Pricing strategy. In the for-profit world, business school classes spend semesters on the topic, entire books are written on its nuances and staff positions—even departments—are devoted to analyzing, tweaking and re-tweaking it for every sector and product line. Far less attention has been devoted to pricing strategy in the nonprofit world. And museums, being a small slice of the nonprofit pie, have barely scratched the surface of such strategies, at least publicly.
The most significant reasons for this are easy to guess. For one thing, admission fees are a tiny piece of most museums’ revenues. The Museum of Fine Arts Houston (MFAH), for example, reported less than 1% of annual revenue in 2009 under the line item “Admission/Tours/Lectures.” True, the MFAH charges only $7 to get in, but a quick back-of-the-envelope calculation suggests that even if they charged the same number of visitors $20, admission fees would still make up less than 3% of annual revenue. So partly, museums haven’t paid a lot of attention to pricing strategies because their attention is focused on bigger ticket items like philanthropic giving.
Museums also avoid talking about pricing strategy for fear of seeming callous and calculating. What if museums publicly admitted to structuring admission fees and membership dues in order to eek the most money out of visitors? I can already see the hashtags—#mu$eum$, #thecapitalistsatemymuseum—and blog headlines—“McKinsey & Co. Brainwashes MoMA,” “Colorblind Museum Administrators See Only Green.” Joking aside, strategic thinking about pricing doesn’t have to be at odds with museums’ mission of accessibility. Pricing strategy can be about framing our decisions so that we make the best choices for both ourselves and the museum. As museum-goers, we have to choose among options like making a suggested donation, paying admission and purchasing an annual membership. The museum can structure our options thoughtfully or at random. More strategy on the museum’s part could actually mean better choices for all of us—those who can’t afford a $20 admission fee and those who can.
Turns out behavioral economics has a lot to say about these kinds of choices about money, among many other things. Behavioral economics, the study of the cognitive and emotional patterns that systematically affect our decision-making processes, has recently been popularized by books like Predictably Irrational and Nudge. Nudge, in particular, makes a great argument for incorporating behavioral economic theory into public and nonprofit strategy. It’s along the lines of the argument I made above: We are going to make choices influenced by our systematic cognitive and emotional biases no matter what. Those who structure the situations in which we make those choices—the book calls them “choice architects”—may take account of these biases or they may not. But if they know in advance what choices we are most likely to make, do they not have a responsibility to structure the situation in a way that lends itself to good choices? To take an example from the book, children in the cafeteria lunch line will choose the foods closest to them more often than those farther away. The cafeteria can put vegetables and fruits near the front of the counter, or it can put the foods out at random. While “at random” may initially appear to be the neutral option, it is no more neutral than putting the veggies out front. No matter how it arranges the food, the cafeteria is affecting the childrens’ choices.
Museums have a lot to gain by thinking about their admissions fees and membership dues in terms of behavioral economic theories. And one museum I visited recently, The Contemporary Arts Museum Houston (CAMH), appears to be thinking about them. CAMH doesn’t charge admission. It accepts donations. It also doesn’t make you go through a line to give your suggested donation. It puts out a donation box old-school style. Nonetheless, this donation box is a little bit different. The sign on it reads:
Average cost per visit $22
Your admission charge $0
Suggested donation $5
The sign caught my eye because it exploits a basic theory of behavioral economics: anchoring. Anchoring describes a simple cognitive bias. People tend to be more influenced by certain pieces of information than others. For example, people are apt to place more weight on first impressions of others than on information learned later on. To test this out on yourself, read the following two lists of words:
warm, honest, intelligent, rude, clumsy
clumsy, rude, intelligent, honest, warm
Given one of these lists of words describing a person, individuals will say they like the “first” person and don’t like the “second.” Funny, since it’s the same list of words twice. The first list begins with adjectives associated with positive personality traits and ends with those associated with negative ones. The second is the opposite. It moves from negative to positive descriptions. This anchoring effect is about primacy. We tend to overweight the first pieces of information we gather.
I’d venture that in museums that do not charge admission, the anchoring effect of “free” significantly affects visitor donations. You walk in the door with the idea “free” in your head, see a donation box, and, if the museum is lucky, pull a couple of crumpled bills out of your pocket and stuff them in. When your reference point is $0, $2 seems totally reasonable.
That’s one reason listing a “suggested donation” on the box is so common. The suggestion provides a second anchoring point. However, when you see a $15 suggested donation, it doesn’t do enough heavy lifting in the face of your primary anchor. You start at zero, make a bit of an adjustment up in the face of this new bit of information, and pull out a five instead of a couple of ones. “Free” has a stronger pull than the suggested donation because it came first, so you still end up closer to zero than 15.
