A lesson from the big boys in the for-profit world. My sister works in the new business department of Deutsch Inc. (as seen on The Apprentice) In the last couple months they have lost two accounts because new people took over management positions and simply decided to move their business to agencies with which they had preexisting relationships. There was no attempt to meet with the folks at Deutsch to discuss anything, just a call saying the business was being moved elsewhere.

It wasn’t a matter of poor results either. The first company, DirectTV had actually seen the largest increase in business ever since those godawful ads with celebrities reading half-literate testamonial letters began airing. Yesterday, Snapple became the second company to dump the agency and Deutsch did everything for them including designing the bottles and labels and writing those fun facts that appear under the cap. (I actually contributed a couple!) Deutsch would like to replace them with another beverage account but it is tough finding one that Pepsi or Coke doesn’t own.

A less or two here for non-profits. The first is obviously not to take your customer’s loyalty for granted. This is not to say Deutsch did. By all accounts they served their customers well. However, as you can see, some times it doesn’t matter how good a job you do and how much value you offer a customer. It just takes one opinion leader to turn a large segment of your customer base in another direction. Obviously, this can make your job easier in some respects if you can identify the opinion leader and harnass his/her influence for your own ends. But you can also encounter an easy come, easy go situation too.

Another lesson that isn’t necessarily illustrated by the Deutsch example but bears discussion is not to take your audience for granted in general. One of the things that constantly annoys me, and I am sure I am not alone, is seeing lucrative offers for subscribing to a service or magazine. Unfortunately, I can’t take advantage of these offers because I have been a loyal customer for a decade. I really resent the fact that companies will do all sorts of wonderful things to entice me to be a customer but they don’t do anything to reward my loyalty much less entice me to remain a customer. Even worse, when I originally signed up, they weren’t offering any incentives so I missed out entirely.

The only time I get offered special deals, it is to buy something I don’t need from a partner. This makes me strongly suspect they are getting a cut of whatever I buy due to their referral. Do companies really think they are rewarding me by giving me a deal on something I may or may not want when they know for certain I value what they offer?

It is so much more expensive to get new customers than it is to retain current ones, it is worth at least recognizing a person’s loyalty. Given the power and ease of use databases provide, it would be so easy for arts organizations to reward loyalty. If person buys X number of single tickets in a year, they get flagged for a free ticket or a discount. They have been buying tickets regularly for 10 years? Their tickets are mailed in a thank you card with a gift certificate for dinner.

Certainly, you may do all this work and they may still be seduced away by an impulse to do something different. An arts administrator’s job is to make it easy to at least partially ignore those seductions.

A short entry today because I had a job interview.

I came across an article recently about a study done on multi-tiered ticket pricing for theatres. The concept is similiar to how airlines price their tickets so that some people are paying a premium while the person next to them paid next to nothing.

A study was performed by Phillip Leslie, a professor at Standford University’s Graduate School of Business. He looked at the 1996 Broadway run of Seven Guitars to determine if the production’s 17 category pricing structure was beneficial to consumers or not. He found that it wasn’t particularly beneficial or harmful to consumers on the whole, though the producers did realize a 5% larger profit than they might have.

The article goes on to discuss the benefits of some decisions the producers made and how they could have made some more money given consumer purchasing habits. There were a couple sentences that caught my attention in the piece:

“Price discrimination is a practice used by companies that generally don’t know a lot about what consumers are willing to pay. “It’s something firms do when they lack good information about customers,” says Leslie.”

When a performing arts organization sets their prices, they are essentially setting a maximum price they feel their regular audience will be comfortable paying. They do surveying and communicate with this group directly and indirectly so they know at least a little about them. However, they don’t know much about those who don’t attend and they are the people multi-tiered pricing would be structure to.

In an entry last week I referred to the PARC survey that discovered the people who find price to be the biggest impediment are those who actually attend performances with some frequency. It might be beneficial if arts organizations could find a simple tiered pricing structure (airlines need a lot of computing power for their categories) that didn’t ultimately hurt their bottom line.

Those who are frequent attendees will be more familiar with the process of getting discounts and thus receive a “reward” for their devotion. Those who are not as familiar will end up paying a more premium price. Some people may end up paying as much as the market will bear rather than the top amount the theatre assumed the audience will pay.

This may be the structure which replaces the waning popularity of a subscription series. In order to make a tiered pricing structure work, especially one based on market demand, organizations would have to stop publicizing their prices. The only way to learn about discounts would be to be in an organization’s database to receive brochures, email, etc. where the discount prices were published. The core audience for an organization would then consist of people who are loosely interested in the production series rather than the devoted subscribers.

A multi-tiered system would put more responsibility on the shoulders of the consumers. Instead of knowing that they can always get half-price tickets the day of the show and knowing what half-price will be, the price might be half the current top price.

If tickets start out being offered at $25 and the show isn’t selling well, the theatre might email their core that tickets are now $20 two weeks out, if it still doesn’t sell well, 3 days out they might drop it to $12.50.

However, if the show start selling well, the theatre might raise the price to $35 and two weeks out email their core that discount tickets are $30, but then three days before might be selling the discount tickets at $40. Or perhaps they email their core a week out that it looks to sell out so get tickets now. (A claim they have to be very careful about making lest it appear to be hype to drive sales when the seats end up only 2/3 sold.)

Since people are making decisions about entertainment at the last moment these days, the only way it seems an organization can respond is by providing audiences with the information they need to make decisions. If the changing price structure drives people to your website so they can check which way the pricing is going, it provides the organization with an another opportunity to communicate additional information to them.

Changing pricing is a delicate matter and is as much public relations as maximizing revenues. The person who attends 2 productions out of 12 and barely gives a thought to the organization’s well being might become mightly offended that you are charging so much for a last minute ticket after the loyalty he has shown in the past.

In an early entry, I noted Ben Cameron’s observation that we may be entering a time when there is a shift in the social contract. This change in pricing structure might become a reflection of this shift.