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

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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.

What Do You Sell Online?

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Okay, this entry is more a question for readers than any sort of discussion of issues. Basically, I would like to know how many price levels of tickets do you put on sale online?

When I was working in Hawaii, my colleagues at the other campuses and I put most of our base ticket prices for sale online- Adult, Student/Senior/Military, Under 12 and University Student.

When I arrived at my current job, I noticed only the top level ticket price for each area was listed online even though we offer just about the same discount categories as we did in Hawaii. Thinking it a mistake, I asked my box office manager why that was and she told me the software vendor suggested we only offer the highest level because people would take advantage.

[N.B. From a question I received, I wanted to clarify that this listing was on the purchase screen. When it came time to buy the ticket, they were advised to only let people buy full price tickets and not make the other price levels available. The other ticket prices were advertised both on and off line]

This was not my experience at all in Hawaii or other places I worked which also offered lower ticket prices online. Most of the time people wanted to pay the difference when someone couldn’t make it and they brought a person who didn’t qualify for discounts.

I admit I was a little riled when I heard that the ticket office was given this advice because I think that making people call or walk in to buy discounted tickets places a barrier to entry to many. I felt like this went against everything I have been working toward with my own practices and adovocating this blog.

Not to mention that someone can call and misrepresent their eligibility for discounts over the phone as easily as they can place the order online so you really aren’t preventing people who want to from taking advantage.

It’s not that my ticket office can’t ask that the internet site be set to offer more price levels, I just felt this advice reflected big corporate indifference. And that there was no effort on the company’s part to help venues facilitate the process for their customers.

But as I started to look around, I realized that many performing arts venues only seem to offer the highest level ticket online, even if they don’t use the same vendor we do.

So now my question is, what are people’s experiences and practices putting multiple levels of prices online?

Value Is Not Price

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The Drucker Exchange recently noted that the Cincinnati Reds and Michigan Wolverines teams have started using dynamic pricing, scaling prices based on popularity.

The Reds don’t provide much information about their structure, though they promise the price will never fall below whatever the season ticket holder pays. They set their base pricing at the start of the season per anticipated demand and start implementing the dynamic pricing two weeks out so it probably pays to buy early.

The Wolverines basically set their anticipated pricing from the start ranging from $65 for the Akron game, $10 less than last year, to $195 for the Notre Dame game, $100 more than last year. (And by the way, that is the lowest price tickets. Their top tier tickets for Notre Dame are $500.)

The piece on The Drucker Exchange says the mistake companies often make is to ask what customers value. This is aptly illustrated by the secondary market for those Wolverines games. You can get those $65 Akron tickets for $35 on the secondary market, but those $195 Notre Dame tickets seem to be going for about $319 already. (Single tickets go on sale tomorrow, 8/1)

Peter Drucker lamented how few companies recognize the importance of simply asking themselves what their customers value. “It may be the most important question,” Drucker noted in Management: Tasks, Responsibilities, Practices. “Yet is the one least often asked.”

One reason for this is that companies think they already know. “Value is what they, in their business, define as quality,” Drucker wrote. “But this is almost always the wrong definition.” For example, for a teenage girl, “value in a shoe is high fashion,” while durability and price matter little.

“Another reason why the question ‘What is value to the customer?’ is rarely asked is that the economists think they know the answer: Value is price,” Drucker added. “This is misleading, if not actually the wrong answer.”

For instance, electrical contractors, while famously price-conscious, may prefer one of the most expensive fuse boxes on the market. “To the contractor this line is actually low-priced because it is engineered to be installed fast and by relatively unskilled labor,” he explained.

The ultimate lesson is simple but not easy: “The customer never buys a product,” Drucker wrote. “The customer buys value.”

(My emphasis on that last sentence on the Drucker citation)

There are many intangibles that factor into what people value. Will the Notre Dame game be three times better than Akron? Possibly. By game day in September, there is a fair chance the primary market tickets to the Notre Dame game will be four or five times more expensive than Akron, if not more.

There will be a point where the quality of the actual Notre Dame gameplay can’t be better than that of Akron in proportion to the difference in ticket price.

What people are willing to pay so much more for is the experience of tailgating and attending a potentially great game steeping in the palpable excitement surrounding the long rivalry between the two teams with thousands of others.

I have resistance to dynamic pricing for a number of reasons, many of which have to do with the relationship I feel we are trying to cultivate with our audiences.

The question is, do people really recognize and value that we are making the effort? Is it all pretty much one-sided? Many people don’t really discern between profit and non-profits organizations when making their entertainment decisions.

Are non-profits basically putting themselves at a disadvantage by not using dynamic pricing for shows that clearly will sell out months before the performance date based on a devotion to an audience that has no idea the organization has decided to suffer for their benefit?

There is a need to keep prices low to provide affordable access. If 900 people clearly value attending a performance that they will commit at $25 a ticket between one and three months before the show, do you really owe it to the last 100 people to maintain the $25 rate until they get around to buying tickets?

Or do you owe it to your long suffering staff to try to increase the revenue stream so you can pay them $12/hour instead of $8 by using dynamic pricing?

We aren’t sure about the investment of the community in your organization, but we can be more certain about the investment of your staff.