Raising the suggested donation has the potential to pull visitors toward higher donations, to a certain extent. $5 suggested donation, you might throw in $2. $10 suggested, you might throw in $3 or $4. $15 suggested, you might throw in $5. However, because you’re already anchored at zero, there’s a limit to what seems reasonable. A $25 suggested donation—ahem, Met, ahem—is going to feel obnoxious to you. It’s too far from your anchor. Besides, suggested donation numbers generally appear to have been pulled out of thin air. To the visitor, it often looks as though the institution looked into its magic ball, picked the highest number it thought people might pay, and slapped on a price tag. (By the way, if you’re interested, William Poundstone recently discussed behavioral economic theory and the Met’s pricing scheme on ArtInfo.)
Certainly, when you walk by the donation box in a museum you’re not thinking these things consciously. It all happens instantaneously in your brain. That’s part of the power of anchoring. It’s instinctual.
I love the CAMH’s sign because it’s a smart way to handle anchoring and the limited power of suggested donations as a remedy. First, it re-anchors the visitor:
Average cost per visit $22
The museum calculated this cost based on annual attendance of 125,000 and annual operating costs of $2.8 million. This average cost per visit provides a more effective anchoring point than a suggested donation. First, it’s a fact. If the museum had to rely entirely on admission instead of relying on larger gifts and grants, it would have to charge everyone—at current attendance levels—at least $22 to keep its doors open and maintain its programming. As a fact, it feels more valid than a suggested donation. A $25 suggested donation feels obnoxious, but a $22 cost per visit just feels true. Second, it reframes the entire question of donating. Left to your own devices, your choice to drop cash in the donation box might be based on how broke you feel that day or your personal ethics around donating. The $22 figure reframes your choice from the point of view of the museum’s costs.
Now you’re thinking about donating from a new perspective—the museum’s costs—and you have a new anchor—$22.00. The sign goes on:
Your admission charge $0
$0 is so small compared to $22. This time around, “free” feels incredible. Finally, the sign concludes:
Suggested donation $5
$5 is way closer to $0 than to $22. Suddenly, five bucks feels like small potatoes.
The biggest problem with the sign is that most people probably don’t notice it. It’s in small text on a small donation box. That’s kind of like putting carrots at the end of the lunch line. A lot of institutions solve this problem by making you stand in line and give your donation to a cashier. The challenge with this method is the embarrassment it potentially causes visitors who really can’t afford the “suggested” donation. Without creating the hurdle of looking a cashier in the eye and handing them a single dollar, there have got to be other ways to use behavioral economic theory to get larger donations out of those who really can afford it, and would probably fork over a ten dollar bill happily if the institution could put the right frame on it. In CAMH’s case, maybe it’s as simple as making the sign—and the donation box—bigger. If only museums had the luxury to really experiment with these types of things.
There are other theories of behavioral economics that could inform the structure of museums’ suggested donation “choice architecture,” too. For example, museums could explore the effect of the perception of crowd behavior. People are more likely to do things when they feel like “everyone” is doing them. To take an example from the business world, hotel guests are much more likely to reuse their towels a second day if the hotel posts a sign saying that the majority of other guests are doing it than if the hotel posts a sign asking guests to help conserve energy and water by reusing their towels. People follow the crowd.
Museums could frame suggested donations with this behavioral bias in mind, too. What if the sign on the donation box read something like:
Average donation per visitor $4
Subtle use of language is critical here. Average donation “per visitor” is not the same as “per visit” because many visitors come more than once throughout the year. Additionally, this language could reasonably allow the museum to include memberships in the classification “donation.” Thus, the average donation per visitor figure would be higher than the average number of dollar bills each person stuffed in the box upon entering the museum. The effect of such a sign would have to be tested in the museum context, but I hypothesize that more people would put more dollar bills in a box with the sign than one without it.
Another behavioral tendency that could be relevant to museums is people’s aversion to either seeming cheap or feeling too frivolous. Restaurants take advantage of this all the time on their wine lists. Guests are much more likely to choose the second most or second least expensive bottle of wine than either the most or the least expensive. This effect, combined with the mere fact that people like to have choices (kids are more likely to eat their carrots when they have a choice between carrots or celery than when they get served carrots without an option), suggests another possibility for suggested donations. What if museums put not one, but three donation boxes in the museum entry, with a suggested donation sign over the top and a different dollar figure on each one:
$2 $5 $10
Maybe people would be more likely to put money in one of the boxes because of the choices available, and maybe they’d be most likely to choose the $5 box because it’s in the middle. This particular idea may be too weird to actually execute, but this kind of creative thinking could improve visitor donation rates. Museums that choose not to charge admission and hesitate to put visitors under the psychological pressure of handing their donation to a cashier in order to get a lapel button don’t have to be satisfied with a tiny box labeled “donations.” With a little experimentation, these museums could find ways to build a “choice architecture” that encourages giving without fixing the price of admission.
Museums and other nonprofits shy away from applying behavioral economic theory to the work they do out of a fear of being manipulative. Really, though, we don’t expect our museums to apologize for requesting donations. Should they have to hold out their hats apologetically in the corner, hoping somebody notices? No. So, applying behavioral economic theory inside museums isn’t about Machiavellian mind games. Employed thoughtfully, these theories could enable museums to create new and better donation experiences—donation experiences that encourage visitors to give generously and simultaneously grant those visitors complete discretion.