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

May 29, 2012

by:

Joe Patti

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?

Audience Relations, Business Models, Info You Can Use, Marketing/PR

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Still More On Crowdfunding Start Up Arts Orgs

May 23, 2012

by:

Joe Patti

If you have been reading my blog regularly over the last few months, you know I have been keeping an eye on the possibility of the crowd funding elements of the recently passed JOBS Act replacing non profit status as a viable method of creating and sustaining an arts organization.

If you haven’t been reading that long, well harken back to my original musings on the subject as well as some more recent musings with links to information on the implications of the law as passed.

Hat tip to Charity Lawyer Blog’s Ellis Carter (whom I have previously incorrectly identified as male. Sorry about that Ellis) for her link to a piece on Startup Company Law Blog about the problems with the law.

Author Joe Wallin confirms many of the general suspicions I had about the costs of compliance probably being overly burdensome given the $1 million limit.

One thing that surprised me was that the law actually prohibits start ups from the “do it yourself” approach which I have always assumed to be a hallmark of start ups.

3) The Law Forces Companies To Use Intermediaries

The law forces startups to use intermediaries to raise the funds. This is fundamentally different from what typically happens with startups. Most startups raise funds without the help of intermediaries. In fact, this is the prevailing norm for startup companies. The typical advice to a startup is–don’t use an intermediary! Founders, do it yourself!   But here the law forces companies into the arms of either registered broker-dealers or registered funding portals. These entities are subject to numerous requirements, and their compliance with those requirements will make the process much more difficult and costly for companies.

Maybe arts organizations with their bare bones mentality about providing a product might make it work within the restriction, but the whole point of pursuing an alternative to the non profit business model is to adopt an alternative approach and mindset about providing cultural experiences. (a.k.a. ramen isn’t a default food group for artists.) Though it will probably bring it own attendant problems, success might be measured by how diversely arts and cultural organizations manifest after phasing away from non-profit status.

At the end of his post, Wallin suggests Congress go back and make some changes to the law to allow start ups to proliferate more easily. I am sure there is still plenty of opportunity for successful crowd funded start ups within the law. If it isn’t changed before that, perhaps the successes will lend credence to the idea this can be a viable path for entrepreneurs, moreso with a few changes.

Business Models, Fundraising, Info You Can Use, Legal Topics, New Initiatives, State of the Arts

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What Signals Are You Reading?

May 22, 2012

by:

Joe Patti

There is an old rule of thumb about judging the cleanliness of a restaurant’s kitchen by the cleanliness of the restrooms. I actually used this example this past weekend when discussing an experience in what I took for a high end restaurant in another country…until I visited the restrooms.

Adam Davidson, heard often on NPR’s Planet Money had a piece in the NY Times on how people use “signaling” to make decisions.

He gives a couple examples of how people use signaling. He spends more money on a brand of baby formula even knowing there probably isn’t too much a difference between it and a cheaper competitor based on the labeling. A friend bought a more expensive chandelier from Amazon because he felt uneasily that the $100 difference in price meant the cheaper merchant cut corners.

He also cites Pepsi’s decision to pay Nicki Minaj to be a spokesperson:

“Even for consumers who don’t listen to her music or trust her expertise in the carbonated-beverage sector, the mere act of paying for a pop-star endorser sends a subconscious signal that their product is so successful that, well, they can afford Nicki Minaj. It also signals that the company is too heavily invested to turn out a shoddy product. For many, that’s a reason to choose the soda over the generic stuff.”

The example that really got me thinking was about bus owners in Haiti who paint their buses with all sorts of images at great expense.

“Yet bus owners feel the need to get a fresh paint job once or twice each year because few people will pay to ride an unpainted bus. The extravagant decorations suggest that an owner cares about his business — that he spends money maintaining his engines, tires and brakes (no small matter in a country with steep mountains and lousy roads). My hunch, however, is that many owners, short of cash, are likely to invest in a visible new paint job over invisible brake maintenance. With no external authority — government inspectors or consumer-watchdogs or online consumer forums — there’s no way to know if the signal is accurate.”

