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discounts

Why Discounting Hurts Your Cultural Organization And What To Do Instead (Fast Fact Video)

Discounts don’t do what organizations think that they do…

Check out this week’s KYOB Fast Facts video to get the two-minute low-down on discounts verse promotions (Hint: promotions are a much better idea – and, yes, they are extremely different). 

Discounting Is Bad Business For Cultural Organizations

It’s true: “Getting discounts” is often cited as the top reason why many people engage with an organization’s social media channels. So it seems logical that if you want to bump your number of fans and followers, offering discounts is a surefire way to go. And it works – if your sole measure of success is chasing these types of meaningless metrics. But, before you go crazy with discount offers on social networks just to get your “likes” up, here’s another thing that’s true: Offering discounts – especially via public social media channels – cultivates a “market addiction” that often has long-term, negative consequences on the health of your organization. In many ways, offering discounts creates a vicious cycle whereby a visitor-serving organization realizes and ever-diminishing return on the value visitation.

A discount is when an organization offers free or reduced admission to broad, undefined audiences for no clearly identifiable reason. Offering discounts devalues your brand and often makes it look like your organization’s admission isn’t priced correctly in the first place. This is generally true for discounts delivered via all channels, but discounts breed a special type of pervasive problem when they are offered on the digital platforms. When an organization provides discounts, it often results in five not-so-awesome outcomes:

 

1) You verify that your communication channels are sources for discounts and, thus, encourage your community to expect these discounts

Posting a discount to attract more followers on a social media channel (or to get people to engage with a social media competition, etc.) will very likely result in a bump in likes and engagement. But know that in doing this, you are verifying that your social media channel is a source for discounts.

Discounting attracts low-level engagers who are more likely to be following your channels for a discount than they are for any reason related to your mission. It is far better for your brand and bottom line to have 100 fans who share and interact with your content to create meaningful relationships than it is to have 1,000 fans who simply like you for a discount.

I can hear the rumbling now: Some of you are thinking, “But we’ve used discounts to attract more likes and it worked” (i.e. it generated more likes on social media). That’s not surprising at all. Over time, however, these low-level engagers may stop following you or simply disengage if you do not continue to offer discounts. That is, after all, the reason why they followed you in the first place…and you have shown them that, yes, indeed, you will post discounts on social media.

Generally, these people are not actual evangelists – and cultivating real evangelists to build a strong online community is the whole point of social media. You want folks who actually care about what you’re doing.

 

2) Your community will wait for discounts before deciding to visit, thereby altering visitation cycles

Data indicate that offering coupons on social media channels – even once – causes people to postpone their visits or wait until you offer another discount before visiting you again. Worse yet, the new discount generally needs to be perceived as a “better” offer (i.e. an even greater discount) to motivate a new visit. This observation is consistent with many aspects of discount pricing psychology, whereby a stable discount is perceptually worth “less” over time. In other words, the same 20% discount that motivated your market to visit last month will likely have a diminishing impact when re-deployed. Next time, to achieve the same outcome, your organization may have to offer a 35% discount…and then a 50% discount, etc. You see where I’m going with this…

 

3) You are not necessarily capturing new visitation with discounts

In fact, data from IMPACTS suggests that many of the folks using your discount were likely to visit anyway…and pay full price! This is a classic example of an ill-advised discounting strategy “leaving money on the table.”

“But visitation increased when we offered a discount!” you say. But did it really? The average person in the United States visits a cultural center once every 19 months. When an organization offers a discount, it is rarely actually attracting larger volume of visitation to the organization. Instead, the organization is often simply accelerating its audience’s re-visitation cycle on a one-time basis. This sounds great…until the organization realizes the significant downside to this happening: Your audience just visited your organization without paying the full price that they were actually willing to pay and  likely won’t visit your organization again for (on average) another 19 months. 

Think of it this way: A visitor coming to your organization in May may be (on average) likely visit to again the following December (i.e. in 19 months). Let’s say that you offer them a discount that motivates them to visit in October instead of December. Now, you’ve linked their intentions to visit to a discount offer and decoupled it from what should be their primary motivation – your content and mission! And, by doing so, you’ve created an environment where content as a motivator has become secondary to “the deal.” In other words, you will have moved your market from their regular visitation cycle to a visitation cycle dependent on an ever-increasing discount. Can your organization afford to keep motivating visitation in this way?

