From the best time to roll out a pricing change to the top mistakes organizations make when contemplating price-related analyses, here’s what your cultural entity needs to know.
There’s no doubt about it: Optimal admission pricing is a science, not an art. This may be more acutely understood now in our pandemic-impacted world than it was in previous decades. During the pandemic, many cultural organizations were forced to dip into savings and endowments, suffered major financial challenges, and many were forced to furlough staff members…or even shutter operations completely. It is unfortunately in times like these – when our nation’s cultural treasures are in jeopardy – that we realize the importance of financial solvency most acutely. As many leaders realized: Black swan events happen.
Pricing studies are one of our most requested services at IMPACTS Experience, especially since the onset of the pandemic and its continuing effects in recent years. Organizations are increasingly interested in “getting their money right” – realizing, perhaps, that the business of culture, history, and informal education is, ultimately, a business. And few earned revenue categories impact the ability of our businesses to deliver on our missions more than admission and membership-related revenues. Optimally pricing these engagement products can be the difference between making reductions in programming and staff versus planning for growth and expansion.
This article will cover three critical areas of best practices for cultural organizations considering a pricing study:
Although this article is far from comprehensive, our hope is that it arms you and your leadership team with a look into the insights required to develop and execute the best pricing study (and, thus, informed pricing strategy) possible.
Pricing Study 101: Items to keep in mind
Have you ever read a business or nonprofit-related book and thought, “That book could have been an article?” This is an article that could be a book. And maybe someday it will be, but with respect to getting as much helpful information in the hands of leaders as quickly as possible, we’ll cover the topline information here.
Let’s start with the basics: what a pricing study is, the different types of pricing strategies, and general best practices for collecting research and rolling out a new price.
A good pricing study uncovers the data-informed sweet spot of attendance volume and revenue optimization.
Finding an organization’s optimal admission price requires research to uncover the amount at which an organization is neither leaving money on the table nor charging admission fees that jeopardize attendance. For every organization, there is a data-informed price-point (or pricing strategy) that represents the “sweet spot” of attendance volume and revenue optimization.
When your organization deploys a pricing study, a goal should be to understand and quantify the price elasticity of demand for your organization. Price elasticity of demand refers to the measure of change in the market’s appetite for visiting an organization in relation to a change in the organization’s admission fee. Uncovering this will allow your organization to better understand what type of pricing strategy the market will bear for your unique experience and suggest advisable evolutions to other engagement products (e.g., membership). In sum, a well-designed pricing study contemplative of price elasticity should inform your price strategy, attendance projections, and attendant revenues.
Admission is but one method of audience access.
This may be the most important thing you’ll read in this article, as ignoring it risks a fundamental misunderstanding of audience engagement at the outset that can doom any pricing strategy. While we most certainly hope that a majority of guests are full-paying attendees, not everyone who enters your cultural organization will do so by way of full-price admission. And they shouldn’t.
Admission pricing is not an affordable access strategy. Please read that again.
Generally speaking, the kinds of people who profile as having any interest at all in visiting cultural organizations tend to have a higher household income than the average American. (Watch your assumptions here! This doesn’t mean they are necessarily rolling in cash and admission fees don’t matter.) These folks tend to believe that it’s worth paying for access to visit cultural organizations – and they are generally very willing to do so. A goal for many organizations should be to maximize the support of these customers.
Of course, there are some people for whom admission pricing may prove to be a barrier to their participation. These are our affordable access audiences. Many cultural organizations benefit by developing targeted affordable access programs to serve these specific audiences.
Critically, research shows that being free is not the same as being welcoming and having a lower admission fee does not necessarily correlate with welcoming lower-income audiences. Thus, cultural organizations benefit by having thoughtful, strategic access programs that actually work to welcome these individuals.
The answer is not a lower admission fee for everyone. The answer is targeted affordable access programs that can be funded by revenue derived from an optimal, data-informed admission price for our (vastly) larger percentage of visitors who can afford the costs of admission and membership.
