From up-selling and cross-selling to ancillary offers of food and beverage, merchandise and even car parking, Tim Baker explores a ‘AAA’ approach to increasing revenue.
Per Anders Jorgensen
Following on from the article The AAA of income about developing an integrated approach to earned income across admissions, ancillary and affiliation, this article offers some practical examples to illustrate those principles. Up-selling is a common concept in airlines and hotels. You click on the cheapest option and are immediately offered opportunities to trade up, for a temptingly small price, to business class or a larger hotel room.
Such tactics are much rarer in the cultural sector. One example is the Metropolitan Opera in New York that has developed functionality that means customers viewing cheaper seats are offered the option to upgrade to better seats.
Cross-selling – offering ticket purchasers a meal package or guided tour as part of their purchase – is much more common. Here is an example from Semperoper, Dresden.
Regent’s Park Open Air Theatre also offers an interesting example of cross-selling a range of food and beverage offers that enhance the experience of attending an outdoor event.
Opportunities exist beyond food and drink, and tours. Many performing arts organisations have been slow to grasp retail opportunities or see them simply as a means of making extra money on the panto. By contrast, Minor Entertainment recognises that for many customers it’s a crucial component of the experience. A common question pre-show is what merchandise is available and the audience research it has undertaken into what parents remembered about their first trip to the theatre found that the merchandise or ice cream are commonly mentioned.
Interestingly, the company observes an inverse relationship between spend on tickets and spend on merchandise. Some customers value the ticket more highly and are less likely to spend on merchandise, while others opt for cheaper tickets but spend heavily on merchandise. This emphasises how people value the options differently. Discounts when buying in advance are used to encourage early purchase, and money-back guarantees are offered to minimise barriers to advance purchase. If audience members don’t like the goody bag, they can hand it back for a full refund.
Bundling and unbundling
A cross-sell can also be used as an up-sell when tickets and a meal are bundled together. When Malmö Opera has a sell-out musical, it creates a premium seat by virtue of including a meal in the restaurant. One of its big discoveries has been that some people happily pay the premium and then turn up for the performance, surprised that they also get a meal, indicating much lower price sensitivity than thought. Of course, it is difficult to make this work unless your catering operation is in-house.
The trick is to know when it is in your interest to bundle the added value in with the ticket price, as in the Malmö Opera example, and when you should ‘unbundle’ – offer the ancillary item as an optional add-on. There are more opportunities to sell optional add-ons as you’re not tied to selling at the point of ticket purchase, plus you can offer a range of optional add-ons to boost sales. However, bundling can still be effective in ‘forcing’ the sale of the ancillary item. That can drive higher volume and, by creating a higher price, potentially makes your other ticket prices look comparatively attractive.
HOME in Manchester has a massive catering operation generating significant additional income to the venue. It does not run this in-house but rather than franchising the service, where an independent caterer would run its own restaurant within the venue and then pay a cut to HOME, it sub-contracts the running of the restaurant.
As Dave Moutrey, Director and Chief Executive, puts it: “This is probably more work and possibly slightly less income than a franchise, but it means we have more control of the offer and can make sure it matches with our identity, and this is helped as we have an excellent long-standing partner, as well as making it easier to tie in promotions with the artistic programme, which is of course what we are really all about.”
Running a car park
Liverpool Philharmonic comprises the Royal Liverpool Philharmonic Orchestra and the Liverpool Philharmonic Hall, which presents many more opportunities to generate ancillary income than are available to most organisations. More unusually, this includes running a car park. The car park is situated to the side of the hall and Liverpool Philharmonic has been able to lease it from Liverpool City Council.
Having made some initial capital investment, Liverpool Philharmonic now sub-contracts the management of the car park for a proportion of the income. The car park is in demand all the time and, despite having only 65 spaces, this generates a significant additional income to the orchestra which it can use to support artistic and educational programmes.
However, as Executive Director of Audiences and Development (and head of car parks) Millicent Jones, says: “The most interesting opportunities arise from how access to convenient local parking can be used as a benefit to generate additional income from membership” – and how valuable that benefit is. “The ability to reserve a parking place (and only reserve, mind – customers still have to pay for parking) is offered as a benefit to top level members, paying £1,000 or more a year. Recently, one audience member made a one-off donation of £1,000 just so they could reserve a space.”
We’ll explore more ways to leverage ‘affiliation’ income in our next article, but are there opportunities to add value through ancillary offers in your organisation and are you bundling and unbundling to maximum effect?
Tim Baker is Director of Baker Richards.
This article, sponsored and contributed by Baker Richards, is part of a series sharing insights into how organisations in the arts and cultural sector can achieve their commercial potential.
Tim Baker and Debbie Richards of Baker Richards are joined by Liz Hill, author of The Complete Membership Handbook, and retail expert Selina Fellows for a training programme on Triple A for UK Theatre on Thursday 1 and Friday 2 March.