Some cultural organizations pretend that these commonly understood business realities do not exist – and it is making their jobs harder.
Cultural organizations – museums, zoos, aquariums, historic sites, botanic gardens, and performing arts organizations – may be considered unique business entities, in a way. They are mostly nonprofits with social missions to educate and inspire people. They provide transformative experiences. But these organizations also need to keep their doors open in order to thrive as attendance continues not to keep up with population growth, and industry expenses outpace revenues. For organizations not fully reliant on government support, this means securing revenue through admission or programs and cultivating philanthropic support.
My job is to help cultural organizations understand audiences so that they can succeed in regard to both their mission and their finances. Interestingly, I have found that there are certain commonplace economic and business realities that make cultural industry leaders suddenly go blind and deaf.
For some reason or another, these realities haven’t sunk in to our sector – despite having been long accepted in other industries.
This is strange to me, because these realities aren’t “bad news” to be avoided. These realities make a cultural organization’s goals more achievable! Better understanding these items allows us to set more reasonable goals, and to create strategies to reach those goals.
1) People value what they pay for
“…People value what they pay for and will pay for what they value,” wrote Milton Friedman in Newsweek in 1967.
There’s an entire area of business and economics research that studies pricing psychology – and how pricing impacts perceived value, in particular – called the price-quality relationship (or the price-quality heuristic). Economists have conducted hundreds of studies examining this relationship. “Consumers should use a product’s price to determine if the product is affordable. However, consumers also appear to use a product’s price as a measure of the product’s quality,” writes Stephen M. Shugan of The University of Chicago in his study published in Advances In Consumer Research in 1984.
Make no mistake: How something is priced plays a role in how much we value it, how satisfied we are with it, and how much it impacts us. As famed Behavioral Economics professor Dan Ariely found and explained in his book, Predictably Irrational, people knowing that they got a medicine at a discounted price resulted in less pain relief from that medication!
Unfortunately, the price-quality relationship – and perhaps the entire topic of pricing psychology in general – seems to be regularly overlooked by the cultural industry. It’s blanketed over by a myth: That if something is free or discounted, people will like it more – and more people will attend.
Data suggest time and time again that this is untrue. In fact, data shows people are more satisfied with their visits to cultural organizations and report greater value when they think that the organization is a for-profit entity (instead of nonprofit or government-run), even if they are wrong! People also report greater intent to visit organizations that charge over $20 than entities that are free, and are more satisfied with their visits when they do not get a discounted rate.
This reality isn’t bad news – it’s good news! Pricing psychology related to human behavior is a topic rich in possible solutions to strengthen attendance, donor support, and mission execution. It offers ways to help your audiences stop fixating on price instead of value. There are smarter ways to engage audiences that do not involve jeopardizing our ability to keep our doors open in the first place by offering discounts or lowering market-based admission prices for audiences who data suggest would otherwise attend at full price.
2) The cultural audience is not everyone
Only 16% of the US market has visited any kind of cultural organization in the last two years. Another 16% of the US market has reported interest – or has the demographic, psychographic, or behavioral characteristics to indicate that they would be interested in attending – but has not attended a cultural organization in the last two years. The other 68% of folks in the US are unlikely or non-visitors to cultural organizations.
Is the percentage of active visitors to cultural organizations smaller than you suspected? That isn’t surprising. Our industry generally reports (compiles) the number of times that doors swing open and the number of seats that are filled rather than the individual pairs of feet that come in. This means that if one person visits a museum twenty times, and another person comes only once, those visits get counted as though twenty-one separate people attended—even though it was just two different people. (We do this because it’s much easier to count the number of times the door opens – or add the number of times that it opens among different organizations – than invest in the large-scale market research required to understand the number of individuals attending.) This is important to note, because data shows that we are engaging the same audiences, more often. A person who visits a cultural organization is the kind of person who visits cultural organizations, and we aren’t generally succeeding in engaging new audiences who aren’t that kind of person.
Here’s the thing: Having users and non-users is a business reality. It’s true for everything from Hallmark cards, to church attendees, to fishing poles.
Why would we think this untrue for cultural organizations?
