Wednesday, January 24, 2018

Making "Pay As You Wish" More Equitable -- Sustaining the Met Museum (and Others)

The Metropolitan Museum of Art in NYC stirred up a lot of heat and raised some interesting questions when it announced a partial end to its "pay as you wish" (= pay what you want, PWYW) admission policy earlier this month. Under financial pressure, it is ending PWYW admissions for all but residents of NY state (plus students from NJ and CT).

The underlying issue is how can a museum build relationships with "patrons" that are fair and affordable, while encouraging them to be true patrons, paying what they can afford to sustain the museum. Modern technology enables new ways to solve this knotty problem, but few have begun to exploit that.

An industrial strength variant of PWYW -- for profits -- and for non-profits

While for-profit businesses currently tend to fear giving any pricing power to customers, PWYW works surprisingly well in many situations. PWYW is common in museums, and has become popular for digital content and services (and has other well-established uses such as tipping). What I suggest is that the Met -- and others -- look at how to make it work better.

My work on FairPay points to new technology-enabled strategies to make enriched forms of PWYW "ready for prime time" -- by balancing pricing power more fairly on both sides in an ongoing relationship. FairPay was developed for for-profit businesses, but it is very well-suited to non-profits, such as the Met, as well.

FairPay membership relationships

My post from last year, A Better Revenue Strategy for Non-Profits in the Digital Era, explains how FairPay (short for Fair Pay What You Want) can change the game in ongoing patron relationships.
  • The idea is to seek to personalize a level of payment that is fair and affordable to each patron, and to motivate each patron to pay at that fair level. 
  • The problem is that patrons have very different value propositions -- different levels of usage, of value obtained, and of willingness and ability to pay.
  • Addressing that variability is facilitated by shifting to a relationship view: from one-off admissions, to the total being paid by an individual patron over an ongoing period. 
  • This shifts all sides from a transaction mind-set to a relational mind-set -- and turns price-setting into a repeated game that centers on value instead of price, and encourages cooperation, transparency, and trust
  • That relational mind-set builds mutual dialog and engagement -- which is good for both the museum and the patron. Technology enables this to become far stronger.
FairPay works much like a membership, but with fully personalized pricing that adapts to the value each member gets, as well as their willingness and ability to pay. Because FairPay is highly flexible and adaptable in its pricing, it can work for anyone who is likely to make repeat visits. It can provide for free or low-price admission in cases where that is fair, given the circumstances -- and enable simpler forms of premium patronship for those willing and able to provide greater financial support to a cause they think worthy. (Another post explores FairPay memberships in more depth: The Missing Piece of the Membership Puzzle -- Agreeing on Value for Each Member.)

Even for institutions not ready to move to FairPay, understanding the principles behind it suggests a direction to move toward (as encapsulated by the thought experiment described in another post).

From visitors to members ...to become true patrons

Of course many who visit the museum will be one-time visitors. FairPay is primarily aimed at ongoing "member" relationships, and that was the focus of my prior post on non-profits. However, FairPay can be adapted to address the issue of new and one-shot relationships, and to provide a smoother path from visitor to ongoing patron. That leads to pricing that is both more win-win, and more economically efficient -- raising more funds from more people.

Much of the negative response to the Met's PWYW change is about how it may reduce access to disadvantaged visitors. FairPay's flexibility in customizing relationships adapts to patrons with both low and high ability to pay.

Here, I sketch out some suggestions on how a new visitor might be addressed with FairPay, and highlight some of the underlying principles.
  • The idea is to invite those who want to pay less than full price -- as well anyone who expects to be a repeat visitor -- to join a special "FairPay patronship program." 
  • This can work for any visitor who is willing to build a relationship that is more value-centered, even those of means -- many of whom might pay at premium levels, just as in other membership programs.
  • While this may not be well suited to the out-of-area visitors now being excluded from the PWYW policy (at least those who will not visit regularly), it offers a way to get more, on a more cooperative basis, from those who are still permitted to pay as they wish. (And it should be able to pass muster with NYC as being no more onerous to those who cannot pay than the current PWYW policy mandated by the Met's lease of public parkland.)
  • It also provides a tool for the Met to build a direct relationship with the many visitors who have not joined as members. Membership now costs $100 for unlimited visits (if within 200 miles) versus the suggested $25 per visit.
  • FairPay provides a smoother and more rational range of value propositions -- less that $100 for those who might visit 2-3 times per year, and a basis to suggest those who visit many times per year should pay more, if they can. Instead of pre-set bundles of perks for higher level memberships, FairPay can provide for individually customized on-demand bundling.
FairPay relationships generate personalized prices and value propositions based on the following key principles:
  • Post-pricing: set the price after the experience, when the value of the experience is known. That eliminates the patron's pricing risk (the risk that the experience is disappointing). Note that the Met has little pricing risk at an individual level (since its marginal cost per person is near zero), only the overall risk that the aggregate pricing level (over all people) is too low.
  • Post-bundling: a further aspect of post-pricing -- enable the patron to select the package or bundle of services they desire, one piece at a time, when they know what they want -- not as some pre-set package that is arbitrarily bundled (often with undesired pieces that are not used, as in the Met's current $200 and $600 membership bundles).
  • Participatory pricing: get the patron involved in setting a personalized price that they consider fair and affordable for them. That avoids misunderstanding the value proposition (as they perceive it), and helps build a deeper and more cooperative relationship. Some patrons will push for lower prices, while some can be "nudged" to pay more than now suggested.
  • A repeated game: shift the focus to the continuing relationship, rather than the one-shot transaction, to focus on value rather than price, and to draw on human values of cooperation:  fairness, reciprocity, trust, and altruism (especially powerful for museums and other public services).
Together, these principles lead to prices that are fair for each patron, whatever their level of activity and their ability to pay.

