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Info You Can Use: When It Is Okay To Punish Your Customers

A couple weeks ago I wrote a post in which I decried the practice of many companies who offer better rates to new customers but provide no reward to long time customers.

Right on cue the next day, MIT’s Sloan Review published a piece that analyzes the transactional relationships people have with different types of business and discusses which can get away with treating long term customers poorly.

They acknowledge the fact that it can often be more costly to find new customers than to retain the ones you have, but note this is not true for all types of business. They use examples of cable and cell phone companies who provide services that are difficult to change versus a highly variable situation where someone may prefer to shop at Lowe’s, but will often purchase from Home Depot because it is move convenient to the drive home.

Lowe’s and Home Depot have to constantly work to retain customers and attract new ones while cable and cell phone companies can get away with raising rates mid-contract. The article authors say even if you are getting an offer to buy a new phone at a discount from your current service provider, it isn’t as sweet a deal as a new buyer is being offered.

Despite using the common terminology of “subscriber,” performing arts organizations don’t have the same luxury to treat current customers poorly that cable and cell phone companies do. I am sure it is no revelation that performing arts organizations operate in a far more competitive environment.

While depressing to contemplate, it was interesting to read the rationale that punishing customers makes good business sense.

Some customers are worth more than others and some customers are a greater drag on resources than others. Even if you don’t act on it, cultivating the ability to identify what policies are causing you to lose money can be valuable.

There might be some good lessons for arts organizations here. For example, some banks have started charging people to use lobby services and for receiving statements in the mail and made using ATM and receiving statements electronically less expensive because it costs more to maintain a physical presence and pay people.

Perhaps performing arts groups should make it more expensive to buy tickets in person versus online, rather than vice versa, as is the case in many places these days.

On the balance sheet, the answer is clear. However, since cultivating relationships are often viewed as the most important function arts organizations can fulfill for their community, perhaps it is better not to provide disincentives to personal contact.

But is that relationship something your customers value or is it something you have decided they value?

You should know the answer to this because if they do value good relationships and service, that is more expensive than just having someone at a desk. The training and retention of staff who provide good service and the database to support them requires a greater investment than just having someone available. If people don’t really value personal service, then maybe it is wiser to push them toward online ticketing and reduce ticket office staffing.

So here is the conclusion the authors came to:

“Specifically, we discovered that, most of the time, rewarding and acquiring new customers creates the most value. Under select circumstances, however, attention should shift to the retention of existing high-value customers….In markets that have a high degree of both flexibility and value concentration, companies should focus on rewarding their own customers — in particular, their best customers.”

The examples they use of high flexibility and value concentration is retail shopping, rental cars and airlines where people have many options to choose from and return customers will often spend greater amounts than just casual shoppers. They suggest reward programs for high frequency customers.

I translate that over to the arts as trying retain and reward subscribers and donors. The arts already acknowledge that these groups are high value individuals and need to be provided preferential treatment. So we have been doing something right all along!

Except that the authors don’t really address the question of what to do when your customer base is aging out. The article really just deals with optimizing your income from customers based on where your product/service falls on the continuum of flexibility and value.

There is an assumption that you have a product for which there is a demand. They address the question of how to treat your customers when you get them, not necessarily how to get them.

It is encouraging that the article validates the basic model many arts organizations use with their customers. The challenge that is still before us is offering a product people want and an rewards program that they value.

2 Responses to Info You Can Use: When It Is Okay To Punish Your Customers

  1. Ann Coston Neff August 10, 2013 at 5:26 pm #

    Hi, just found your blog today — good stuff. You mentioned the problem of the customers aging out. I am a senior volunteer at the Atlanta Shakespeare Tavern (http://www.shakespearetavern.com/), where half the 800-900 volunteers are under 25. Many begin volunteering with school groups in middle or high school, and some in service fraternities in college, in addition to families who volunteer. By volunteering, kids become familiar with the theatre and theatre etiquette, and later come on their own. Also, patrons see diverse young people there (not just grey haired folk like me) and feel comfortable. We see a lot of paying patrons who used to volunteer, but can now afford to buy tickets and take it easy.

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