Nonprofits redistributing ‘surpluses’ to patrons?

Recently I came across an academic paper examining the relationship between performing arts organizations and their patrons that includes a description of a patron loyalty program developed by the Bach Choir of Bethlehem in the early twentieth century (Kushner and King, 1994).* BCB’s model is unlike any current model I have yet encountered (though this may be due to my lack of awareness not to a lack of similar models) and it strikes me as both simple and enlightened. Here’s my summary of the 1994 description of BCB’s model in the paper:

The BCB is a nonprofit organization that has been operating continuously since 1912. Its orchestra members are full-time professionals most of whom live in New York or Philadelphia and its choir is made up of volunteers. It has paid administrative staff. It presents an annual festival over multiple weekends. Its performance facility has just over 1,000 seats and is scaled. Since 1912 BCB has employed a system of “Guarantees” which give patrons the opportunity to book first and to choose seats according to the number of years they have supported BCB with an annual minimum pledge (in 1994 this was $50).  The average (mean) pledge has exceeded the minimum each year and no discounts are offered on ticket prices. The Guarantee pledge is made in advance of the Festival but is not payable until after the Festival. Importantly, Guarantors are not asked to pay the entire amount pledged, but are only “assessed” a percentage, which is based on the actual deficit resulting from the annual Festival operations. Approximately one third of the Guarantors opt to pay the full pledge amount rather than the lower assessment amount. The number of Guarantors who do not honor their commitment is negligible.

According to BCB’s Web site it still offers the Guarantee program and the Gurantor minimum pledge for 2010 is $125, or $50 for those under 35. I like many aspects of this model but the part I find particularly compelling is that by assessing Guarantors at an amount lower than they have pledged, BCB essentially ‘redistributes’ back to them any Guarantee surplus donations at the end of its season (as opposed to taking the opportunity to beef up the annual budget in order to make ‘good’ use of them). It’s clear that demand exceeding capacity (most years) has been a key to the success of this model for BCB.

However, I wonder if there is a way to modify this idea for a nonprofit arts organization facing the opposite problem: a tough-to-sell show. Could patrons that buy early and first be provided with an incentive to try to help fill seats to such shows by offering modest ‘consumer surplus rebates’ if a show that is not expected to sell out does better than anticipated? Imagine the following scenario on a show in which the producers have budgeted ticket revenues conservatively, at 50% capacity:

You reserve a top-tier ticket to a show for which the house is scaled and the prices are listed as $30, $42, $58, $75; your credit card number is taken but your card is not charged at the time of purchase. Instead, you are told that the organization will charge you the day after the performance and that the organization will reward you with a lower price as more tickets are sold to the performance. It also provides you with an easy method for alerting friends that you have bought tickets for a particular night and encouraging them to do the same.

For instance, if the performance reaches 62% capacity, your $75 ticket drops to $71.25; at 75% capacity it drops to $67.50; at 87% capacity it drops to $63.75 and at 100% capacity it drops to $60.  At each level, the ‘new’ ticket price would be extended to all new purchasers of a ticket in the ‘$75’ section.

With tough-to-sell shows those that buy early are often ‘penalized’ as they end up paying a higher price than those that buy later (who are able to find a discounted ticket). But with this BCB-inspired model, the more tickets that are sold the more everyone benefits (including the organization, which earns more than it would if tickets capped out at 50% as projected). The model assumes that those who buy early are the most enthused about the show and thus most willing to pay more initially and most willing to help spread the word to others if given some tools, encouragement, and incentives to do so. 

No doubt some are thinking, “But if the tough-to-sell show gets a positive review and starts to take off at the box office, just at the point when the organization could have been pocketing some significant surpluses (by employing dynamic pricing, for instance, and increasing prices in response to increased demand), it would be lowering prices and leaving money on the table – that makes no sense!” It makes no sense if one’s only motive is to maximize profits. But perhaps it’s not entirely lunatic if one’s primary motive is to create greater social value and develop a loyal, invested, fan base.

There may be many reasons why this particular idea would not work. Nonetheless, I am compelled by the concept of, in essence, ‘redistributing surpluses’ back to those patrons that regularly jump in feet first. It strikes me as a way of conveying to them that they are viewed as genuine partners (and thus worthy of sharing in rewards as well as risks) and not simply reliable sources of cash.

