Introduction

Broadway productions have embedded themselves as part of New York City’s culture since the early 1800’s. Bright lights, big productions, and over the top theatrics have created an industry full of promise and profitability. In the mid 1950’s, the curtain call came for Hanson Productions as they began their mark on New York’s art and theatre community. Their goal was to further advance the arts of the surrounding area. With this elevation and the growing industry, Hanson has built a company and has accomplished well-known success.

Oscar-winning actors, academy awards for incredible screen plays, and tony awards to top it off, Hanson has reached global success and stapled their place in the theatre trade. This success has helped Hanson drive profit from well-known plays like Wicked, Shrek, Rock of Ages, and Chicago. The success of these stage shows has been instrumental in driving tourism to New York City and have allowed Hanson Productions to expand into new international markets.

Based out of central New York City, this large theatre production company rents several luxurious theatre locations to house the stage shows. Hanson is committed to providing customers with a high class, entertainment experience through their large scale musicals. Their business focuses on the quality of the material they use in their productions and diversification through small details like work ethic and sense material.

This business analysis provides Hanson with a thorough look at its pricing strategy, in regards to its newest production of The Detroit Riots. This case will provide a situation analysis, relevant assumptions, the core problem with alternatives, evaluative criteria, analysis of alternatives, decision and justification, and implementation strategy. These factors contribute to Hanson Productions pricing strategy.

Situation Analysis

Strengths ● Hanson has over 50 years of experience in the Broadway productions industry● Company has over 12 well-known productions currently on and off Broadway and

focuses on the quality of the material produced in each production● Clear set company objective to continue developing arts in urban cities● Joanne Shen has provided concise leadership, offers effective industry skills, and

industry relationships throughout her 12 years at Hanson Productions● Revenue expectations for The Detroit Riots expected to be between $830,000 and $1.03

million per week regardless of the theatre chosen ● Hanson has achieved many honors and awards such as Tony, Oscars, and Academy

Awards

Weaknesses

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● Venue has not been secured for the upcoming production of The Detroit Riots● Tickets prices, opening day, and playwright have not been determined or finalized ● Production costs are expected to be over $13 million compared to the average cost of

$10.66 million (See Appendix 1.1)● Initial marketing materials have not been successful as a “fun night at the theater”● Content of The Detroit Riots is controversial and could be easily misunderstood by the

majority of the audience ● Company is dependant on the role Joanne Shen provides

Opportunities

● Hilton Theatre is willing to invest 10% of total costs in the production● If Democrats win, the ticket sales will likely increase and become more in demand● Democrats leading in the 2008 pre election polls (Newport, Jones, Saad, & Carroll,

2007)● Obama likely to be first black president which favours The Detroit Riots and its

controversial subject matter● Possibility of globalization and penetrate new markets outside of New York City

Threats● Decrease demand and risk of negative brand image for the new production if McCain

and the Republicans win the election ● Possibility of the show being terminated by the theatre owner if profits do not exceed 6

percent of expected total revenue or the minimum of $50,000● Consumer buying power is low, therefore, consumers are reluctant to spend money on

entertainment and leisure, as a result of the 2008 bank recession (See Appendix 1.2) ● 5 other musicals are set to launch in the same timeframe as Hanson’s The Detroit Riots ● Workforce in the Broadway industry has expanded at a much slower pace in recent

years (Famigiletti, P., & Cotte, J., 2010)

Assumptions Applied to Hanson Productions

We can assume that Barack Obama will win the 2008 U.S Presidential election, based on his poll results (See Appendix 1.3), which will reflect positively on the musical, The Detroit Riots, and increase demand.

With the assumption of the increase in demand, based on the 2008 election and the possibility of Barack Obama becoming the first black President , we can predict that The Detroit Riots will exceed the termination clause requirement (based on 6 percent of gross revenue) and fall no less than $50,000 per week, regardless of the theatre chosen.

An assumption that can be made by Hanson Productions is that if the 2008 bank recession follows through to the 2009 markets and shows persistent decrease throughout the year, Hanson will have to re-evaluate their pricing decision and implement more promotions to

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achieve their needed profit. This may also reflect negatively on their brand image due to low attendance and bad critic reviews.