Understand types of pricing strategies.
A foundational building block of any price strategy is the determination of an optimal price – the price at which an organization maximizes its revenues without demeaning the volume of visitation. (Again, this is one of the products of a pricing study.) Once determined, for many organizations the optimal price may well inform the static (or “fixed”) price of admission. For others it is a key value to inform most every other approach to pricing.
Static pricing, in which all adults pay the same admission price, may be the most familiar strategy. It is certainly the oldest and longest-standing pricing strategy. However, some cultural organizations are deploying more nuanced approaches to pricing, such as differentiated pricing, wherein different prices for the same experience are offered based on certain visitor eligibility criteria. This strategy’s more erudite cousin, variable pricing, varies price based on demand for the experience. Finally, dynamic pricing may be on the horizon, but we’re not observing broad, universal market acceptance of true dynamic pricing in the cultural industry at the moment. We dive into these various pricing strategies in this recent article, and it may well be worth a quick review for an organization giving serious thought to its financial future.
Consider the timing of price increases (when research suggests they are a smart move).
There are good times and bad times during the year to roll out a price increase. Generally, the best times are either when demand is low (January 1st is often an ideal date for most organizations as it tends to not only mark the change of calendar year but is often a low demand period for many organizations) or when demand is nearing its peak period (making the Memorial Day weekend a leading contender for many organizations introducing a new price).
A notably bad time to roll out a price increase? After a big investment like an expansion or major exhibit. Numerous case studies have documented declines in value-related perceptions when organizations attempted to justify a price increase ostensibly due to an internal decision to incur additional costs. Prevailing price psychology suggests decoupling price increases from obvious expense milestones. The risk of a poorly timed new admission fee is that audiences will think, “This exhibit/project is being built on our dime – and no one asked us if we even wanted it!”
Does this mean that an organization should never adjust its price strategy to contemplate new or updated experiences? No – of course not. It does mean that the devil remains very much in the details…the details in this example relating mostly to messaging and timing.
Now that we know the best times for price increases, what’s the best time to consider a pricing study?
It’s right now – in the second quarter of the year. This provides enough time for data collection, developing price simulation models, supporting internal discussions on key decision points, and contemplating attendant changes to membership programs based on the updated pricing strategy.
This said, the best time to be thoughtful about your pricing strategy is…any time and all the time. Sure, the second quarter of the year as the launch of a study likely allows for a new price to be implemented by the following calendar year, but there is never a bad time to be mindful of revenue maximization.
The top four most common pricing study mistakes
What should cultural organizations look out for when seeking a pricing study? We’re perhaps not going to make friends by pointing out some of the industry’s “cheats” when it comes to less rigorous pricing analyses, but our aim here is to empower leaders to think more critically about the elements that comprise a successful pricing study.
1) Overreliance on comparative/competitive price precedents (“comps”)
Pricing studies that rely on comps are those that say, “Hey. We are a science center. A ticket to the art museum next door is $25. The zoo across the street costs $25. And the other science center one town over is also $25.Therefore, our price should be $25.”
This overreliance is what is known in our space as “unintentional collusion.” Comps are not in and of themselves the backbone of a rigorous pricing study. Instead, they are contextual data points. Are they worth knowing? Yes. Are they foundational to understanding your organization’s pricing strategy? No.
The fallacy of a comp-based approach to a pricing study is that it doesn’t duly consider your organization’s unique reputational equities. Let’s acknowledge two things at once: (1) Cultural organizations have perceptions associated with the experience they offer. People come into art museums, for example, with certain expectations and established value propositions. There’s art on the walls of adjoining rooms. Perhaps there’s an Impressionist section and a contemporary art section. It may be relatively quiet inside. (2) Not all cultural organizations (art museums, science centers, aquariums, etc.) are the same. The Art Institute of Chicago is not the same as The Getty Center which is not the same as the Hunter Museum of American Art which is not the same as the Museum of Contemporary Art San Diego. And these are not the same as zoos, history museums, botanical gardens, and so on.
