For several days now, something has been bugging me.
Again and again, the Minnesota Orchestra’s leadership has indicated that it is trying to develop a new business model to successfully run an orchestra in today’s cut-throat world—apparently with the understanding that this model will be so successful that other orchestras around the country will adopt it as well. There is true-believer zeal in their statements and actions, and I have no doubt that management truly believes this new model will solve the various ills currently plaguing the industry, and lay a solid foundation for future growth.
But the longer this dispute goes on, the more this new business model baffles me, leaving me with many questions for the Orchestra’s management. On a basic level, what is this plan? For something so central to the labor dispute, there has been precious little explanation of it or its particulars. If you feel this plan is so vital to the survival or the Minnesota Orchestra (and orchestras in general), then why aren’t you more actively discussing it, and promoting its various components? And why are you so adamantly pushing it despite clear evidence that no one actually wants it?
The more I think about this new plan, the more questions I have for the Orchestra’s leadership.
An Unclear Business Model
To begin, I have to admit I’m surprised you’ve been so circumspect in the details of your new business model. It’s odd… you have said repeatedly that it is the basis for your actions, and that its implementation is critical for the long-term health of the Orchestra. If this is the case, if it is so rationale behind it is so self-evident that anyone can see its importance, then why aren’t you aggressively hawking the details at every opportunity?
Yes, you have a PDF of your “strategic plan” on the Orchestra’s website, but it lacks details and justifications of specific actions. You don’t lay out your business model, you just provide boilerplate.
And even if the document on your website was thoroughly detailed, it exists in isolation. There have been almost no other mentions of the plan, nor have there been public discussions about what you’re trying to achieve with it. Over the course of the last year and a half, why haven’t the Orchestra’s leaders and board members been talking about it in community forums or in the many interviews they’ve given? Where are the details? Why can’t every board member give an “elevator speech” that explains its key points and the justification for them? Instead, you simply state there is a new business plan… and that it’s vitally important.
The problem with this is that this gives the appearance of arrogance… that you are so obviously correct in your beliefs that you don’t even need to explain them. That your ideas must simply be acted upon without question. This situation also gives the impression that you don’t want too much discussion of your new business model—that you recognize that it will be unpopular or raise opposition, and so you avoid talking about it to avoid any potential pushback until it’s too late.
“Align Supply with Demand”
Wading through your documents and statement, however, I can find two major components of your new business model. The first is your stated goal to “align supply with demand” for your concerts. As a result, you have reduced the number of seats in Orchestra Hall, and likewise reduced the number of classical concerts you are presenting, dropping from 85 in 2003 to proposed 55 in 2012.
With respect, this concept seems to fly in the face of basic business practice. As I mentioned in my previous blog, I’ve been surprised that the management would so firmly commit to a plan that is so self-defeating. Facing a difficult economic climate where you are struggling for audiences and donors, why would you throw your hands up and simply scale back your product? Why would you not fight for market share? What other business—anywhere—would respond in such a way? By pulling away and further removing your product from the market, you are essentially beginning a suicidal death spiral leading to irrelevance. By choice.
Let’s look at this from a different perspective—say, from that of a hypothetical soft drink company. Let’s say that your flagship product, Sparkle Soda has been around for decades, but has been losing ground slowly and steadily to the industry leaders like Pepsi and Coke. Faced with this deteriorating situation, why wouldn’t you grit your teeth and try to reverse the situation? Why not re-brand and begin a massive public awareness campaign to make Sparkle Soda more visible again? Why not strategize new, innovative partnerships to bring your product into new markets? Why not fight aggressively for product placement? For example, you could make sure that every major fast food chain or movie theater complex had at least one nozzle dedicated to Sparkle Soda on all of its fountain drink dispensers.
Following the Orchestra’s model, the company would instead cut production of Sparkle Soda and decrease distribution at the national level. Instead of working diligently to make sure that every fast food chain had a nozzle dedicated to Sparkle Soda, it would sub-lease the nozzle spaces it currently has to a larger competitor like Coke or Pepsi. Worse, the drink company wouldn’t even use the proceeds of its rented-out nozzle spaces to jump start product development or launch new initiatives… it would just hold onto the money and give out large bonuses to the CEO.
