Better To Adjust Price Vs. Discount

Dave Wakeman’s appearance on Angela Meleca’s ARTS Redefined podcast was making the rounds of LinkedIn last week. One section in particular where Wakeman discussed his opposition to discounting caught my attention. (Starting at 27:10, the index in the video is way off for some reason)

Wakeman says people tell stories about themselves –what type of person they are, what value they have in the world. He says discounts do the exact opposite – it removes the value narrative and says you are a commodity and suggests you don’t believe in the value you are offering.

Wakeman recalls one of his marketing professors taught him that for every 1% you discount, you can lose up to 40% of your profit. Wakeman acknowledges it is an extreme example and the typical loss is around 10-11%. He cites additional research on the other side that shows for every 1% you raise your price, you gain 10-11% in profitability.

He says that the first time you discount, you might get good results but then people learn to wait for the discount. The better approach is to just recognize you set the price too high, change the price and continue with that new price.

Without naming names, Meleca gives Wakeman the example of an arts organization that makes all their tickets $11 with the expectation that people will enjoy the experience and come back again at a higher price.

This is clearly a reference to Opera Philadelphia’s  $11 pay what you want campaign that was introduced at the end of August. I suspect the podcast episode must have been recorded around then because Wakeman doesn’t seem aware of this and I am reasonably confident I saw him comment on the story in early September.

I will say that based on Opera Philadelphia reported ticket revenue being generally 13% of their revenue, I don’t necessarily think they were depending on people returning at a much higher price point in the future. Fundraising is probably at the core of their plan to stay in the black.

Interestingly, Wakeman brings up a “not going to name name’s” example of a sports team that did the same thing. He characterizes the belief that people will come back at a higher price as just stupid. He says it is much tougher to raise a price when you have lowered it.

He goes into detail about the approach of just changing the price and how to communicate it in a way that is positive for you. Announcing a whole new block of seats at $20 Vs  20% off ticket price is a more constructive framing. The discount raises questions about the value of the show and how it is selling.

That said, I want to point out you can only do that so much. There were a lot of concerts this past summer where people had purchased tickets at $300 or more several months out only to find them selling at around $50 dollars a couple weeks out from the show. Based on what I saw unfold on regional concert venues this summer, I am pretty sure some of that is attributable to 3rd parties buying up all the tickets, ratcheting the price,  and then trying to unload them when they wouldn’t sell.

Whether it was 3rd parties or the venue themselves, there were a lot of pissed off people making videos and comments on social media because their perception shifted from being smart for getting tickets early to being cheated of the hundreds or thousands of dollars difference between their purchase price and the current sale price.

Wakeman talks about this shift in perceived value in regard to discounting as well. He suggests having a strong data based process in place for price setting so that you have the best chance of creating an accurate price in the first place.

He says pegging it to the actual cost of presenting the show is bad because that often doesn’t align with perceived value.

Once you set the price, don’t be timid or apologize for it – promote it confidently and proudly.

 

Audiences Generally Cut Back On Drinks Before Admission Tickets

As always, Colleen Dilenschneider and the folks at IMPACTS provided some attention worthy data in July regarding perceptions of the value of paying for museum and performing arts tickets. Basically, are the tickets worth it?

One of the things they found is that people expect to pay less for exhibit based and performing arts experiences in 2024 than they did in 2019, There is a lot nuance to this result according the Dilenschneider on her colleagues. First of all, this response is based on what people remember paying for their experience in pre-pandemic 2019. As you might imagine, they note that memory is imprecise and so comparing what they expect to pay this year compared to what they remember paying five years ago isn’t going to provide the most accurate results. In fact, data about what was spent in the first two quarters of 2024 tends to be higher than what they said they planned to spend.

The other thing to know is that people aren’t planning to cut back on admission tickets, but rather the other activities surrounding the central event. What IMPACTS terms off-site spending:

As of Q2 2024, the top area where folks recall spending money in relation to their visit is admission. Still, we do not see that admission costs are a top barrier to attendance to cultural organizations. So, to continue our work as data detectives, we’ll want to observe where other changes have taken place.

[…]

Folks are spending more on parking, admission, and onsite retail, and they are spending less on the other aspects surrounding the cultural experience.

Nowadays, despite rising food costs and restaurant prices, cultural participants plan to spend less (and actually do) on food and beverage. In 2019, performing arts patrons were more likely to grab a dinner before the show and perhaps drinks afterwards. Now, however, the data suggest that patrons may be more likely to only do pre-theater drinks, or perhaps skip the fancy bottle of wine for a single glass or choose a more affordable fast casual option than a Michelin-starred meal. These choices reflect consumers’ decisions to “trade off” or “trade down” when it comes to making their cultural-related spending choices. Fortunately for many cultural organizations, these “trades” thus far seem to primarily affect offsite spending (and indicate less sensitivity to onsite consumer behaviors).

Of course, these results are associated with people who actually made the choice to participate in an experience. A fair part of the article is devoted to a conversation about the general pessimism people in the US especially feel about the economy. Ticket prices are fairly low on the list of cost related barriers to visitation compared to concerns about the economy, prices, inflation, investment, personal finances, etc.

Economics Of Broadway Show Breaking Broadway Formula

Freakanomics did a two part show about how the Broadway play Stereophonic came together. The first part is broadly about the 11 year creative process playwright David Adjmi went through to make the show. The second part focuses a bit more on the economics behind a Broadway show.

