Know Your Own Bone

Clarifying Pricing Practices

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Colleen Dilenschneider made some really important points about misunderstood concepts that lead non-profit organizations to make poor decisions and policies. The “Six Concepts that Visitor-Serving Organizations Confuse at Their Own Risk,” she discusses have subtle distinctions that can be difficult to clarify.

It is somewhat akin to the differences between PR, Marketing and Advertising. Even if you have taken the 101 course in any of these subjects, others around you may use the terms so interchangeably that you may find yourself having to stop and say, “No, that is advertising, not marketing.”

Among the concepts she mentions are Fads vs. Trends, which I had cited her on before; Market research vs. audience research; High-propensity visitors vs. historical visitors and key performance indicators vs. diagnostic metrics.

Personally, I don’t frequently get into regular discussions about visitor propensity or indicators vs. metrics, but they are worth reading about because you may think about issues related to those general terms and she makes some great observations.

What will cause me to keep this post bookmarked for future reference were her observations about Admission Pricing vs. Affordable Access and Discounts vs. Promotions.  The points she makes are great for getting pricing conversations in board and staff meetings re-oriented and properly focused.

In terms of Admission Pricing vs. Affordable Access, she says:

Admission pricing is the cost of admission for folks who visit your organization. It is an intelligently determined price point that contemplates what high-propensity visitors (people who are interested in visiting cultural organizations) are willing to pay in order to take part in your experience…. Admission price is an economically-sound business imperative for many organizations and admission pricing is not an affordable access program if your organization relies on paid admission in some capacity.

Affordable access (that is effective) is generally rather expensive for cultural organizations and it takes real investment that is usually made at least partially possible by gate revenues…When organizations lower their optimal price point in hopes of “being more affordable” or “reaching underserved audiences” they aren’t truly doing either of those things…Successful affordable access programs are targeted so that they truly reach folks who are unable to attend – not people who would generally pay full price but are just looking for a deal. Admission pricing and affordable access are two completely different means of access that play completely different roles in the sustainability of visitor-serving organizations.

Her thoughts on Discounts vs. Promotions run along the same lines:

Discounts are when an organization offers free or reduced admission to broad, undefined audiences for no clearly identifiable reason. Discounts do a lot of pretty terrible things for visitor-serving organizations. Simply, offering discounts devalues your brand….When an organization provides discounts, it often results in five not-so-awesome outcomes that you can read about here.

Promotions offer a targeted benefit for certain audiences for an identifiable reason. The biggest difference between promotions and discounts may be how they are perceived by the market. Promotions celebrate your community. Promotions demonstrate why an organization is offering free or reduced pricing in the communication of the promotion…In the end, one approach is more about an organization’s flailing attempts to hit specific attendance numbers at the expense of its brand and mission (and long-term ability to hit those numbers), and the other is more about your organization’s relationship with target audiences and communities.

As I suggest, the issues covered by these four concepts often come up in organization discussions and the lack of clarity between them often yields ineffective results.

Dilenschneider’s post started me thinking about what other concepts and practices might be confused and in need of clarification. A couple of ideas have come to mind, but I haven’t fully developed them yet.

If anyone has any suggestions or has thought about similarly confusing concepts they have already created distinct definitions for, I would love to hear them.

Stuff To Ponder: Is Too Much Money Being Left On The Table?

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Though I have written about dynamic pricing, I have generally been a little resistant to the idea of implementing that sort of pricing because I feel having a clear and simple pricing is part of an arts organization’s relationship with a community. Or rather, having a complicated one can be a barrier to attendance and also generate a negative association with the organization.

But I have been reading some things recently that make me wonder about that.

JCPenny’s attempt to sell everything at an everyday low price that reflects the value of the product has apparently backfired on them.

According to a piece on MSNBC’s website:

Consumers complain about this constantly. That’s the basis of the Red Tape Chronicles in fact. At its best, the maddening mixture of coupons, rebates, sales and fine print fees can feel like a game. At worst, it’s being cheated. You’d think shoppers would love a chance to buy from a store that doesn’t play these games, the way car buyers (allegedly) like shopping at no-haggle auto dealerships.

[…]

To oversimplify for a moment, here’s Penney’s problem. They told the world that retailers only offer their best prices during crazy sales, and Penney stores would no longer host them. Sensible consumers apparently took that information to heart and decided to simply wait for such sales at other stores. As an added benefit, Penney lowered consumers’ search costs, because they now knew they didn’t need to bother driving to a Penney’s store anymore.

[…]

Shrouding isn’t the only reason Penney’s pricing plan is flawed. The firm is also leaving a lot of money on the table by rejecting a phenomenon known as “price discrimination.” Some people have more money than time, and some have more time than money. Some shoppers don’t mind spending hours to save $20; others would gladly give a store $20 to escape quickly. Smart retailers get money from both. By killing couponing, Penney has eliminated its ability to satisfy price discriminators.

And as others have pointed out, markdowns serve the age-old retailing trick of “anchoring.” For some reason, even very smart consumers feel better paying $60 for something if you initially tell them it costs $100, and then reduce the price.

Right around the same time this article came out, Colleen Dilenschneider on the Know Your Own Bone blog wrote about why offering discounts through services like Groupon is a bad idea for non-profits. The two reasons she gave?

“1) Your community expects more discounts, 2) Perhaps more importantly, your community waits for discounts”

Since MSNBC pretty much confirms what Colleen claims, I started to wonder if maybe arts organizations are fools not to double the prices and then offer 50% off coupons through social media.

Yeah, I know it is cynical and believe me, I still don’t want to get into doing anything resembling this. But I do everyone a disservice if I don’t explore the option.

Are arts organizations being responsible if they leave money on the table by not recognizing some people will pay more for the privilege of getting the transaction over quickly? If you effectively charge what you perceive to be the true value of your product by doubling the price in order to take advantage of consumer inability to pass up a 50% off coupon, are you really cheating your audience? (In other words, intend to sell tickets at $25 by pricing them at $50 and then flooding the market with half off coupons.)

One thing of course, I need to point out is that price does not develop loyalty. You can not develop a relationship with your community if interactions with your organization are based on price. I stated that in the early days of this blog and as Dilenschneider notes this is true even in these days of social media:

“It is far better for your brand and bottom line to have 100 fans who share and interact with your content to create a meaningful relationship, than to have 1,000 fans who never share your message and liked you just for the discount.”

Dilenschneider also points to some data that there are diminishing returns from social media discounts. This may illustrate be where arts organizations and retailers differ. Retailers can offer myriad discounts annually and not suffer, but arts and cultural organizations offer a product valued entirely differently from that of retailers

But lets assume that the current discounting model doesn’t work well for non-profits because it is really designed for the needs of retailers and that a discount offered in an alternative manner might prove more effective. Should we be researching alternative discount structures in order to more effectively generate revenue given that the future of donations and grants looks precarious?

Questions like this get into the core philosophy about the organization’s existence. Is the purpose to preserve and perpetuate the organization so it can continue to do good work? Or was the focus on providing the art in an affordable manner and the inability to do so is a sign that the organization should transition toward closure?