The reason this caught my eye is that, like the bus owners in Haiti, many arts organizations don’t have the money to fully maintain their buildings and have to make decisions about what to invest in to attract and retain audiences. I wondered if many arts organizations are fully cognizant of what cues audiences were deriving from their experience. Perhaps too much focus is being paid to the wrong things.

There are some aspects whose signals we can be fairly certain about. The surroundings and what others are wearing can often determine whether people feel intimidated or perfectly comfortable. We can draw some direct lines between the experience people have purchasing tickets, getting information, finding parking, being greeted by employees, etc., and what people’s perception of us might be.

But it is more difficult to know whether our ticket prices, quality and content of our brochures and websites are telling people our work is too high or low quality for their tastes. Do they think the performance will be incomprehensibly high culture or too amateurish for them?

Do we need to fix up the entryway because its condition signals that we don’t invest a lot of attention in the quality of our work? Or does it add to a funky-cool ambiance that we didn’t really knew appealed to our audiences and we should invest the renovation money in our work?

Did our sincere attempt at moving a water fountain to be more convenient to the restrooms get interpreted as a blatant ploy to increase traffic at the snack bar?

Many factors which contribute to signalling are unconsciously received so surveying people about all the elements contributing to their impression of you is a fruitless pursuit.

Not to mention, the same element can signal one person’s trash and another’s treasure. Pepsi may gain prestige by engaging Nicki Minaj, but her fans may see it as a harbinger of disappointment since she will have to modulate her behavior to remain a spokesperson.

Audience Relations, Marketing/PR

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What Would Happen To Wine If Everyone Wanted Free Grape Juice

May 21, 2012

by:

Joe Patti

Hat tip to Adam Thurman for distributing the link to an interesting piece about devaluing artistic content by Todd Henry. Henry wonders about the fate of artists when increasingly the view seems to be that content should be free.

“This means that artists have to shift their business models to give away (or make available for cheap) their main art, and instead focus on selling scarce peripherals. Authors sell lectures. No longer able to make a living from recording, bands sell tickets to concerts and survive off of merchandise sales. Content creators give away their content in order to gain eyeballs and ears,…

The problem is…some people are just great at being artists. They aren’t great at business models, distribution or line extensions. They just want to make great, valuable art and sell it at a fair price. What do these people do?
[…]

Would we have had The Beatles if they’d been told, “Never mind spending years in the studio crafting your records. Those things are just promotional fodder to sell these snazzy Sgt. Pepper t-shirts and posters. You should focus instead on how you’re going to monetize.”

I am currently exploring bringing a show, which heretofore has only existed on YouTube, to our stage. The creative team is actually excited that they might not have to cover most of their expenses out of pocket for once.

Until Todd Henry pointed out that increasingly it is ancillary products rather than the artistic product supporting the creation, it never occurred to me what a bizarre situation it is. These guys from the YouTube show I am talking to mentioned the same thing–T shirt sales helped defray some of their expenses.

But there are a million stories in the naked cit.. -erm, YouTube and not everyone is going to be paid for them. We already know that places like YouTube are eroding the concept that you should have to pay for content. People will clearly continue to create content and try to support it however they can. I don’t think an effort to inspire a shift in attitude is going to gain much traction.

Though who knows, I hear Comcast cable is trying to get people used to the idea of paying for bandwidth consumption. As much as I am resistant to the idea, it could change attitudes about paying for content as well.

To extend the question Todd asks about killing the golden goose, I wonder how many creatives will persist until their abilities mature if few are willing to pay for the content. That might be the real long term threat.

The guys I am trying to present are young and their show is fun. But what happens in a few years when they settle down and look to raise a family and they decide they don’t have time to create content alongside their regular job and family? The fact artists have never been paid well has always been a problem, but if even the possibility of a pittance wanes then unremunerated recognition becomes the only motivator to create.

Artists and other creative types need time to allow their skills to develop. Ira Glass said as much in the speech I linked to last week. As a country, we need creatives to mature into their abilities rather than quit early on.

Arts in an Age of Technology, Business Models, creativity

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