If you have been considering using social coupons to increase attendance at your events and attract new customers, you may want to read a study covered last month in MIT Sloan Management Review (h/t Drucker Exchange) that noted the repercussions of a badly designed deal could last for months.
The authors, V. Kumar and Bharath Rajan tracked three businesses for a year after they started their social coupon campaigns. The three businesses did attract large numbers of new customers with the campaigns, but experienced significant losses during the month they offered their deal, in some cases two or three times their normal net monthly profits.
“Such losses would not have been so serious if the businesses were able to achieve higher revenues and increased profits in future months. However, this was not the case. Despite their best marketing efforts, the three businesses had difficulty retaining most of the new customers who were attracted to the coupon offers. Based on our analysis, it will take the car wash service and ethnic restaurant 15 and 18 months, respectively, to recover from the profit shortfall following the coupon launch; for the beauty salon and spa, the recovery period for the coupon campaign at current business levels was projected at more than 98 months, or eight years.”
Now granted, given that most non-profit arts organizations lose money on many of their events, these facts may hardly be a deterrent to using social coupons. However, arts organizations do seek new audiences. The authors state that basic design of social coupons aren’t really conducive to new customer acquisition, but steps can be take to mitigate the losses of a campaign.
One approach may be to upselling or cross-selling products and services. Many theatres have tiered pricing on their seating so being able to upgrade to center orchestra may seem like a good deal to some attendees. If theatres are trying to attract a younger audience, they may want to cross sell tickets to their edgier space whose ticket prices are comparable to the discount the person is paying.
In other words, a person comes in with a 50% coupon for a $30 ticket and the theatre asks if they would like a ticket for a later date at the other space where the top price is $20 for the same $15 price. This approach helps to retain the person for another performance for what is probably the average ticket revenue at the other space.
Another approach the article suggests is limiting the size of the discount and the conditions under which it may be redeemed. They mention that the restaurant in their study later offered 30% discount on two days a week and reduced their losses to close to zero.
They also suggest only offering the coupon to new customers, but I am personally ambivalent about that. I think that sours your relationship with existing customers. If you have ever seen those cable commercials that offer tons of great channels at a low price –but only to new customers–like me you may have been a little annoyed wondering what benefit you will ever derive for having paid your bill on time for 5 years. To my mind, even if it isn’t the same benefit, existing customers should feel like they are rewarded for loyalty if the new kids are getting some sort of incentive to participate.