Thursday, April 18, 2013

The Risk of Free

Photo via flickr
Some time ago I had a conversation with a theatre manager who had expressed an interest in TRG’s ticket pricing counsel.  The more we talked, the more agitated she became.  She nervously offered that her artistic director would NEVER allow pricing strategies like this happen at her theater. I, laughing, joked, “Oh my.  Your artistic director is a socialist?”  With great seriousness, she replied, “Absolutely not!  He is a communist!  He believes that every ticket should be FREE!”

The argument surrounding free and deeply discounted tickets has been around forever. The Dallas Museum of Art kicked off another round of conversation when they recently announced their decision to provide everyday free admission to everyone.  Museum memberships will also become free, with visitors actively encouraged to join using a very slick electronic system located at entry points to the museum.

Will history repeat itself?
Colleagues in the performing arts world have gone down the path DMA is undertaking.  The unrequited hopes that free tickets would generate larger, more invested audiences are a cautionary tale.  The expected audience growth and contributed revenue did not materialize.  Our firm’s study may offer some insight.

Over the past two decades, whenever TRG has been asked to measure the impact of complimentary ticket programs, our results have been consistent.  The lifetime value of a comp ticket patron is virtually zero.  Here’s why.

Transactional patron behavior data shows that a comp ticket holder seldom buys another ticket to that organization. Recipients of a comp ticket generally wait until offered the chance to return—you guessed it—using another comp.  Two transactions later, they are more likely to ask you for another comp than buy a ticket. 

Our analysis methodology confirms free ticket recipient behavior in two ways.  Looking at individual patron households, we can examine longitudinal patron transaction behavior over time. First, the patron did this and they then did that.  Looking more broadly, we can also apply an RFM model to score activities based on Recency and Frequency of experience and the Monetary value of each transaction. Here, the monetary score of a comp ticket is zero dollars. 

Either method produces the same result.  Comp tickets do not build audiences, encourage donations or foster deeper levels of patron engagement. 

Papering is not a business strategy.
We’ve also encountered organizations that have made the strategic decision, usually driven by well-meaning board members, to use comp tickets as an audience development tool.  It’s based on the notion, “if we can’t sell them, let’s at least make sure that the seats don’t go empty.”  The staff then regularly faces the unenviable task of “papering the house” in the hope that a comp patron will ‘move’ up later. We have never seen this strategy work.

As any manager who has had to paper a house knows well, comp tickets are never easy to give away to people who will actually use them.  Comp tickets have no value.  The associated performances or events are, by association, worthless.  It is tough to find people who will use tickets to a performance that has no value.

Different model, different results?
At the Dallas Museum of Art, two exceptions to the performing arts case history appear relevant.

First, there may be a big difference between a comp ticket to a “priced, seated” event and an admission that has been priced at zero.  The DMA is not charging some people $15, while a few others receive a comp ticket.  Every DMA visitor gains free entry to the same exhibits at no cost.  Everyone is getting the same deal.

The second exception goes to business model and mission.  TRG’s research on using free tickets to build audiences has focused on organizations whose financial model depends upon generating a significant portion—ranging from a third to three-quarters—of their earned revenues from ticket sales. In this seated event model, the patron “rents” a chair for a specific period of time for a concert, show or performance that has a set starting and ending time.

At a museum, patrons can arrive when they wish, enjoy the art at their own pace and then decide when their experience is complete.

Because the museum model is different, the risks associated with free admission also are different.

Dallas Museum of Art
The Dallas Museum of Art is a big organization with an annual operating budget of about $21 million. Admission revenues (excluding special exhibitions) have averaged about a half million dollars annually.  Moving to a free admission model puts 2.3% of their total revenues at risk.

The museum can recover these revenues through a number of non-admission visitor revenues sources like parking, merchandise sales, tuition for classes, and food and beverage purchases—and future special exhibits, which will not be included in the free admission policy. The DMA wisely plans to price each event separately. 

In addition, DMA’s free admission strategy may offer tantalizing opportunities for individual and institutional funders to play a bigger role in providing open access to a cultural treasure in their community.

Free admission does appear to be relatively low risk strategy with upside opportunity in DMA’s case. Still, my unsolicited advice to the museum is that free admission – powerful though it may be – is unlikely on its own to ensure ongoing visitation that the museum is dependent upon for other income. 

To use our patron behavior terms, free admission won’t improve Recency and Frequency patron behaviors. The longer-term measure of success will depend on DMA’s ability to improve both frequency of visitation from existing supporters and recency of lapsed visitors. That will take continually reinventing a great artistic product and great visitor cultivation and marketing. 

Neither will be easy to accomplish, but in DMA’s case, our industry may be observing a gamble worth taking. Like many arts managers, I am eager to see how this experiment works for the DMA.  I wish them only the best. 

NOTE: Many thanks to DMA staffers Jill Bernstein, Director of Communications and Jeffrey R Guy, Chief Financial & Administrative Officer for their kind assistance in the preparation of this blog.  Any errors are mine.

How does your organization assess risk associated with free or deeply-discounted ticket programs?  Comments welcome.

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