The economics of salsa dancing

The economics of salsa dancing?

When a salsa dancer from Europe or the US visits Asia, they often find the price of salsa in the region high, especially when compared to the cost of living in Asia. While the price of the classes, the socials (parties), or festivals in Asia is comparable to if not more than Europe, one would expect it to be much lower given that the cost of living in Asia is lower than Europe. This is true not only for salsa, but also for other Afro-Latin dances genres including bachata, kizomba, and zouk.

Why is that the case though?

Types of organizers within the Latin scene

  • Organizers that generate the majority of their revenue from other events and services, and do not rely on Latin socials as a primary source of income. They must pay for the revenue rental regardless of whether the party is run or not
  • Organizers that does not pay a fixed cost for the venue rental, whom will switch venues when the venues owner changes plan
  • Organizers who treat organizing as a side interest, and do not consider the work hours as an expense

The first type of organizers have parties at their studios, thus the venue rental is a fixed cost and, unlike the others, have the option to lower their price. They may choose not to do so because of the limitation in the venue capacity. If they are near or at maximum capacity at the existing pricing, lowering price will likely results in lower revenue. Their primary consideration would be to make enough revenue to cover the marginal variable costs: the extra electric bill, air conditioning, and staffing.

Another option that the first organizer can employ is to give free studio parties to complement their dance classes. This option is possible for them if the revenue from the classes can easily cover the variable expenses incurred by operating a free party.
The studios’ rent is a fixed cost that is already paid for, and the social dance is a method to engage and support the primary income business, which is the dance classes. The side effect of studio parties is likely the division of the tiny dance scene as dancers from other studios probably do not visit there. In effect, this makes the tiny dance scene more fragmented.

The second type of organizers may or may not operate a studio but does depend on socials as a key source of income, but they pay an hourly rental as opposed to a monthly rent like the first group. As such, they are required to pay the venue owner for the duration of the space usage. The payment can either be in the form of 1) hourly fee for space rental, 2) revenue sharing on the cover charge, or 3) food and drinks sales from attendees.

The critical challenge in Asia for the second type of organizers is the competition from other events and organizers for the same venue. For the regular socials, the supplier side of the supply chain of the salsa industry lies the seller who is the venue and the buyer who is the organizer. The service being offered by the venue owner is the usage of their space. Because the venue owner can provide the space for only one buyer/event at a time, the offering is limited and finite. The number of competing buyers depend upon the location and the price. A salsa organizer is not only competing with other salsa organizers for the venue, but they’d also likely compete with organizers of different music genres, events, or even the venue’s plans. If a salsa organizer wants a venue at an excellent location, with beautiful wooden dance floor and a good sound system, the chances are high that the price to pay to obtain the venue would be high. If they are not able to generate an adequate revenue for the organizer to meet the hourly fee for space rental, or the revenue generated to venue owner from revenue sharing and/or food and drinks is not sufficient, the organizers are left only with the option to find a new venue.

The third type of organizers does not consider Latin social as the primary business as they likely earn their income from non-dancing / non-entertainment sources. Their primary objective would be at least to break even, if not making a few bucks. As such, they most likely would not be interested in paying for an hourly rental fee, but to engage in revenue sharing or bringing attendees to the venue to generate food and drinks sales for the venue. They likely encounter the same challenge as the second group, in that they must make a high enough income for the venue or leave.

Among the three groups of organizers, only the first and third have the option treat the socials as auxiliary revenue, whereas the second cannot. As a result, the second group is more likely to charge a high cover charge to meet the expectation of the venue owners. The first group is likely engaging in studio parties with either a low or no cover charge. The third group falls somewhere in between.

Demand-supply within the Latin scene

On the other side of the supply chain lies the customers. Here, the seller is the organizer and the buyer the dancers. The service being offered is the party. Generally, the market size for all types of Latin dancing is tiny. Take Bangkok for example, in a city of 8 million population, the average number of active dancers is around 100. The Latin dancers make up 0.00125% of the total Bangkok population. From a business angle, it can be said that the existing market is almost non-existent. Considering that most venues would be happy to have a 100 people visiting, a salsa scene with strong community support would be able to obtain a top venue easily. In the majority of Asian cities with salsa community, the community tends to be fragmented with multiple organizers and Latin events split among the three types mentioned previously. The fragmentation drives down the bargaining power against the venue as well as increasing the power of the dancers, thus creating an unbalance with supplies and demand.

As such, the Latin scene in a given city is split among 1) non-studio parties with no or low cover charge in which the dancers are expected to pay for food and drinks that have to be relocated every so often, 2) non-studio parties with high cover charge in a great location with fantastic dance floor and sound system, or 3) a studio party with low or no cover charge. However, from the dancers’ perspectives, it is unreasonable to attend a party with the higher cover charge when there’s the cheaper option available. Yet, if the dancers do not spend enough on food and drinks at the venue, the result of this would be the death of non-studio parties.

From an economics point of view, one way to tackle the lack of demand from the dancers would be to lower the price of either the class or the party which is on par with Europe, although the income is lower than Europe. At the same time, to secure an excellent venue, a high price is required to obtain the space. As such, there has to be either:

  1. a high growth potential of the market to have a low price, or
  2. treat the party as an auxiliary and negligible income/expense to an existing and more lucrative offering called dance classes, or
  3. treat it as a luxury goods and services, which serve a niche market and charge a premium, or
  4.  leave the market entirely.

The first option is a challenge in Asia outside of China and India as the population size per city is significantly lower. With such a small interest percentage in the general population, on top of the cultural differences from Western and Latin culture, and lack of interest in Latin music and culture in the general population, the growth potential in the foreseeable future is limited. Moreover, with limited funding by organizers, gaining interest in Latin music from critical mass is difficult unless there are interest and promotion from mainstream media. That limits the interest group to locals with interest in the Latin music and culture, which is tiny, and expats. These two target groups are what many cities focus on. The challenge with expats is the impermanence, hence the continuously growing and shrinking of the dancer population. Even cities with a large expat base and a Western mindset like Singapore only have people in the low hundreds. Hence, there’s insufficient growth potential in the market because of lack of interest. Lowering price will likely not be able to solve that problem.

The fundamental problem as discussed from the beginning is the market size and the lack of awareness. Ultimately, for the Latin community to grow, there needs to be a collective effort within the scene to build the scene together for a better chance for it to prosper. Otherwise, the scene will likely not change much from what it is today.

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2017-12-29T22:06:32+00:00November 12th, 2017|Categories: Analysis|Tags: , , , , , |0 Comments

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