Groupon and Mass Discounting Strategies

Spurred in part by an excellent article written by Chris Jones of the Chicago Tribune, in the past month, there has been a lot of talk about cultural organizations using Groupon (an online, mass discount website). Just like any mass discounting method, using Groupon should be a well thought out strategy. Used correctly, and it can work very well. Used incorrectly, and it can be very costly.

Things to remember about Groupon:

• It is out there for the world to see and it was designed to be used by social media, so that it is picked up and passed along at a very rapid pace. From some of my previous posts on this blog, you probably know that I am a fan of what I call "ninja discounting." Very rarely do I use mass communication to advertise and promote discounts, preferring instead to use one-to-one direct marketing techniques aimed at very strategic recipients. If I need to discount, then I want to make sure that I can control who gets the discount so that it flies under the radar of full price buyers.


• Groupon generally rewards a pattern of behavior that isn't desired--namely, last minute ticket purchasing. Before turning to a mass discounting strategy like Groupon, performing arts organizations will wait to see how their standard campaign is doing. If they are on goal, most won't discount. If they are off, time to throw out the offers. But this usually happens pretty late into a campaign. Let's use the Joffrey Ballet that Chris cites as an example. Their programming begins in October, as does Arena Stage's, so I would guess they launched their subscription campaign last spring. How do you think a subscriber who purchased early and at full price will feel when he sees that if he waited several months he could get a subscription at 50% off? and what do you think his purchasing behavior will look like next year? and trust me, he will get the offer because as my first point illustrates, it goes to everyone.


• Groupon is a for-profit company, and operates like one. They take a significant cut of each sale made. Using the example from the Joffrey Ballet, subscriptions were offered at 61% off regular prices. However, the cut that the Joffrey gets is significantly less than that, so they most likely sold those subscriptions at 75-80% off. Larger organizations can negotiate better splits with Groupon than their smaller counterparts, but I haven't heard of anyone keeping more than 60% of the full sales price.


• We must always remember that discount buyers behave differently and you must budget for that. Full season subscribers at most organizations renew at a rate between 85% to 90%. However, I have found that full season subscribers that purchase their subscriptions at a drastic discount renew at a much lower rate (around 60%). Additionally, because they spent significantly less amount of money per ticket, the no show rates are also substantially higher, sometimes leaving large empty holes in your house.

Instead of putting subscriptions on Groupon in order to attract thousands of new subscribers, I would do the following:

1. Using your database, compile a list of the tough holdouts that you have hit up seven to eight times already during your subscription campaign (usually includes single ticket buyers and non-renewed subscribers from the past 3-4 years).


2. Next, trade lists will all the other arts organizations in town.


3. Then possibly consider purchasing lists from a list broker.


4. Combine all the names into one master document, and suppress your current subscribers, donors and full price ticket buyers.


5. Using the exact same deep discount offer you were going to give to Groupon, develop a cheap, but effective mailer and send to your list. Make sure it is an offer that is impossible to pass up, and that the offer leads in design and has a deadline. (note: if you don't have a large box office staff, then make sure the offer is online only, or you will be swamped). The key is to keep production and mailing costs low--send using non-profit postage and use a discount printer/mail house.

By doing this, you get to keep the entire purchase price of the discounted subscription, and you minimize the possibility that your dedicated and loyal patrons will see that you are heavily discounting late into your campaign after thousands have already purchased.

I find that Groupon is most useful when trying to fill large sections of an empty house on dates that are less desirable. Full price ticket buyers don't seem to mind because they didn't want those dates anyway, and most companies budget low percent paid capacities on those dates so it is additional revenue that wasn't anticipated.

Remember to Test even the "Sacred Cows"

I think I have always been attracted to arts marketing because it allows me to use both creative as well as scientific talents. To this day, I might be the only person to graduate from Missouri State University with a major in speech and theatre education and a minor in mathematics. So it should come as no surprise that I take a very scientific approach to marketing.

In every campaign I lead, I constantly manipulate variables and note outcomes in an attempt to continually improve upon previous results. The easiest variables that marketers turn to are design and pricing. How many times have you tested a carrier package? an offer? pricing strategy? Probably quite a few times. Now think about how many times you have tested different timing schemes for putting products on sale.

This was the first year in my tenure at Arena Stage where we experimented with using timing as a variable. For almost as long as we have had mini-subscriptions, we have put them on sale at the exact same time as our full season subscriptions, fearing that instead of waiting or upgrading, our potential mini-subscribers would opt to go elsewhere for their entertainment. The fear of losing potential mini-subscribers was so strong that for many years timing wasn't even considered a possible variable to test.