It is an imperative that cultural organizations prioritize diversity and inclusion in order to thrive long-term, but we are likely to always have a profile for likely and unlikely attendees. The aim – in regard to diversity and inclusion – is to diversify that profile such that being “white” (for instance) is no longer at the top of that list.
Much of the data that I share on this site is from an in-market 106,000-person study called the National Awareness, Attitudes, and Usage Study. It asks open-ended questions to get to the bottom of issues like why people visit cultural organizations, why they don’t, and how to motivate them to attend. As far as we at IMPACTS know, there isn’t another company consistently using big survey instruments to monitor a representative sample of the US market on an ongoing basis using open-ended queries. National AAUs are still uncommon within the cultural industry – but AAUs (for individual organizations or market segments) are common. There are tons of great companies collecting awareness, attitudes, and usage information and helping mission-driven, visitor-serving organizations!
Whether the data comes from an AAU or the NAAU, an organization investing in market research is likely to find that that are visitors and non-visitor profiles – and that is totally normal. Even avocados have likely and unlikely “users!”
Cultural organizations generally strive to be welcoming to everyone. That’s a critical goal, and it is beneficial to work to change our visitor profiles over time to reflect achievement in this goal. However, for as long as we are not as necessary as oxygen, it is reasonable to assume that cultural organizations will have likely and unlikely visitor profiles, just like everything else in a free economy.
Pretending that these profiles do not exist because “we welcome everyone” gets in the way of understanding who we are truly engaging and how to effectively expand the visitor profile in the first place.
3) It costs money to make money
When times are tight, the “go to” practice for some organizations seems to be to cut marketing budgets. It’s also a particularly expensive practice.
Data suggest that this attempt to save money often results in lost revenue. Significantly decreasing marketing budgets often results in fewer attendees, which means fewer revenues by way of admission fees, fewer members, and potentially less philanthropic support. Not only that, it is more expensive to “buy back” lost audiences from a budget cut than make the investment to keep them engaged.
Certainly, there may be valid reasons to cut budgets for any department. Data suggest that cutting audience acquisition budgets requires a “pay back” – literally.
And consider this: Over 70% of organizations aren’t spending the optimal amount to maximize marketing investments in the first place!
Tickets to cultural organizations are not bought, they are sold. In other words, in our super-connected world wherein the couch is an increasing competitor for our precious time, it’s generally not enough to just exist. Time is more valuable than money and there are plenty of other things that potential visitors like to do with their free time. Audience acquisition investments help keep an organization top-of-mind, and can underscore the unique, transformative experiences that it provides. Marketing is an investment – and a necessary one, at that.
How much money should an organization invest in audience acquisition? The results of a three-year study by IMPACTS reveals a “sweet spot” marketing investment of 12.5% of earned revenues, with 75% of that budget earmarked for paid media (advertising) and 25% to support agency fees, public relations expenses, social media, community engagement, and the other programs and initiatives that round out an integrated marketing strategy. This equation does not include staff costs. You can read more about the equation here.
In my work with cultural organizations, I often get the sense that the primary role of marketing has evolved from advertising to something like, “everything related to market research, social media, the web, and major trends.” Market behaviors inform the operations of nearly every department, not the marketing department alone. Considering this, doesn’t it make the idea of cutting the marketing budget even less thoughtful?
Avoiding conversation about these three realities only serves to make it more difficult to maintain support and execute our missions.
- Understanding that a cultural organization’s admission is not the same as an affordable access program and considering pricing psychology can help these entities execute smarter pricing strategies alongside more effective, targeted access programs.
- Understanding that – though the profiles may (hopefully) change -cultural organizations are likely to always have active, inactive, unlikely, and non-visitors helps us to better understand and target people so that we may truly welcome all audiences.
- Understanding the importance of marketing investments in motivating visitation in our noisy, connected world helps us to make better budgeting (and budget cutting!) decisions.
Let’s take the blindfolds off of our eyes and the wax out of our ears. At the very least, let’s take steps to acknowledge that these items are worthy of discussion. We do not exist in a vacuum.
Cultural organizations are not immune to economic realities.
Pretending that they are just takes more work, and who has time for that?