If you have been involved with the performing arts for any length of time, you can probably predict the process Adjmi underwent – cobbled together funds from two commissions and a grant, plus had two architects let him live in their house rent free for years while he wrote. He had to put some pressure on Playwrights Horizons to consider the show and the cost of over $1 million was a lot for an off-Broadway production.

But it became a hit based on essentially breaking the formula of Broadway shows – a straight play about music, but not a musical, no stars in the cast, and runs long at 3.25 hours. Apparently it has a strong appeal to men based on the observation the men’s restroom line is longer than the women’s.

There is a lot more to the story than that. The first episode is 70 minutes alone and the second about 55 minutes.

Being the arts management nerd I am, I was even more interested in the second episode which talked about the economics and decisions that were made. Everything from the cost of putting on a show in NY vs. London, who can and how to invest in shows in both cities, what the actors got paid off-Broadway vs. after the move to Broadway, decisions about pricing tickets, and the marketing mix they used.

In terms of the pricing tickets, the producers say they can now get up to $349 for a ticket though they re-evaluate their pricing three times a week, but they started out much lower during previews:

We had preview pricing that was $40, $80, $120 to start, for the month of April. But you have to catch up to it, because now we can get $229 for them. You kind of play a game of chicken with yourself and with your audience. For something like Stereophonic, because it’s an unknown title — obviously it’s getting more well-known — but two, it does not have a major mega-star in it. It has a group of incredible rising stars, but they’re not household names. The way that we get there is by getting people in the door, and really building to that moment.

Thanks to improved audience analytics tools, the producers have changed their marketing mix from what it once was as well:

Oh, it’s almost entirely all digital now. It’s all mobile. It’s all through Meta — it’s all through Instagram, Facebook. We do still take the traditional behavioral banner ads that follow you around the internet. We still do some prints, but not a ton. We have dabbled into television, but we’re taking specific ads. We’re not taking giant flights with multiple spots on Good Morning America or the Today Show, which was always your bread and butter.

[…]

The R.O.I. is much easier to figure out because you can actually track people. Our zip code reporting is way more sophisticated now than it was before, whereas you had to blanket the market with something and then you didn’t see a direct correlation. Now it’s less things, but you can still see how your wraps jump due to specific things of press, like a C.B.S. Sunday Morning piece, or if your stars are on Morning Joe. There are fewer things that give you that pop, but at least you know, “If I’m on Morning Joe, then we’re going to have a good day at the box office.”

If this sort of information interests you and you have the time, I recommend giving the pieces a listen. Host Stephen Dubner says they are working on a longer, more involved series on the economics of making theater so I am going to keep an eye out for that as well.

It’s The Mission, Not The Money That Keeps Them Coming Back

Earlier this month, Colleen Dilenschneider’s team at IMPACTS released some interesting insights about what features of memberships and subscriptions most appeal to different groups. (subscription required)

For instance, people born before 1980 prioritize: free admission, priority access, members only functions, advance notice of upcoming activities, and member subscriber discounts, in that order.

Those born after 1980 prioritize: free admission, belonging to the organization, supporting the organization, supporting the mission/program, and making a positive impact toward the mission.

I immediately jumped to a conclusion that Colleen and team cautioned against. They note that while it appears that younger groups might be focused on mission related benefits, that just may be a result of the fact they haven’t been marketed to for as long as the older generation.

However, consider that a person born before 1980 has a bit more experience being marketed to by cultural organizations. These folks have simply been around longer! Maybe they’ve been a member or subscriber to more cultural organizations!

Either way, when we ask a person who’s been in market longer about their top membership benefits, they may be more likely to think before responding, “What have I been told are the top benefits of membership?” These folks may have more opportunities for recall, while a younger Millennial or adult member of Generation Z may have fewer marketing data points to draw on. They may be better able to answer the question based on their own experiences and what they value rather than what they’ve been told to value as a top membership benefit.

This said, since a younger segment of the population seems drawn to mission related benefits, that is what marketing for them should be oriented toward. Later in the article they show why people motivated by mission related reasons tend to have stronger relationships with organizations than those motivated by transactional benefits.

They list a similar distinction between those identifying as BIPOC and those that don’t. However, they include a caveat that there are a lot of flaws inherent to the limitations of racial self-identification questions on surveys that blur nuance.

From the data they do have, membership benefit priorities for non-Hispanic whites are free admission, priority access, members only functions, supporting the organization, supporting the mission/program.

Priorities for BIPOC identifying are: free admission, belonging to the organization, support of organization, support of mission/program and priority access.

Similar to the generational comparison, they suggest there is a possibility that since many arts organizations have only recently begun to focus on marketing to BIPOC communities, the group has been predominantly getting messaging focused on belonging and other mission driven goals and not transactional benefits.

Colleen and team transition into talking about why mission driven members are better than members driven by transactional benefits. Among the charts they feature which breaks out responses for exhibit (museums, zoos, gardens) and performing arts based organizations, people who are mission driven tend on average to spend more on their membership/subscription than transactionally motivated members. (i.e. purchase a higher tier subscription/membership).

Those motivated by mission related benefits tend to perceive their membership as more valuable than those tranactionally motivated, even though they spent more money than the latter group. And the mission driven folks tend to renew memberships/subscriptions more reliably.

Excitingly, research shows that younger and more diverse members are generally more mission-motivated than members who fit the more traditional profile. The takeaway may be simple: Highlight supporting the organization and its mission as a primary benefit of membership. Not necessarily instead of transaction-based benefits, but alongside them.

At the very least, it may be helpful to stop underestimating the importance of your mission in securing attendance and cultivating supporters. Your mission need not be the kale hidden within the sugary fruit smoothie of discounts.