As a leader, you have to always remember that the fear of a potential loss will always be significantly more powerful than the possibility of a probable gain. By nature, we are risk averse, and if given a choice to pursue status quo or trail blaze, we will choose status quo each and every time unless there are overwhelming odds. But you have to be mindful of "sacred cows," and be willing to test even the most concrete of assumptions. In my career, the testing of "proven strategies" has led to some pretty remarkable results.

For our inaugural season in the new Mead Center for American Theater, we experimented with exclusively putting full season subscriptions on sale for the first four months of our subscription campaign. In addition, we developed a pricing strategy that encouraged full package purchases, and new exclusive benefits for full season subscribers, such as the ability to purchase parking in our onsite, underground parking lot. It was a test of timing as a variable--would potential mini-subscribers upgrade to the full season, wait until mini-subscriptions were available or leave Arena Stage entirely.

As we are eight months into our subscription campaign, we have some pretty interesting results:

• we exceeded our projections for full season subscribers both in number of subscribers as well as revenue by almost 60%
• we had three times as many subscribers upgrade their packages when compared to those that downgraded
• full season subscriptions weren't just for renewals and upgrades--we more than tripled our projections for brand new subscribers to Arena Stage at the full season level. At this moment, 11% of our entire subscription base are patrons who have never subscribed to Arena Stage and did so in their first year at the full season level.

As our full season subscribers renew at a much higher rate than our mini-subscribers do, I anticipate that the growth that we have seen in our number of full season subscribers will benefit us for many years to come.

Some thoughts on Dynamic Pricing

A couple of months ago, a good dialogue about dynamic pricing began when Trisha Mead (PR and Publications Manager, Portland Center Stage) wrote a blog post on the benefits of dynamic pricing on the 2am theatre blog, and then Adam Thurman (Director of Marketing, Court Theatre) wrote a response entitled "the perils of dynamic pricing." It reminded me how often marketers disagree with each other when it comes to so called best practices.

If your organization is considering dynamic pricing, a couple of things to think about from someone who has some experience with it:

1. Tailor all marketing strategies to your organization. How can one pricing strategy be perfect for one organization, and completely wrong for another? The simple answer is every organization is unique, with a unique set of circumstances to consider. For example, if an organization's funding mix is 70% earned and 30% contributed, chances are, they might be much more likely to consider a dynamic pricing model, as ticket sales play a more prominent role in the organization's fiscal health. On the flip side, if your organization is known for more riskier programming, and relies upon contributed revenue more to subsidize less popular work, then dynamic pricing might seem like an alien concept.

2. Be mindful of your organizational culture and brand. Some companies are pioneering and entrepreneurial in nature, always looking for new opportunities to increase revenue streams. Other organizations have a more egalitarian approach to arts consumption. If your organization is known for having low prices available to everyone, then a dynamic pricing model might cause quite a disruption. However, those that argue that non-profits have nothing to learn from for-profit models are naive. There is now a long history of non-profits and for-profits working together. Even the most egalitarian of organizations, a "people's theater" like the Public Theater, routinely relies upon revenue from the for-profit theater world to fund its non-profit mission. Where would the Public Theater be today without A Chorus Line or New York Theatre Workshop without Rent? Sometimes for-profit strategies and approaches can be very beneficial to non-profit missions.

3. The funding conundrum. In his post, Adam asks a question which is meant to imply that the implementation of dynamic pricing could jeopardize an organization's "case for support." I have heard this argument before, and found it intriguing. Over the span of the past few months, I have sat on a couple of major funding panels with representatives from the top national arts foundations. I took the opportunity to ask them about the impact dynamic pricing might have in their opinion on an organization's "case for support." Without exception, each funder recognized that contributed support, especially from foundations and corporations, has taken a significant hit as a result of the global economic crisis, forcing non-profits to devise methods to increase other revenue streams. They understand these strategies in some cases are necessary for survival, and consequently said that they would not have any impact on a funding decision.

4. Dynamic pricing doesn't necessarily mean eliminating accessibility. Most non-profit art organizations would agree that accessibility to art is important. Dynamic pricing in itself doesn't preclude patrons from experiencing a performance if they can't pay top dollar. What it does do is force price sensitive consumers into an early buying pattern. Remember that in most cases, dynamic pricing doesn't affect ticket prices until a venue is at 60-70% paid capacity. If you purchase early, dynamic pricing shouldn't come into play. One of the reasons that I like dynamic pricing is that it rewards a buying behavior that is essential to converting a single ticket patron to a subscriber. Subscribers buy early and in bulk partially to get the best pricing available. If you can train more single ticket buyers that the later they purchase, the higher the price, it teaches the price sensitive single ticket patrons purchasing behaviors more aligned with the purchasing behaviors of subscribers.

Adam and Trisha are both right--dynamic pricing is both beneficial and perilous. Depending upon the needs of your organization, what's good for one, might not be good for all. Makes me start to wonder if there are any such things as general best practices.