Hanson can assume that in 2009, with Obama leading the election polls, the economy is most likely to improve, as Obama’s leading platform promise was to jumpstart the economy (See Appendix 1.4). This assumption will aid Hanson’s “hot ticket” and high demand for the production of The Detroit Riots. This factor will assist in Hanson’s premium pricing strategy.We can assume that Hanson Productions will be consistent with their ticket prices and not have to change their pricing strategy.

We can also assume that Hanson Productions does not have a contingency plan, other their budgeted funds, in preparation of an irregular event occurring. Although they have insurance, Hanson may have to consider having a back-up venue in case of incidents like fires or water damages. This may also include cancellation of the show due to a strong decrease in the economy resulting in low profitability that does not cover costs.

With five large musical productions set to open in the same timeline as The Detroit Riots, we can assume that Hanson Productions will encounter objections with competition, marketing, advertising, and stimulating consumer awareness.

Core Problem

What ticket pricing scheme and venue should Joanne Shen use for the production of The Detroit Riots to maximum profitability?

Although Hanson Productions faces many obstacles there is one significant core problem that Joanne Shen must decide upon. She needs to finalize the ticket price for her The Detroit Riots in order to achieve maximum profitability, in relation to demand, and secure an appropriate venue. This will provide Hanson an opportunity to recover their costs and the opportunity to reach maximum seat capacity for their 8 weekly showtimes. Without a secured venue, Joanne Shen is unable to predict the reasonable pricing strategy for The Detroit Riots production tickets.

Alternatives

Hanson Productions has five pricing options to consider when pricing their premium priced tickets for their upcoming production of The Detroit Riots. Each pricing method has its own significant advantages and disadvantages for Hanson’s price segmentation. Hanson should consider each pricing strategy in the following alternatives, in order to market their production successfully.

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Alternative 1- The first alternative to consider is a pricing strategy that maintains consistency and provides an increase in price sensitivity. This strategy includes all ticket prices to be fixed, but does not take into consideration the product attributes (seats), time, or bundling. Hanson would create a flat fee ticket price that would not be flexible to change.

Alternative 2- The second alternative would take into consideration the price segmentation strategy of time. Hanson would create a pricing strategy for the eight shows, that is relative to the peak and non-peak showtimes. This generates a variable pricing strategy and produces different ticket prices based on the demand.

Alternative 3- The third alternative would propose Hanson to create a pricing strategy that takes into consideration the capacity and their product attribute. They could construct different price options for the seating levels within the venues. This way they can charge a premium price for premium seats, and an overall variable pricing strategy. A product attribute pricing segmentation would allow Hanson to charge to most premium price levels.

Alternative 4- The fourth alternative would create a product bundling pricing strategy. Hanson could consider creating a bundling option for their tickets and ticket prices, all at a fixed price. This provides the opportunity for Hanson to either charge more, based on demand, or offer a group discount rate with the purchase of tickets in large volume. Product bundling allows for their end customers to buy in bulk and provides the advantage of gaining more capacity for their production.

Alternative 5- The fifth alternative proposes the option of combining both price segmentation strategies of alternative 2, time, and alternative 3, product attribute. This would allow Hanson to create a ticket price that is affected by the peak times and the premium seats of the venue. This pricing strategy would allow Hanson to price based on demand and exclusivity.

These alternatives provide Hanson with several pricing strategies they can use, regardless of the venue Joanne Shen choses. These price segmentations allow Hanson to determine the most appropriate ticket price for their newest production of The Detroit Riots.

Evaluative Criteria

Criteria Criteria QuantifiedTime to Break Even 0.40Level of risk 0.30Long-term profits 0.20Perceived Value 0.10 The time to break even is the most important evaluative criteria because it is critical for re-couperment for all costs Hanson Productions assume in the production. This will provide the most rationale as to what alternative will work best for determining ticket prices for The Detroit Riots. It also estimates the timeframe as to when Hanson can expect an increase in profit and

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can run ticket sales and promotions.

Level of risk is a suitable evaluative criteria because of the significant factors that contribute to the potential success, or non success, of Hanson’s pricing strategy. Level of risk includes everything from the risk of empty seats, risk of bad critic reviews that affect brand image, and the risk of leaving too much money on the table and not maximising profits.

