each patron type. 2. New Information Howard calls you with new information from a marketing survey. The surrey provides more accurate information about willingness-to-pay by patron type and about the distribution of patron types as shown below in tables 2 and 3. Whams Table 2 New Reservation prices for concert + reception based on the latest market survey data. 60. 00 Table 3 Percentage of customer base 25 30 20 Question 2: Howard now asks that you reevaluate questions 1 and 2 using this new information. He also wants to consider offering a choice between the bundled price for ‘Classics and Beyond’ and individual concert prices – is this a good idea? O W. Morrison 2015 3. Factoring in costs The cost estimates for the pre-concert receptions have come in and are $30 and $25 (per audience member) for ‘Solid Gold’ and ‘New Horizons’ respectively. Question 3: Now the objective is to maximize profits rather than revenues.
Use the cost information to calculate the best individual prices to charge, the best pure bundle price and the best mixed bundling strategy. Which do you recommend? 4. Going digital The orchestra has recorded and produced a digital musical file featuring performances from both the Solid Gold and the New Horizons repertoire. Table 4 shows a schedule of willingness-to-pay for the digital music file by individuals in representative (2-person) households. Households can still be identified by patron-type based on either past concert attendances or their dated preferences in the marketing survey.