Comps essentially take a look at all of these apples and oranges (and bananas, pomegranates, tangerines, and a hamburger) and imply a pricing relationship when none may actually exist. Organizations are unique. Their pricing strategies should be, too.
2) Overreliance on audience research
A goal of optimal pricing is not only to engage active visitors, but also to activate inactive visitors. Inactive visitors are the folks with interest in attending your unique cultural organization, but who have not attended in the last two years or longer. To do this, an organization benefits from market research, and risks maximizing its engagement potential by relying solely (or predominantly) on audience research.
When organizations neglect collecting representative market research – which often includes delivering the data in more than one language – they miss critical intel to truly understand their total market opportunity.
3) Simplistic data inputs
The decision to visit a cultural organization is a complex one, and we humans are a messy bunch. The decision to attend a cultural organization is rarely an isolated one, and within the factors informing this decision, admission price is but one factor. Among people with interest in visiting cultural organizations, it’s often not even a comparatively important factor.
Other factors include schedule (“Do I have time to get there after my kid’s soccer practice ends?”), travel distance and the perceived hassle of getting there at all, the growing allure of the couch, economic concerns beyond admission price, and simply how much they want to visit an organization compared to something else they’d like to do during that same precious, open afternoon.
All these factors impact the perceived value of an organization’s admission price.
The question isn’t singularly, “Is this experience worth the cost?” Instead, the question should be, “Is this experience worth the cost for…. missing the baseball game, sitting in traffic, risking a child’s temper tantrum, trying to find a safe and convenient parking space, etc.?”
Understanding the constituent components that collectively comprise a visitor’s decision-making inputs and processes – of which price is but one factor – is essential to developing a comprehensive engagement and pricing strategy.
4) Not contemplating membership alongside admission price
An admission price change often alters the price psychology surrounding your organization, including your membership offerings. When membership pricing is not contemplated alongside potential changes to an admission pricing strategy, then there is a risk of membership pricing “trailing” admission pricing. Membership pricing that is chronologically discordant with admission pricing can alter and influence the perceived value of membership.
For example, if an organization raises its admission price independent of its membership offering, it may make membership appear to be a better “deal.” While ostensibly a favorable happening in terms of value perceptions, a market migration to a value-advantaged membership product may risk cannibalizing admission revenues. Also, these more transactional, value-driven members may dilute an organization’s potential donor pool with deal seekers. And when it comes time to renew, these folks may be more likely to disappear, confusing membership data and making it more difficult to cultivate meaningful relationships with true donor candidates. At the very least, it may leave the membership manager to wonder why the organization struggles so mightily with retention.
What’s the data-informed method to carry out a pricing study?
Seek to engage an expert resource that values clinical, data-informed analyses and brings the science to the “art” of pricing. When considering partners to help you navigate the pricing study process, be mindful of the mistakes organizations make when developing a price strategy. Resist the urge to rely on comparative analyses – these are more context than inputs. Work to understand your total market, not only your current audiences. Learn what your audiences value – beyond price.
Lastly, trial-and-error is an expensive education. Today, technologies exist that support modeling and simulation of pricing conditions that lend predictive insight to future pricing opportunities. These processes often require specialized computation capacities – which may suggest a partnership with an organization and/or university that has access to advanced data science and modeling expertise, know-how, and technologies. The findings from a well-designed simulation trial can provide confidence to real-world decision-making. If nothing else, virtual modeling can save an organization from IRL folly.
The processes that define due diligence relating to a pricing study continue to evolve. The prevailing methods of decades past may not be suited for today’s economy and market. Pricing is among the most critical earned revenue decisions for any organization – it deserves the best practices.
In our next article on April 24th, we’ll dive deeper into another method of cultural organization access: Membership. We’ll take a look at diversity among members and subscribers relative to general visitation and share findings to aid in further cultivating this meaningful group of supporters. Join KYOB+ to get the data.
Yours in expert analysis, real-time trends, and high-confidence research,
IMPACTS Experience