I am still a little uncertain about dynamic pricing. The issues aren’t as clear as I present them here. However, one issue I don’t generally see people mention in the dynamic pricing conversation is that by not using it you are potentially punishing your staff in the service of an ideal the community may not be aware of much less value.

If customers show they willing to place a higher value on a product, should non-profits acknowledge that by placing a commensurately higher price on it?

Serving The Community, It’s Like Dating

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Continuing with my answers to questions asked by readers, last week Karen asked:

“I’m very interested in how small arts organizations effectively serve their community, particularly in long term collaborations. While I focus on the symphonic and choral space, I’m sure a lot of the wisdom on the topic can be applied broadly.”

Short answer- If I knew that, I would force Drew McManus to make me a partner in his consultancy and we be raking in the money.

The truth is, no one knows because there is no one right answer. Every arts organization is different and the dynamics of each one’s relationship with the community is different. One of choral groups you work with Karen, is associated with a religious entity on a university campus so their goals and target community are quite different from those of symphonies’ with which you work.

Each is going to have a different definition of what effective service means. For some it may mean getting people to attend. For others it might be people paying to attend. Even if the amount of the payment is $5, that small difference will have some significant implications about how the company interacts with the community.

Your question calls attention to the fact there are a lot of arts blogs and articles out there that sing the praises of the idealism of serving the community, but no one really admits that when it comes to the practical aspects they can’t tell you how.

Because we are basically talking about relationships with other people, it is really akin to trying to get advice on how to get someone to love you. There are tons of articles written on the subject every year, but no one has the answer.

The best anyone can ever come up with is “be yourself” and “don’t be a jerk.” The rest is all generalities: be funny, but not overbearing with jokes; get the other person to talk about themselves, but don’t be distant; find common ground, but have different interests that the other person will find intriguing, etc.

In many respects much depends on chemistry, in this case the one you have with your community, not the person you really like.

Everyone knows you don’t want to have your concerts in the slums because the impoverished don’t get invested in classical music— except there is El Sistema.

Why did it work in Venezuela? Can it work here?

Who knows, but there is an example of a long term collaboration. Somehow it endured nearly 40 years with the backing of the Venezuelan government. I suspect it was a few years before it reached the point where the national government became interested in becoming involved.

My advice is to think about who you really want to serve, regardless of whether there is any money in it or grant funding to support it. If you can make it work under those conditions, great. Otherwise, you probably need to compromise and shift your focus a little to those things there is money in.

Don’t fall into the trap of thinking, well if we spend resources on this thing that makes money, we will have the ability to help the people we really want to help. Then you are in a situation where you are cultivating relationships trying to serve community B so that you can serve community A which requires cultivating a different set of relationships.

If you have the time and resources to do that, you can probably swing working to serve community A for no money.

I am not saying that you can’t have varied programming and a wide appeal or that your other activities can’t generate revenue to support your long term collaboration. It is just that a small organization really needs to have a singular focus, otherwise they end up unable to achieve any of their goals effectively. (And I would hazard to guess this might be generally true for many organizations of larger size.)

If you are ready to be in it for the long term, then your collaboration with the community starts with developing relationships. If you decide that you want to really focus on bringing music to kids in a specific school district, you want to have relationships with the teachers, principal, superintendent that you are constantly reinforcing and renewing.

Most importantly, if at all possible, find a way to connect with the families in the district. Not only those with kids in the schools, but those with kids who have graduated and who will potentially be giving birth to those enrolling.

Show up at PTA meetings, participate in conversations on the Common Core standards for arts. Be in a position to be a partner and advocate for the community you have chosen to serve.

Go to Chamber of Commerce and Rotary meetings, talk about the group with which you are partnering, but also just meet people and talk about the weather. Get to know people and get known so that when you are in the paper for something your group has done, people already have a relationship with you from the time you brought that great pie to the potluck last New Year’s Eve.

Not only do you make a great pie, but you are doing good things for the school too. That’s great because I (as the person in your community) have to pay property taxes to support the school even though I don’t have kids. I am still resentful about the taxes, but also a little proud that my community has good schools so at least my taxes aren’t being wasted.

That is sort of my ideal vision of what a long term community partnership might look like. It is easier to do in a small city versus a large one because those relationships and connections with people not directly involved with your organization and the community are easier to create and maintain.

Having a relationship that provides a connection to people not directly involved with your organization or the community you serve is an important element in my mind. The goodwill you generate reinforces the sense of identity and worth for your organization and the community you serve.

Think about communities with strong athletic teams, whether it is college or professional. Whether you go to games or not, you walk into stores, you see branded merchandise for sale, bars have the games on television. If you are a student at the college, you get the sense that the whole community supports you even though you aren’t on a team, just by the benefit of your membership in the group.

Even if you don’t go to the games or have ever set foot on the campus, if you go visiting elsewhere and the people there are cheering for the grudge rivals of your hometown’s school, there is a good chance you will feel a tinge of responsibility to be loyal to your hometown team even if you don’t openly say anything.

I think that is the sign of an organization that has made a connection with the community when a person who has made no conscious effort at investment feels a sense of loyalty and duty to the organization.

Of course, unconscious investment ain’t paying the bills so you are always in the process of trying to convert people to being actively involved. You just don’t know if it will be a concert or a really good pie that tips the balance.