TRG blog: How Big Is Your Market?

How Big Is Your Market?

As I was reviewing data for this post, two significant contributions to the national dialogue on arts and culture sparked a lot of online discussion. The publication of the National Arts Index by Americans for the Arts and comments made by NEA chairman Rocco Landesman raised compelling questions about the nature of supply of and demand for arts organizations, arts venues, and forms of expression. The consumer trends we see in transaction data offer additional perspective to consider on the demand side of this ongoing conversation, which is provocative and timely. We hope it will continue.

When I was a new young marketing director, my boss at the Cincinnati Symphony Orchestra began my orientation with a number of helpful observations about the new job and the field I was about to enter. One key ‘fact’ really pulled me up short. The target market for a symphony orchestra, Managing Director Steve Monder stated, was very different than my prior experiences as a marketer in the theme park industry. Supporters of the typical symphony orchestra accounted for no more than 2% to 3% of the population in any community. To succeed as a new marketing director, I would have to quickly learn an entirely new skill set. I would have to efficiently find a very small target market.

To do so, best practice followed the catalogue industry for inspiration. The powerful tools of direct marketing were perfectly suited to mining our arts market. Early prospect targeting efforts typically focused on (high) income as a surrogate for high education. (Demographic profiling tools available to catalogue retailers were frequently too expensive for a nonprofit to buy.) Later, Response Rate Reports became the prevailing best practice for understanding “who” was saying yes to our offers. “Back-testing” confirmed that successful list segments might produce 1% to 3% return on each offer. Ultimately, with my colleagues at TRG, we used Patron Loyalty Index data and other lifetime value analyses to perfect understanding of our best prospects. PLIs showed that a relatively small number of patrons provided the overwhelming majority of resources needed to sustain the organization each year.

So, throughout most of my career, there was never a hard fact that contradicted my earliest education about the small size of America’s market for arts and cultural offerings. That is - until now.

A few weeks ago, I received an internal report that summarizes the status of TRG’s community data networks (co-ops). A key metric that we monitor closely is the number of patron households in each community that have transactional history. In simple terms, we are looking to quantify arts and culture consumers in a market by examining the count, location, and transaction activity of households in a database community. [See postscript below for more on co-op study methodology.]

When I examined the numbers for our three largest community co-ops (Los Angeles, Philadelphia and Houston), it hit me. Something in the numbers didn’t match my expectations. If the target market for arts and culture is just a small fraction of the population, then who are all these people in community databases? In these three markets, we’re looking at counts ranging from 1.2 to nearly 3 million arts and cultural consumer households

Key Finding: The relationship between the number of households in these community data co-ops and the population each serves is much larger than one would expect. In Houston and Los Angeles, the patron household count is equal to more than one in three (37% and 39% respectively) of the total community database service area. In Philadelphia, the ratio is a whopping 61%! And, our recent review of TRG’s newer, developing database communities indicate that they are all headed toward similar results.

Clearly, a significant percentage of the citizens in these markets are buying tickets, attending exhibits, making donations, and becoming members. And, they are doing so at rates that are at odds with the concept of a tiny, narrowly defined market.

The data provides further insight into the depth and breadth of arts and cultural consumerism.
  • Arts and cultural consumers in our most mature co-ops are recently active. Most households, 78%, have transaction history in the past three years; more than half, 54%, were active consumers in the past year.
  • While three out of four of the households in our most mature co-ops have transaction history with only one organization in their community, 24% – and that’s hundreds of thousands of consumers in each market – are patrons of two or more of their market’s arts and cultural organizations.
  • The number of out-of-market households – cultural tourists – is significant. Popular convention holds that very few U.S. markets are magnets for those who travel to experience art and culture; New York City or Santa Fe come to mind. But our analyses showed evidence of cultural tourism in all three of our most established co-ops. In Houston, for instance, 18% of the co-op population comes from outside the greater Houston area: 10% from other parts of Texas, 2% from Louisiana, and 6% from other states.
So, what’s an arts and cultural manager to do with this information? Some thoughts.

1. When prospecting for new patrons, look first to active arts and cultural consumers close to home. Instead of selecting prospects using demographically defined attributes with no previous purchase history (you know, highly educated, wealthy households who read the ‘right’ magazines or newspapers) look for cross-over patterns in the local community of patrons. Which colleague organizations tend to produce patrons that migrate in my direction? These prospects should receive a special offer – an invitation to give my organization a try. Finding active arts and cultural consumers in the community data that have not yet made a visit to your organization can be gold, when approached properly.

2. Use community database resources to change the playing field that defines the relevancy of the arts and culture locally. The large number of households that are investing time and money to engage in arts and culture offerings describe a vibrant, vital part of a community’s fabric. Do the math. By our count, the arts and culture organizations are serving a very high percentage of consumer (and voter) households in American communities. When advocating elected officials, I would make the case that a high percentage of their constituents are patrons. I would also have the hard facts to back up my point. 

3. Explore the potential of out-of-market buyers. Our analyses suggest that cultural tourism may be a larger potential source of patronage than conventional wisdom assumes. More study is needed on who are cultural tourists, how often they come, and what attracts them. That’s on TRG’s radar for future examination.

How have you used your data resources to mine your market? Let me know by leaving a comment.

Postscript: This kind of study requires a baseline understanding about the nature of co-op data and how it can be measured. First, the co-ops we manage bring together performing, visual, historical, and cultural arts organizations in thirteen U.S. communities for the mutual benefit of sharing data on patronage (i.e. paid admissions, event attendance, membership, donations, volunteer participation). The mix of co-op organizations is diverse; those that track paid activity, including performing institutions, dominate the mix. Newer co-ops tend to be smaller than those with a longer lifespan. Well-established co-ops generally have more member organizations and their data sets generally are much more extensive – they include more households that have patron transaction and activity history for longer periods of time.

Secondly, in studying co-ops, we use specific definitions for population and market area. Co-ops are measured by the number of participating households, not individual consumers. Therefore, to calculate the ratio of arts consumer households per market area, our studies are based on co-op household count. To determine market penetration, we use U.S. Census estimates of households within in each of the jurisdictions each co-op serves. Therefore “market area” is defined by the unique geographic footprint of each database community.

Posted February 14, 2011

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