Wednesday, December 12, 2012

Thinking Long Term About Your Next Right Offer

Photo by Vards Uzvards via flickr
At TRG we frequently talk about how an arts organization should create the Next Right Offer – that is, a promotional outreach that statistically possesses a high probability of acceptance or response by the prospective buyer.

What determines your Next Right Offer? TRG orthodoxy holds that data analysis is the only path to get it right and to evaluate the offer’s success. Specifically:

Response rates can be predictive for any offer. History is a perfectly valid guide. For example, if a specific data segment typically produces a 2.5% response for a new subscription offer, the odds are high that the same offer made next year to the same data segment will produce about a 2.5% response.

Purchase patterns of an organization’s most active, highest-spending patrons also can shape the best offer. Every organization offers a variety of ways to experience and support its artistic product. Oftentimes the bigger the organization is, the greater the number of ways offered.  Some ways tend to produce patrons that stick around. Others could be more accurately labeled “Exit”. Understanding the transactional footprints of your most loyal patrons – their comings, goings, and repeated activities provides tangible clues about the ideal sequence of offers over time.

To be sure, offering the right product to the right group of patrons reduces risk, improves return-on-investment ratios and reduces patron churn. The outcome is “stickier” patrons.

Stickier is good.  Is it enough?
In TRG’s October 31st webinar, Dynamic Pricing or Patron Loyalty, I was reminded again that arts managers need – and we want to give – clear-cut tactical solutions. That’s why developing the Next Right Offer makes good sense, especially when marketing and development campaigns reinforce each other. An annual fund gift, for instance, might be be the next right investment for a frequent single ticket buyer.  

Yet, focusing only on the Next Right Offer can risk unintended consequences. The linear transactional nature of Next Right Offer can too easily overlook the most important overarching goal of any patron development program: Lifetime Patron Value.

When scoring a patron’s loyalty level, TRG consistently finds that the key drivers are frequency and recency of patron activity. Frequent and more recent patron activities always lead to improved loyalty.

This finding provides context for understanding why unrestricted annual fund campaigns are critically important, even when many efforts spend as much as they raise. I’ve seen this strategy at work in my volunteer role of chair of a university Alumni and Development Committee. There, the short-term returns on investment of our annual fund campaign are hard to justify. The payback occurs year after year when we raise significant revenues for various bricks and mortar projects, the endowment or planned gifts and other special projects. Annual giving programs are the basic building blocks of long-term loyalty that sustain these larger, more episodic projects.

Activities boost loyalty.
For newer donors, adding an annual fund gift is a method for building both recency and frequency. It is, therefore, an indispensable tool for creating loyalty.

Subscriptions work the same way. By definition, subscriptions drive frequency of attendance – and greater frequency drives retention rates upward.

Artistic choices also have an impact. Let’s consider a ballet company’s mixed rep program.  While an admittedly smaller group compared to attendees of a Swan Lake or Sleeping Beauty, the mixed rep patrons tend to possess unusually high lifetime values. Discerning artistic programs attract patrons who are statistically more likely to make a repeat visit. And multi-buyers are database gold.

It’s frequently a sound decision to mount challenging artistic programs designed to attract high value patrons and then exploit the opportunity with narrowly targeted sales or development campaigns designed to generate appropriate Next Right Offer behaviors.

Going long with the NRO.
So what’s a company to do?  Because improved lifetime value is the real goal, the Next Right Offer must be driven by a broader set of metrics than immediate responsiveness.

A different yardstick is required to insure that “Gateway” offers drive lifetime value farther and perhaps faster. I’d start with three interrelated strategies:

1. Use the latest generation of predictive models to create a very tightly defined target market – a behaviorally defined attribute-based model that insures much higher a response rates. This micro targeting strategy allows for enhanced patron segmentation, differentiated offers and improved frequency of offer for less money.
2. Adopt more liberal cost-of-sale ratios when developing Gateway offers. Instead of evaluating return-on-investment ratios for the performances this weekend, base your investment decisions using patron lifetime value scoring models.  Remember, the goal is sustainable long-term patron value and growth.  
3. Always include a bounce-back offer targeting multi-buyers to keep their activity frequent and recent. You’ll always earn back their re-engagement costs.

Ultimately, the Next Right Offer needs to “go long” and reach for lifetime value rather than just the immediate response within its grasp.  As an industry, we need a simple metric for measuring the overall impact of Next Right Offer efforts.  I’ll bet that metric can be found by monitoring patron activity (databases) for improved recency and frequency scores.

What is your data telling you about your recent, frequent patrons?

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