The repeated game of relationship

How does this game work?  Think of it as something like "running a tab," but with a new kind of cooperative price-setting process. See the diagram (fully explained in another post, with some basics here):
  1. Visitors seeking this FairPay admission would join as "FairPay patrons," providing and confirming their email (and maybe presenting a credit card for validation only, with no payment), thus beginning a basic, ongoing relationship with the Met. 
  2. They could immediately be given a membership card (or an app) with a coded tag that allows tracking of their entry and exit times (and which exhibits they visit).
  3. After their visit, the Met would email them to request a payment -- reminding them of how much time they spent, and any special exhibitions visited, with a suggested price for them. The Met would emphasize the importance of the patron's financial support to maintain its offerings, and emphasize the benefits offered to ongoing patrons. 
  4. The patron could then "pay what you think fair" -- and indicate the reasons why they feel it is fair to pay less (or more) than the amount that had been suggested for them to pay. They would be free to be unfair and not pay much (or at all), but that would be tracked. Note the important difference between "pay what you think fair" and "pay what you wish" -- the emphasis is on fairness, not whim. 
  5. On their return for another visit, the card or app could be used again on the same terms -- if the holder is in good standing, based on their prior usage and payment history. Thus repeat visits would be enabled, with all payment requests for that month processed together. 
Note how tracking visits provides a way for the Met to make the value obtained more evident, and more personalized. These repeated visits could be discounted on a sliding scale to work much like an annual membership, but still be priced to reflect individually varying levels of activity. There could also be cap on total payments in a given year, as with conventional memberships.

But unlike conventional memberships, it could be made clear that those who visited often, and for longer times (and visited premium exhibits) might be expected to pay more than those who visited less. Similarly, students, retirees, and other categories with limited means might be empowered to claim discounts (with more flexibility and privacy than at a ticket window). Conversely, visitors who can afford to pay more could be "nudged" to do so. Seniors and students who are affluent could be discouraged from seeking discounts.
Another important benefit these methods would provide to the Met is that new visitors are immediately brought into an email-based relationship with the museum. That has numerous obvious benefits.

There are strong behavioral economic underpinnings to making this strategy fair and sustaining -- this should be primarily "carrots," but there are also some "sticks:"
  • Some might try to abuse FairPay and not return, or could return with another email address. But FairPay's tracking process makes such abuse harder -- and more conspicuously at odds with maintaining one's own positive self-image. 
  • Such abuse might have results similar to the current PWYW policy -- but probably for fewer people, and less aggressively -- and abusers could now be tracked and cut off from repeated abuse. (Enforcement of fairness criteria could be lenient, or as whatever level the Met and the city agree to be appropriate.)
  • Other methods proven by behavioral economics could be applied to nudge patrons to pay fairly, and even generously. 
  • More direct, proactive programs could be applied to encourage participation by the disadvantaged (or others) -- and even to encourage them to volunteer non-cash support that might be credited toward their membership obligations.
Thus total revenue should be higher than with the current PWYW policy -- and relationships should be much stronger.
Naturally the Met would want to test this to learn how to manage the process well, starting with selected segments of visitors who can be expected to be most deserving and appreciative of this increased level of cooperation, transparency, and trust.


From visits to relationships, from price to value

FairPay is all about building value-centered relationships, and being smart about how to motivate and value such relationships. Technology is providing much more powerful ways to do that than ever before.

The institution's challenge is to exploit these new ways to make museum pricing work better for all of us -- whether with full forms of FairPay, or with partial steps in that more win-win direction.

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For a full introduction to FairPay see the Overview and the sidebar on How FairPay Works (just to the right, if reading this at FairPayZone.com). There is also a guide to More Details (including links to a video). 

Even better, read my highly praised new book: FairPay: Adaptively Win-Win Customer Relationships.

(FairPay is an open architecture, in the public domain.)

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