Strategic Management Articles

Ending Information Socialism


On a long cross-country flight, Rick O’Sullivan, chief economist of The Forbes Group, struck up a conversation with his seatmate who turned out to be a vice president of Intel for the healthcare sector.  Rick had just finished groundbreaking research for a client about a new approach to managing healthcare.  As they talked, the Intel VP asked if he could get a copy of the research report and what it would cost.  Rick told him the client was selling the report for something less than $100.  The man from Intel started to laugh and said: “I love associations.  They’re such information socialists.”  Rick asked what he would have been willing to pay for the report and the man said “Oh, several thousand dollars.  It would have cost us far more than that if we’d had to do the research ourselves.”

 

Associations are notorious for giving away or under charging for their best products.  The usual reason: our members pay dues, and they expect everything for that.

As associations search for ways to ratchet up revenue, one easy way is to escape the dues trap. 

 

Value, Not Dues, Should Determine Pricing

 

In our experience, people will pay for what the value; price isn’t the issue.  If it is, it’s because the value of the offering isn’t sufficient.  The truth is that members are a liability not an asset, just as bank depositors are liabilities not assets.  Member dues are prepayments for future services.  They are demand deposits.   And like bank depositors, dues paying members will take out of the organization more than they put in.

 

With the average association dues/nondues ratio at about 40/60[RO1]  , how can they wean themselves from a revenue stream that dampens financial growth?  One way to move from dues reliance to dues independence is to offer a dollar-for-dollar trade off of dues for purchases up to a maximum.  For every dollar a member spends on a menu of products or services, they would get a dollar dues credit up to a maximum.  Like an elevator and counterweight, this approach can help maintain financial equilibrium.  As new products and services are developed, they can be priced at market value, which will improve the revenue stream.

 

There is value in some level of dues because it forces members to make an emotional commitment by making a financial commitment.  In one association we worked with, you became a member by buying a trade show booth.  Booth buyers had no feeling that they were members because they had made no conscious decision to join, so they ignored member communications and the annual business session.  Their loyalty was to the show not the association.  Dues should serve as a “screener” to eliminate occasional shoppers.

 

While most associations differentiate between member and nonmember prices for their offerings, the break is often insignificant.  A ten or twenty percent price break is unlikely to attract either membership or substantial revenue.  In the case of the Intel VP, he was getting a great deal because even the nonmember rate for the research report he wanted was thousands less than the value he attached to it and the price he was willing to pay. 

  Determining the Price Point

 

One way to see if your pricing is on the mark is to compare the product or service with similar ones offered by for-profit organizations.  For example, research reports of the kind the Intel VP wanted typically cost a couple of thousand dollars or more.  Continuing education offered by for-profit providers often is thousands more than the registration fees charged by associations.  A Google search will uncover examples.  The website of Insight Research Corporation, a telecom market research firm, came up in my search for this article.  For a report on the future of broadband network management, they were asking $3,995 for a hard copy; $4,695 for a single-use PDF; $6,995 for a six-seat PDF, and $10,000 for an unlimited use license.  Of course, your members may be unwilling to pay full freight because of the dues trap, but nonmembers should and members shouldn’t expect to pay discounted-to-the-bone prices for great products. 



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