Maybe this is an appropriate action if you’re ultimately trying to pad your nest egg or sell off an under-performing company. It is not, however, appropriate if you are the leader of a non-profit—and particularly not if you the guardian of a century-old cultural treasure.
The only other aspect of your model that’s been spelled out is the concept of “dynamic pricing” to increase ticket sales. This concept is most familiar to the public through the airlines, which use it to constantly adjust seat prices based on a whole slew of external factors, such as demand, type of customer, time of day, and competitor’s activities.
With respect, I can’t imagine why you would adopt a marketing technique from this industry. Americans cordially despise the airlines, and dynamic pricing is one of the reasons for this animosity.
For one, regardless of what kind of deal they got, customers always have a gnawing feeling that you’ve paid too much. Stories abound about those who waited just a few minutes too long before buying their tickets—only to find that the price had increased exponentially. Or that someone using a different online platform or even a different browser scored a deal on tickets. This creates a deep sense of frustration; plus, since ticket prices are based on a bewildering array of uncontrollable external factors, the customer has no sense of what the ticket is actually worth.
As a result, customers are forced to spend an inordinate amount of time checking and re-checking prices, trying to game the system and lower the price. I personally hate this—jumping from website to website over several days simply trying to avoid getting fleeced. I resent that airlines make me go through all these hassles—why would I want to see that happen with Orchestra tickets?
And let’s play this out to the logical conclusion. Following the airline model, for example, would the Orchestra no longer offer a last-minute rush tickets at discounted prices, but instead force last minute purchasers to pay three times the face value of the ticket? Pay additional fees for an aisle seat?
There are larger issues to consider as well… issues like data management. Dynamic pricing only works when there significant segmentation of the consumer base; ticket buyers have to be placed into discrete categories that range from age and income to geographical location. The events themselves must be segmented as well, with price points based on factors like assumed popularity, day of the week, assumed clientele, and so forth. This is a vast amount of data that has to sifted, collated, and manipulated to high levels in order to make dynamic pricing work.
So… do you have the technical and personnel resources to gather and manage all this data?
Can this data be handled through the database management system you have now? Do you need to upgrade, or purchase a new system? Databases are hugely expensive—what would it cost to ensure the system could implement dynamic pricing? In addition to the technical needs, what are the staff needs required to gather and collate this data, and monitor it on a daily basis?
In short, do the high costs associated with implementing dynamic pricing justify the extra revenue such a system could theoretically produce? Maybe you’ve figured this out, but I’d love to see evidence of it.
The problem is that dynamic pricing is a buzzword right now, and it’s not at all clear that it would work for an orchestra. I recognize that some events have had luck in selling tickets using dynamic pricing, such as the 2012 London Olympics, but its overall record is still spotty. Amazon tried dynamic pricing on DVD sales in the early 2000s leading to a furious response from consumers regarding the price differentials. Ultimately, Amazon refunded their customers who had paid more. Coke tried an experiment in dynamic pricing where vending machines charged different amounts based on location and the weather conditions outside. Customer backlash forced it to abandon this approach.
My own perspective is that dynamic pricing only works in the following conditions: customers have a difference in their willingness-to-pay, the market is segmentable, the is a limited potential for arbitrage, the cost of segmenting and policing does not exceed revenue increases due to customization, and it does not raise questions of perceived fairness.
Are these criteria true for the Orchestra?
Who is Embracing this Plan?
Finally, I think it’s particularly interesting to note that despite your great faith in your new model… no one else is rushing to embrace it. Why would they? Peer orchestras around the country have been enjoying great success in both the economic and artistic arenas. Again and again there are news stories of orchestras in cities like Cleveland, San Diego, Kansas City, Los Angeles, Houston, Chicago and Pittsburgh that have been able to balance their books and flourish artistically without resorting to the sweeping changes demanded by your new business model. The one group that followed the Minnesota Orchestra approach—our near neighbor the Saint Paul Chamber Orchestra—ended up losing a third of its ensemble and suffered dire organizational damage.
Say you were an arts administrator in a good sized orchestra… which model would you chose—the Minnesota Orchestra model, or the Cleveland Orchestra model? Which model produces the best results and the fewest headaches?
So returning to my opening question— based on the fact that your new business model brings only questionable benefits, the fact that no one seems interested in adopting it, and so many other organizations are enjoying success through a different model… why do you continue to push for it?
When will you concede that this whole experiment has been a colossal failure?