Failed Price Segmentation (Dynamic Pricing)

According to an article in The Mercury, Village Cinemas in Australia is testing dynamic pricing, and it’s not going well. It has implemented a $1 increase in ticket prices and has increased prices on many concessions after 5 p.m. on Fridays and Saturdays, the busiest times for the movie theaters. Many moviegoers are complaining on social media, and this article has increased awareness and dissatisfaction. What did Village Cinemas do wrong?

From a price segmentation point of view, the idea is spot on. People who go to the movies on Friday or Saturday night likely have a higher willingness to pay than people who go at other times—and the movie theater should try to capture it. However, its implementation could have been improved.

An internal memo from the cinema was shared on Reddit. If a customer asks about the new pricing, employees should say, “Village Cinemas have commenced a pilot investigating dynamic pricing models at different times at selected sites across the summer period. Village Cinemas is committed to provide affordable cinema options through our Vrewards offers and discounts, promotional pricing and tailored screening programs.”

OUCH! Imagine someone said that to you. Sounds like a profit grab, and it will make anyone who hears it mad, obviously.

What should Village Cinemas have done? I’ve written about this before, but there is only one reason people will accept a price increase: Your costs went up. If it is going to increase prices, it should say it’s because costs went up. “We haven’t had a price increase for a year and we’ve been absorbing the increased costs. We didn’t have a choice.” That sounds so much nicer.

But that doesn’t address the “dynamic pricing” goal. For that, Village Cinemas should have a single list price and offer a discount for buyers who come during off-peak times. Don’t talk about it as dynamic pricing, like Uber, where we charge more when demand is higher. Instead say: “We want to offer a discount during our slow times to incentivize people to come then.”

This could be implemented in two distinct steps or even all at once. Imagine someone asks, “Why is popcorn more expensive now on Friday nights?” The answer: “Our costs went up so we had to raise prices, but we are trying to attract moviegoers during our off-peak times so we started offering an off-peak discount.”

People hate price increases. People hate being cheated. Yet pricing is so powerful. With power comes responsibility. Use it wisely.