A note: Different organizations generally have different visitation cycles. 19 months is a US average. Regardless of how many months make up your organization’s visitation cycle, discounting disrupts that cycle and partners it with a perceived “deal.”

 

4) Discounts actually decrease the likelihood of re-vistation

What of the idea that discounts get people to try your organization and become regular attendees? It’s largely a myth. In fact, the steeper discount, the less likely folks are to re-visit within one year. This is classic pricing psychology at play: People value what they pay for. If your organization’s admission price is set at an optimal point, then your organization has largely removed price as a barrier to engagement, and discounting actually does the exact opposite of what many organizations think that it’s doing. That “discounted trial” that some organizations believe that they are offering falls flat because the folks who profile as being likely attendees are able and willing to pay the full price. Your organization is demonstrating that it devalues its brand and, in turn, audiences devalue your brand.

Hey. You started it.

IMPACTS-Revisitation and discounts

 

5) Your organization becomes addicted to discounting

Organizations sometimes confuse the response (i.e. a visit) to the stimuli (i.e. a discount) with efficacy. Once a discount has been offered to motivate a visit, we regularly witness the market “holding out” for another discount before visiting again. And what are organizations doing while the market waits for this new discount? Often times the answer is that they are panicking.

If you run an organization that offers discounts, you’ve probably spent some time in this uncomfortable space – we observe the market’s behavior (or, in this case, their lack of behavior), and begin to get anxious because attendance numbers are down. What’s a quick fix to ease the pain of low visitation? Another discount! So we offer this discount…and, in the process, reward the market for holding out for the discount to begin with. That is the insidious thing about many discounting strategies: They actually train your audience to withhold their regular engagement, and then reward them for their constraint. We feed their addiction and, in turn, we become addicted ourselves to the short-term remedy that is “an offer they can’t refuse.”

Like most addictive – but ultimately deleterious – activities, there is no denying that discounts “work” – provided that your sole measure of the effectiveness of a discount is its ability to generate a short-term spike in visitation or increase low-level social media “likes.” But, once the intoxicating high of a crowded gallery or filled theater has passed, very often all that we’re left with is a nasty hangover.

 

Promotions are a better strategy

“But aren’t promotions pretty much the same thing as discounts?” No. They aren’t. Many organizations fail to stop and consider the differences between discounts and promotions and, specifically, the different effects that each has on the perceptions of the cultural organization offering the opportunity. If your organization confuses the two, then you’ll likely end up paying the price. Literally.

Promotions offer a targeted benefit for certain audiences for an identifiable reason. The biggest difference between promotions and discounts may be how they are each perceived. As previously mentioned, discounts offer free or reduced admission to a broad, undefined audience for no apparent reason. Promotions celebrate your community. Examples of promotions may include reduced admission for mothers on Mother’s Day, a pricing special to celebrate a new program, or a reduced admission day for local audiences. Promotions demonstrate why an organization is offering free or reduced pricing in the communication of the promotion. That reason is usually something that celebrates an organization’s mission or an organization’s audience, and it is made clear that it is something special.

While some may learn the differentiation between these two approaches and consider it to be a framing of communication, it’s actually a reflection of an organization’s culture. Whether an organization’s go-to strategy includes either promotions or discounts demonstrates a great deal about the organization and the thoughtfulness of its engagement approach, as well as the value that it places on its reputation. In the end, one approach is more about your organization’s flailing attempts to hit specific attendance numbers at the expense of its brand and mission, and the other is more about your organization’s relationship with target audiences and communities.

Promotions make people say, “Wow, I feel valued by this organization!” Discounts make people say, “Hey, I got in cheap.” The approach that respects both the organization and its community beats out the short-sighted discount strategy when it comes to increasing long-term visitation.