Long-term profits is an appropriate evaluative criteria because it provides stability for Hanson’s newest production. This criteria determines the longevity and long-term success of Hanson’s price segmentation strategy. It also determines how much revenue the production expects to achieve in an expanded amount of time.

Perceived Value is the final evaluative criteria because of Hanson’s premium pricing strategy. Hanson wants their end customers to perceive their newest production as value advantage in comparison to their ticket prices. They do not want to be viewed at a value disadvantage in comparison to the other musicals on Broadway. .

Analysis of Alternatives

Multi Attribute Matrix of Different Pricing Alternatives

Criteria Weighted Value

Alternative 1

Alternative 2

Alternative 3

Alternative 4

Alternative 5

Break Even

.4034 weeks.40*(6) =

2.4

24 weeks.40*(9)=

3.6

32 weeks.40*(7) =

2.8

40 weeks.40*(2)=

0.8

23 weeks.40*(10)=

4

Level of Risk

.30.30*(9) =

2.7.30*(6)=

1.8.30*(4) =

1.2.30*(2)=

0.6.30*(5)=

1.5

Profit .20$389,260.20*(3)=

0.6

$538,474.20*(9) =

1.8

$404,046.20*(7) =

1.4

$328,373.20*(2)=

0.4

$565,997.20*(10)=

2

Perceived value

.10.10*(9)=

0.9.10*(6)=

0.6.10*(6)=

0.6.10*(7)=

0.7.10*(5)=

0.5

Total 1.00 6.6 7.8 6.0 2.6 8.0

This multi-attribute matrix displays each evaluative criteria in comparison to the five alternatives.

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Alternative 1 - Fixed PricingAdvantage: Best perceived value, fewest amount of risksDisadvantage: Low long-term profits, 34 weeks to break-even

Alternative 2 - Price Segmenting based on TimeAdvantages: 24 weeks to break-even, high long-term profits Disadvantages: Medium level of risk, value disadvantage

Alternative 3 - Price Segmenting based on Product Attribute (seats)Advantages: Good long-term profit, break-even time is averageDisadvantages: High level of risk, perceived value equivalent to competitors

Alternative 4 - Product BundlingAdvantages: Good perceived value for purchases in volumeDisadvantages: Long break-even, low long-term profit levels, high level of risk

Alternative 5 - Price Segmenting based on Time and Value of SeatAdvantages: Shortest break-even, highest long-term profitDisadvantages: weak perceived value, fairly risky

Decision and Justification

The best alternative for Hanson Productions is alternative 5. We believe that Hilton is the best venue option for Hanson’s The Detroit Riots. Although Hilton proposed an investment offer of 10 percent of production fees, we suggest that Hanson respectfully decline the investment offer from Hilton and secure the venue for their upcoming production. In order for Hanson to achieve maximum profitability for the venue Joanne Shen has chosen, setting ticket prices based on the time and product attribute would lead to the most amount of profit. This pricing strategy was chosen for the following reasons (See Appendix 1.6):

● Hilton has largest seating capacity of 1,813 ● 47.6% of seating capacity is Box and Orchestra “premium” seats● 25 weeks to break-even at 98% capacity● $1,524,712 in revenue per week● $525,416 in weekly profits after they break-even● In the zone of indifference (See Appendix 1.7)● Favourable perceived value to customer ● Tickets will be in high demand with the Democrats likely to take over office● Creates exclusivity and “hot ticket” item● Subject material will help stimulate demand with Barack Obama about to become

President

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● Pricing strategy and venue align with Joanne Shen’s vision and intended revenue

Alternative 5 provides Joanne Shen and Hanson Productions with a premium pricing strategy for the suggested venue of Hilton Theatre to maximize their profitability.

Implementation

By Quarter Implementation Plan

Steps What? Who? When? Why? Where?

