Just over a month ago we announced that we were embarking on an experiment: We'd heard feedback from you guys that a different approach to pricing might work out better for us and our customers.
We felt pretty good about our existing pricing model, but we're nothing if not open to new ideas, so we ran a pilot program for a different way of doing things: the Free Days.
Our normal business model works something like a night club: We provide the loud music (or, in our case, bottomless coffee), a dance floor (tables and chairs) and a gloomy (geeky) atmosphere. Customers pay a cover charge (Day Pass) to get in and use the facility, and also have the option of buying drinks (and food) while there.
The 'Free Days' model works more like a restaurant: The venue, tables and chairs are available for free to customers, who then buy food and drinks to "pay" for the privilege of using them.
The hypothesis was that by switching to the Free Days model, we could make the same amount of money (if not more) while making customers happier.
The experiment ran over five days during the month of December. Those days included two of the busiest days we've had, as well as two of the quietest. So while it's not exactly a large sample, the variation was broad enough that we could draw a few useful conclusions from it.
The conclusions we reached were as follows:
1. People like "free" things.
This was no surprise to us at all... if you've read any of Dan Ariely's work, you'll know the attractive power of the word "free". Customers appeared to like the chance to get something for free (access to the club) that they would normally have to pay for.
2. People don't like to pay for "free" things.
At a restaurant, if you want to use one of their tables, you're expected to order food. And you're expected to keep ordering stuff every so often for as long as you want to keep using it. Although the table itself is free, the right to keep using it for free comes with the expectation that you purchase goods or services from the establishment that owns the table. It's kind of non-negotiable.
The cost of the table itself, as well as all the resources needed to maintain it and the customer sitting at it, come out of the price for the food and drinks.
But at our Free Days, while a good many customers availed themselves of the fine selection of food and drinks we provide at the Power-Up Bar, many didn't. For every paying customer, there was another customer who didn't buy a single thing. And even the paying customers tended not to buy very much: A single chocolate, cool-drink or bag of crisps seemed, inexplicably, to satisfy many customers for an entire day.
That would be fine, except that providing the facility isn't free. There are all kinds of costs involved in making a place like DeeTwenty possible. It's a quantifiable cost... one that can be calculated down to an hourly rate. What that rate is exactly is confidential, but suffice to say even on the busiest Free Day, we didn't get anywhere close to it.
To put that in context, let's compare it to an average Friday night, where the club is full of customers who've not only paid for a Day Pass at the door, but will also tend, on average, to buy a couple of Mountain Dews and a boerewors roll each. That same customer, on a Free Day, will come in for free and buy one Coke the entire day.
We're surprised by that. We thought that the free entry would allow customers the option to spend their money in different ways at the club, but they'd probably still be spending the same amount of money, more-or-less. Not so, it seems.
We suspect it's something to do with the psychology of "free". People come to the club on a normal day with cash in their pockets and the expectation of spending some of it. But when leaving the house for something called a "Free Day", that same person might not want to spend any money at all, because it's supposed to be free, right?
(Things are a little different when it comes to Full and Affiliate Members... their pricing model on Free Days was only slightly different to normal days, and their purchasing behaviour pretty much stayed the same)
We could, of course, have been stronger about it. At a restaurant, if you don't buy anything, pretty soon you'll be asked to leave. We considered doing that, but given the nature of the kind of things people do at the club, it's not really something we can do in good conscience.
For example, if a Whovian has made the trip out to the club to watch the Doctor Who Christmas Special with a large group of fellow geeks, can we really ask them to leave before the screening even starts? Seems pretty cruel, doesn't it? I don't want to be that guy. It puts us in a really awkward situation, and kinda defeats the object of having a place like DeeTwenty.
What that means is...
3. Free Days aren't a sustainable business model for us.
Given all of that, plus a few other complications I haven't mentioned yet, we've determined that for the foreseeable future, the Free Days model isn't one we can keep going. If DeeTwenty isn't making money it can't stay in business, and DeeTwenty can't make money from Free Days.
Simple as that.
We're not going bin the whole idea... we'll keep the Free Days model in our back pocket for special occasions and events (like the Internet Incarnate Party on the 25th of January). But all Open Sessions will be the normal pricing structure from now on. Even on public holidays.
We may also try another pilot run again in the future. Just because our findings are compelling now, given our current set of circumstances, doesn't mean they'll always hold up. We'll play that by ear.
But, despite all that, we're going to remain committed to continuous improvement. We'll be listening to your feedback, and we'll keep running similar experiments (whenever feasible) to see if there are better ways of doing the stuff we want to do.
If you want to help us make sure that we're the best DeeTwenty we can be, please join the conversation over at Google Moderator. We could use your suggestions. And if you don't have any suggestions yourself, we could use your votes on the ones others have already submitted. The power is in your hands!