 

Want to see more Fast Fact videos? Subscribe to my YouTube channel, or check them out here:

 

 Please subscribe over on the right hand column to get KYOB posts delivered right into your email inbox. Interested in getting tips and some silly social media geekery periodically delivered in your Facebook newsfeed? Like my Facebook page. Or for more regular sharing of nonprofit marketing information, follow me on Twitter

Posted on by Colleen Dilenschneider in Community Engagement, Digital Connectivity, Fast Facts Video, Financial Solvency, IMPACTS Data, Myth Busting, Nonprofit Marketing Leave a comment

Three New Pricing Realities For Visitor-Serving Nonprofits in The 21st Century (DATA)

Admission tickets

Want to keep moving your mission moving forward and your doors open? It’s time to end the debate on these pricing-related topics.

As the visitor-serving industry (museums, theaters, symphonies, historic sites, etc.) broadly struggles with declining attendance trends and a potentially unsustainable reliance on kindness and not commerce, “getting your price right” is more important than ever to nonprofits who depend on the gate to support their missions. Too high of a price may serve as a barrier to visitation. Too low of a price risks leaving money on the table and all of the attendant fiscal challenges associated with failing to maximize earned revenues.

Much is happening in the world that changes/challenges the way that traditional visitor-serving nonprofits operate: social media and technology, the need for real-time transparency, and changing demographics in the United States and beyond are just a few, prominent factors influencing our industry. And, these factors are changing everything from internal operations to membership products and the role of fundraising. And, unsurprisingly, the information age requires embracing new realities related to pricing.

Let’s end the debate on these three pricing-related topics and get on with the business of running effective businesses that enable meaningful missions:

 

1) Pricing is NOT an art (Pricing is now a science)

Determining the optimal price of admission is no longer a trial and error process. In fact, it’s anything but a “guess” (however well-educated). Data is playing an increasingly important role in the way that institutions operate for good reason.

A near-decade of research including hundreds of interviews with US visitor-serving nonprofit organizations strongly suggests that many pricing models are the product of “unintentional collusion” (AKA “the blind leading the blind”). This deeply-flawed model fails to contemplate two critical factors when it comes to informing a pricing strategy: (i) the fact that a proximate (or competitive, or peer) organization has established a price does not necessarily mean that it is an optimal price; and (ii) the market tends to view organizations – however “alike” they may be – in very unique terms, and this uniqueness frequently extends to pricing.

Unintentional collusion looks something like this:

IMPACTS unintentional collusion

Thanks to readily available data and analyses, there is no reason to base pricing on anything beyond an organization’s own, unique equities. For every organization, there is a data-based “sweet spot” in which admission prices are optimal.

Let’s consider a quick example of what an optimal pricing strategy looks like when charted (Note: This particular example is from a performance-based entity, but this way of considering pricing applies to any type of admission):

 IMPACTS ticket price analysis example

In the above example, the data-informed analysis suggests that pricing less than $75 for a ticket to the performance (more specifically, to a “premium” seat at a non-matinee, live performance) would be “value advantaged” – a polite euphemism for leaving money on the table! However, anything above $75 pushes the price into the “value disadvantaged” realm – a place where the price poses a needless barrier to entry (and, generally, one where the increased per capita revenues will not offset the decline in attendance). For every category of admission, every organization has an optimal price – one that is neither value advantaged nor value disadvantaged.

Organizations guess their price (without leveraging data to inform their pricing strategy) at their own risk. Getting the price wrong can alienate potential visitors and supporters if it’s too high, and make it difficult to raise prices to an optimal value over time if price starts too low.

Looking for ways to help support a price increase? Well, data suggest that a whiz-bang new exhibit or facility expansion isn’t necessarily coupled to an increased price tolerance. Instead, efforts to improving an organization’s reputation or the overall satisfaction of visitors are much more reliable indicators of increased value for cost perceptions.

 

2) Admission pricing is NOT affordable access (Admission enables affordable access)

A thought that sometimes emerges once an organization’s optimal pricing has been quantified is strangely, “but that’s too expensive to provide affordable access!” Admission is not a substitute for affordable access. Admission and affordable access programs are completely different things…and an organization needs to establish its optimal pricing strategy in order to support effective affordable access programming.

In other words, if you subsidize price in the name of affordable access (i.e. artificially lowering the price to create a value advantaged pricing condition), you are limiting your organization’s ability to fund quality programs that DO provide true affordable access. Making your entire pricing strategy an “affordable access program” leaves money on the table as folks pay an admission price below what they (the market!) indicate they were willing to pay for your experience.