1Signing contract with Hilton to secure venue

Hanson Productions

Q4 2008-Before November 30

To secure location of The Detroit Riots

Hilton Theatre

2 Finalizing the production of The Detroit Riots

Joanne Shen and writers

Q4 2008- Before December 15

To begin production and set building

Hanson Productions

3 Determine ticket prices for production

Joanne Shen Q4 2008- Before December 28

To forecast sales

Hanson Productions

4 Determining opening day

Joanne Shen and the producers of The Detroit Riots

Q4 2008- Before December 31

To begin marketing for The Detroit Riots

Hilton Theatre

5 Reposition marketing and brand strategy for The Detroit Riots

Joanne Shen and marketing team

Q4 2008-Before December 31

Position production to reach desired target market

Hanson Productions

6 Marketing Materials

Joanne Shen and Hanson’s marketing team

Q1 2009- Before January 10

To create awareness and demand for the new production

Billboards, Commercials, Advertisements,Flyers

7 Launch of “Early Bird” ticket sale

Hilton Theatre Q1 2009- February 15

To create exclusivity

Online promotion event

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8 Show Launch Hanson Productions

Q1 2009-March 6

To begin making money

Hilton Theatre

9 Measurement ofBreak-even

Hanson Productions

Q3 2009Week of August 28

Profits equal fixed costs

Hilton Theatre

10 Reduce Ticket Price

Hanson Productions

Q3 2009-September 1

In order to keep a high demand

Hilton Theatre

11 Maintain Production

Hanson Productions

Q3 2009-September 1

To ensure high demand

Through promotions, advertising, and marketing

12 Globalize Hanson Productions

Q4 2009-October 30

To reach new markets outside of New York City

Los Angeles, Chicago,Toronto,London, U.K

This implementation schedule provides Hanson details regarding the timeframe it will take to achieve every step of the The Detroit Riots production.

AppendixFigure 1.1

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(The Producer’s Perspective, 2012)

Figure 1.2

(Deveraux, 2012)

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Figure ??

(Broadway World, 2016)

Figure 1.3

(U.S. Politics & Policy, 2008)

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Figure 1.4

“We will devote $50 billion to jumpstarting the economy, helping economic growth, and preventing another one million jobs from being lost. This will include assistance to states and localities to prevent them from having to cut their vital services like education, healthcare, and infrastructure.” (2008 Democratic Party Platform, 2008)

Figure 1.5

Multi Attribute Matrix of Production Theatres

Criteria Weighted Value Hilton St. James Longacre

Percent of Premium Seats

.35 .35*(8) =2.8

.35*(7) =2.45

.35*(7) =2.45

Weekly costs per seat

.30 .30*(6) =1.8

.30*(8) =2.4

.30*(3) =0.9

Capacity.25 .25*(10) =

2.5.25*(8) =

2.25*(5) =

1.25

Level of Risk.10 .10*(6) =

0.6.10*(7) =

0.7.10*(6) =

0.6

Total 1.00 7.7 7.55 5.2

Figure 1.6

Please refer to the Excel document that Remi Robichaud uploaded through Turnitin. Each tab displays the three venues, each break-even time, the scheduled royalty fees, rent, different capacity percentages, etc.

Figure 1.7

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Comparing the attendance to the price for the 10 best musicals on broadway versus our production.

References

Broadway World. (2016, April 4) Broadway Grosses - Week Ending 4/3/2016. Retrieved April 10, 2016, from http://www.broadwayworld.com/grosses.cfm

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Devereaux, J. (2012, November 6). How Federal Reserve interest rates affects your buying power. The Economic Title. Retrieved from http://theeconomicworld.com/federal-reserve-interest-rates-affects-buying-power/

Famiglietti, P., & Cotte, J. (2010, May 20). Hanson Production: Pricing For Opening Day. Richard Ivey School of Business, 1-14.

Newport, F., Jones, J. M., Saad, L., & Carroll, J. (2007, October 23). Gallup Election Review: October 2007. GALLUP. Retrieved from http://www.gallup.com/poll/102277/gallup-election-review-october-2007.aspx

The Producer's Perspective. What's the average cost of producing a Broadway show?. (2012, June 7). Retrieved April 10, 2016, from https://www.theproducersperspective.com/my_weblog/2012/06/whats-the-average-cost-of-putting-on-a-broadway-show.htm

U.S. Politics & Policy. (2008, November 2). Obama Leads McCain 52% to 46% in Campaign’s Final Days. Pew Research Center. Retrieved April 10, 2016, from http://www.people-press.org/2008/11/02/obama-leads-mccain-52-to-46-in-campaigns-final-days/

2008 Democratic Party Platform. (2008, August 25). RENEWING AMERICA'S PROMISE. The American Presidency Project. Retrieved April 14, 2016, from http://www.presidency.ucsb.edu/ws/?pid=78283

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