Image of hand with cash by Mikeledray licensed from Shutterstock.com.

* Kushner, Roland and King, Arthur E. (1994) “Performing Arts as a Club Good: Evidence from a Nonprofit Organization”, Journal of Cultural Economics, 18: 15-28.

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Comments

  1. says

    Hmmmm…. patrons, donors and board members become shareholders, and take shared responsibility for a community institution through stock ownership… with artistic, financial and social dividends… along with responsibility for downside risk. Now THERE’s a radical model for stewardship… In the BCB example that you cite, Diane, buying a ticket is not too different than buying a share of stock with an expiration date. Do we need a “stock exchange” for trading “shares” in nonprofit organizations (e.g., kiva.org)? Do shareholders have voting rights? What’s to stop a few wealthy individuals from “acquiring” whole institutions? Don’t they already? Or, do we need to protect public-benefit corporations from the whims of the public?

  2. Galina Pavlova says

    That’s an outstanding way to build a community around art, thanks for sharing this example!

    There’s another organization (possibly much more that I’m not aware of) that lives this model, Trust Art. They sell “shares” of their projects, not only in exchange for money but also for time. Also, talking about an expiration date, they have one, which means that they auction off the artwork (I believe the current cycle ends in 2012) and any surplus is distributed among stakeholders according to the number of shares. Time will show how sustainable the model is, but the mere idea of participating in the art by literally “owning” it — is amazing in a sense that it aims to eliminate the difference between the organization’s governance and its audience.

  3. says

    Fascinating idea, thanks Diane. I’ve heard of companies getting donors or affiliate schemes to sponsor new repertoire, but not getting this kind of potential return. Obviously this is not going to appeal at the more commercial end of the sector, and seems best suited to smaller communtiy focused companies such as BCB, but I can’t help feeling this could also be an interesting model for an opera company, for example.

  4. Roland Kushner says

    A couple of things here. I confess that it’s nice to see that paper still finds interest after all these years. More substantively, I’ve been realizing over the years what kinds of contingencies are inherent in purchasing a ticket.

    You’re always making a bet when you buy a ticket, a wager that the utility inherent in the money you put down is less than the utility of satisfaction you’ll get when you experience the performance. The recent trend of late ticket buying is evidence to me that patrons are more sensitive to the loss of utility and want to preserve the options that reduce the odds in that bet. More than one presenter/producer has already tried a “pay after the show” tactic which lets patrons reduce the risk of that bet. I”m not sure what the overall success of that has been.

    In another paper in Journal of Cultural Economics*, Arthur Brooks and I looked at street performing (we first met at a cultural industries conference at NYU, left to get a bite from a street vendor, observed some buskers, realized that we had both had that experience, and thought that there was a paper in the topic). Our major observation was that busking is especially efficient precisely because it allows the listener to pay what s/he thinks the performance experience is worth _After_ the fact. An unexpected private bonus was being able to quote Joni Mitchell in the title as well as Jerry Jeff Walker and John Gorka in the text.

    The opportunity for current presenters/producers might be a hybrid of Diane’s approach and a “pay after the fact” mechanism. It could impose some market discipline on both presenters and purchasers if they both didn’t try to game the system too much, an undeniable risk. It wouldn’t redistribute surplus to consumers as Diane suggests, but I’m not sure that’s what nonprofits are meant to do programmatically. They are mandated not to distribute net surpluses to private individuals, but I like to see such organizations save up a little scratch for program development, risk-taking, and the like, rather than budgeting or planning to only break even.

    To Tim’s point about BCB being community-focused: while the singers were local, and the orchestra regional as described, two thirds of the audience was from out of town; the Festival’s draw and recognition were both national.

    Finally, the 104th Bach Festival will take place in early May 2011; BCB is still going strong! (www.bach.org)

    * Kushner Roland J. and Arthur C. Brooks (2000) “The One-Man Band by the Quick Lunch Stand: Modeling Audience Response to Street Performance” Journal of Cultural Economics 24 (1) 65-77

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