When it comes to the truest definition of affordable access, an admission price point of $15 or $20 or $25 is functionally irrelevant to many of our most under-served audiences…most any price at all may pose an insurmountable barrier to visitation.

What if you aim to provide affordable access for the community? Won’t a high admission price deter folks? The data suggest “no” – at least not the people who were able to pay in the first place – but that doesn’t mean it’s not a good idea to develop true access programming to better engage constituents for whom price is barrier while also considering strategic promotions that celebrate your community. Speaking of which…

 

3) Discounts are NOT promotions (Promotions serve a purpose beyond cheap access)

Promotions celebrate community while discounts devalue your brand. These are very real and very different things. The biggest differentiating factor is the question “So what?” If the point of providing a discount is simply admitting folks for a lower price, then the discount is a bad idea that devalues your brand. (And, as a reminder, data suggests that all discounts provided through social media are bad business for nonprofit organizations.) However, if an organization’s answer to “so what?” is “to celebrate a community” and that purpose is made clear in external communications, then the program that you are describing is a promotion. The feature of a promotion may include a special pricing opportunity – think special pricing for mothers on Mother’s Day, or differentiated pricing for local residents.

Discounts make people say, “I got in cheap.” Promotions make people say, “I feel valued.” Discounts are not only meaningless, but data suggest that they also lead to less satisfying overall experiences and even increase the time before a return visit! While this may be surprising to some folks, it’s classic pricing psychology in action.

IMPACTS intent to revist

 

 

If visitor-serving organizations aim to keep providing inspiration and education to the masses, then the first imperative is to exist – and it’s hard to exist (let alone thrive) in the long-term without a sustainable revenue strategy that optimizes pricing.

Pricing strategies – and even pricing psychologies – are not mysterious so let’s stop guessing. The data is not uncertain.

 

Interested in getting blog posts, tips, and some silly social media geekery periodically delivered in your Facebook newsfeed? Like my Facebook page. Or for more regular sharing of nonprofit marketing information, follow me on Twitter

Posted on by Colleen Dilenschneider in Financial Solvency, IMPACTS Data, Myth Busting, Sector Evolution 4 Comments

Why Offering Discounts Through Social Media Is Bad Business for Nonprofit Organizations

There’s significant data compiled by multiple sources indicating that “getting discounts” is the top reason why people engage with an organization’s social media channels. So it seems logical that if you want to bump your number of fans and followers, offering discounts is a surefire way to go. And it works – if your sole measure of success is chasing these types of (perhaps less meaningful) metrics. But, before you go crazy with the discount offers on Facebook and Twitter just to get your “likes” up, here’s another thing that’s true: Offering discounts through social media channels cultivates a “market addiction” that will have long-term, negative consequences on the health of your organization.

I recently wrote a post called “Death by Curation” within which I shared data indicating the non-sustainable cycle that museums enter when they must rely on new, progressively more expensive “special” exhibits in the hopes of achieving attendance spikes (what has since been referred to by a reader of this blog as “Blockbuster Suicide”). In many ways, offering discounts creates a similarly vicious cycle whereby a visitor-serving organization finds itself realizing a diminishing return on the value of its visitation.

When an organization provides discounts through social media it trains their online audience to do two not-so-awesome things:

 

1) Your community expects more discounts

Here’s where your organization breeds an online audience of addicts accepting discounts…and, strangely enough, becomes addicted to offering discounts itself. Posting a discount to attract more likes on Facebook (or to get people to engage with a social media competition, etc.) will very likely result in a bump in likes and engagement. But know that in doing this, you are verifying that your social media channel is a source for discounts. Discounting for “likes” attracts low-level engagers (they are liking you for your discount, not your mission), and prevailing wisdoms increasingly suggest that your number of social media followers doesn’t matter. 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.

I can hear the rumbling now: Some of you are thinking, “But we’ve used discounts to attract more likes and it worked” (i.e. it generated more likes). Over time, however, these low-level engagers will stop following you if you do not continue to offer discounts. That is, after all, the reason why they followed you in the first place…and you have shown them that, yes, you will post discounts on social media. This is the start of the addiction: In order to keep these likes, you need to offer more discounts.

