TRG Arts recently hosted a webinar detailing the $3 million success story of Vancouver’s Arts Club Theatre Company. The Q & A discussion was quite robust, and from it, I caught a glimpse of the wide range of responses and questions arts managers have on pricing and patron loyalty.

One of the most interesting questions was raised on the periphery by two different attendees: Why should subscribers get discounts and more importantly, why should we give discounts on the best seats in the house? Since we didn’t have time in the webinar to address this specific question, I sat down to get Rick’s perspective. This post features the highlights from our conversation.

Subscriptions prices should drive demand and reward loyalty.

If you already have sold-out houses night after night (more than 95% of seats sold), then you really don’t have to discount anything—subscriptions or single tickets. With that level of demand, you don’t need to. Several TRG clients sell at close to capacity. They don’t need to motivate subscribers with discounts—subscribers know they have to subscribe in order to keep their seat.

Typically, organizations cannot sell out every performance or the venue is just too big, especially for those organizations which perform in municipal halls. For these organizations, we counsel offering their most loyal patrons the best seats for the best price—usually, a discounted price that promotes frequent attendance: the more you buy, the more you save.

Subscriber discounts generate increased demand and revenue.

In most organizations, about 85% of new subscribers have a patron history as a single ticket buyer. Discounts encourage single ticket buyers to convert to a subscription package. Subscribers attend more often and spend more per season, generating annual revenue and sustaining income during their lifetime of patronage. They are also much more likely to become donors.

And as Danny Newman preached 40 years ago, more subscribers means greater sales for less popular shows, leading to more demand for performances that have difficulty finding an audience. In addition, selling the “best seats” (read: the most popular seats) to subscribers increases the perception of demand for one simple reason—those seats tend to be some of the most visible that make your house look fuller when sold.

More “fannies in seats” (Rick’s words, not mine) on a more regular basis means more per-capita revenue, or the average amount paid for every seat, whether or not it’s one of the coveted “best seats”. When you have a subscriber in a given seat, that seat gets sold more frequently and there is less of a risk that it will go empty. Every seat a subscriber fills represents a dependable source of revenue. The greater the subscriber occupancy, the greater opportunity for higher total average price paid for that seat, per capita and overall revenue.

Discounts motivate subscribers to stay and move up the loyalty ladder.

TRG client studies show that continuing to offer discounts year after year reward the past behavior of subscribing and offer a reward for continuing to subscribe. For subscribers who have been with your organization for 5 years or more, TRG observes a shift in patron behavior. Loyalty becomes more important and the discount becomes less of a motivator. Consider “early bird” renewal programs. Those most likely to say “yes” are your long-time subscribers. When organizations that TRG has worked with have dropped their early bird discounts, those faithful subscribers continued to renew at the same rates. Long-time subscribers are loyalists. TRG’s lifetime value analysis finds that multi-year subscribers are the foundation of the organization’s donors, members, supporters of special events, and corps of volunteers. They keep coming and investing.

The lesson is clear: Subscriber discounts can help acquire first-time subscribers and retain them for the first few years. After that, loyalty takes over, and the mutual rewards keep growing.

More on pricing: If you missed the webinar, the full recording of “Dynamic Pricing is NOT the Story” is available here. TRG will also be hosting an intensive pricing session at the ArtsReach conference in San Francisco October 28-30, 2011. More information is here.