Try this: Simply stop offering discounts. Over the course of a few months, your number of likes will go down (because these people only liked you for the discount, not your awesome, socially conscious content). They were not actual evangelists – and cultivating real evangelists to build a strong online community is the whole point of social media. You want folks who actually care about what you’re doing and will amplify your message (not the “we are offering a discount” message – which is the content that, unfortunately, frequently gets the most shares and perpetuates this cycle).

 

2) Perhaps more importantly, your community waits for discounts

Here’s where becoming an addict takes a toll on the organization’s health. Data indicates that offering coupons on social media channels – even once – causes people to postpone their visits or wait until you offer another discount before visiting you again. Worse yet, the new discount generally needs to be perceived as a “better” offer (i.e. an even greater discount) to motivate a new visit. This observation is consistent with many aspects of discount pricing psychology, whereby a stable discount is perceptually worth “less” over time. In other words, the 20% discount that motivated your market to visit last month will likely have a diminishing impact when re-deployed. Next time, to achieve the same outcome, your organization may have to offer a 35% discount…and then a 50% discount, etc. You see where I’m going with this…

Here is the debunking of another popular misnomer that some organization’s use to justify their discount tactics: You are not necessarily capturing new visitation with discounts. In fact, data from the company for which I work suggests that the folks using your discount were likely to visit anyway…and pay full price! This is a classic example of an ill-advised discounting strategy “leaving money on the table.”

To compound matters, instead of hastening the re-visitation cycle, the “waiting for a discount” phenomena may actually increase the interval between visits for many visitors. The average museum-going person visits a zoo, aquarium, or museum once every 19 months. If you offer a discount, while you may not attract a larger volume of visitation to your organization, you may accelerate your audience’s re-visitation cycle on a one-time basis. This sounds great…until you realize the significant downsides to this happening: Your audience just visited your organization without paying the full price that they were actually willing to pay and they likely won’t visit your organization again for (on average) another 19 months. On top of all this, IMPACTS data illustrates that the steeper the discount, the less likely visitors are to value your product and return in a shorter time period.

Think of it this way: A visitor coming to your museum in May 2012 would likely visit again in December 2013 (i.e. in 19 months). Let’s say that you offer them a discount that motivates them to visit in October 2013. Now, you’ve linked their intentions to visit to a discount offer…and decoupled it from what should be their primary motivation – your content! And, by doing so, you’ve created an environment where content as a motivator has become secondary to “the deal.” In other words, you will have moved your market from a 19-month visitation cycle to a visitation cycle dependent on an ever-increasing discount. Can your organization afford to keep motivating visitation in this way?

So, how do museums get addicted to discounts, too? Well, we sometimes confuse the response (i.e. a visit) to the stimuli (i.e. a discount) with efficacy. Once a discount has been offered to motivate a visit, we regularly witness the market “holding out” for another discount before visiting again. And what are museums doing while the market waits for this new discount? Sadly, often times the answer is that they are panicking.

If you run a museum, you’ve probably spent some time in this uncomfortable space – we observe the market’s behavior (or, in this case, their lack of behavior), and begin to get anxious because attendance numbers are down. What’s a quick fix to ease the pain of low visitation? Another discount! So we offer this discount…and, in the process, reward the market for holding out for the discount to begin with. This is the insidious thing about many discounting strategies: They actually train your audience to withhold their regular engagement, and then reward them for their constraint. We feed their addiction and, in turn, we become addicted ourselves to the short-term remedy that is “an offer they can’t refuse.”

Like most addictive – but ultimately deleterious – items, there is no denying that discounts “work” – provided that your sole measure of the effectiveness of a discount is its ability to generate a short-term spike in visitation. But, once the intoxicating high of a crowded gallery has passed, very often all that we’re left with is a nasty hangover. My advice to museums and nonprofit organizations contemplating a broad discount strategy on social media: Just say no!

 

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Posted on by Colleen Dilenschneider in Community Engagement, Digital Connectivity, Financial Solvency, IMPACTS Data, Myth Busting, Nonprofit Marketing, Trends 6 Comments