Transcript ITE Presentation

Relationships Among Levels of
Government Support, Marketing Activities,
and Financial Health
Of Performing Arts Organizations
(Publication forthcoming in the
International Journal of
Nonprofit and Voluntary Sector Marketing, 2006)
Authors:
Theresa A. Kirchner
Edward P. Markowski
John B. Ford
Old Dominion University
Norfolk, VA, USA
February 17, 2006
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Presentation Outline
Why is research on this topic relevant?
Why is this research relevant?
Review of literature on the topic
Premises developed from the literature
Model, conceptual arguments, and hypotheses
Variables and data
Methodology
Results of empirical analysis
Contributions of this analysis
Limitations of this analysis
Managerial / public policy implications
Opportunities for future research
Page 2
Why is research on this topic relevant ?
 Arts organizations often have difficulty surviving
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even in good economic conditions; significant
numbers fail. (Kotler & Scheff 1997)
Non-profit performing arts organizations are
unique from an economic / artistic standpoint.
They are dependent on government support and
traditionally have been less motivated than forprofit organizations to leverage marketing activities
and achieve financial health. (Baumol & Bowen 1966,
Baumol 1995, Stone 1995, Scheff & Kotler 1996)
 Government support at all levels is declining from
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a recipient perspective. (Arnold & Tapp 2003)
There is increasing linkage of government support
to recipient effectiveness and economic viability,
including effective use of marketing strategies and
plans. (McDonald & Harrison 2002)
Page 3
Why is research on this topic relevant ?
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(cont.)
A focus on current marketing concepts and strategies
is important for growth of both audiences and
donations, and, in some cases, for survival. (Yavas 1996)
Little previous empirical research has been published
in major academic journals on relationships between,
and effects of:
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the effects of financial levels of government support
the effects of that support on the types of marketing tools
and techniques employed
the effects of both government support and marketing
activities on financial health (Fillis 2002, Arnold & Tapp 2003)
Previous cultural research has generally concentrated
on studies of single organizations or groups of
organizations within a single geographic area.
(Garcia et al. 2003)
Page 4
Why is this research relevant?
 This research provides a broad review of
literature on non-profit performing arts
organizations.
 It examines relationships among levels of
government support, marketing activities and
financial health of these organizations from an
empirical standpoint at a U.S. national level.
 The research has practical implications and
uses for:
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government agencies
academic researchers
arts organization managers, boards of directors,
and donors
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Literature Review
Builds on 2 prior literature reviews:
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Thomas and Cutler (1993), Journal of Professional Services Marketing
Literature review of 31 articles on performing arts marketing
in major marketing journals over the prior 20 years; showed
low level of empirical research
– Rentschler (2002, 1998), Journal of Arts Management, Law & Society
2 literature reviews of 171 marketing-related articles in 7 selected
international journals over the prior 25 years; categorized into 3
chronological periods (Foundation, Professionalization, and
Discovery) and 3 thematic classifications (Marketing as Culture,
Strategy, and Tactics)
Linked to “Cultural Economics” – Seminal work (“Performing
Arts – The Economic Dilemma,” Baumol & Bowen 1966) and
recent literature
Outlines contributions in 3 areas:
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The economic nature of the industry and the role of government
support
Government support implications for marketing
The evolution of performing arts organization marketing
strategies and tools
Page 6
Recent Literature – Cultural Economics
Author(s) / Source
Topic
Type of Study /
Methodology
Conclusions
Dempster (2002),
Harmony-Symphony
Orchestra Institute
Reviews and extends the Symphony
Orchestra Institute Wolf Report (1992),
examining economic challenges facing
the U.S. orc hestra industry then and
10 years later.
Analyz es the differences between
centraliz ed / federal and democratic /
authoritarian states. Crowding theory
is used to examine how artistic
creativity is fostered.
Maintains that market failure is not a
useful concept to understand and
explain government policy; it fails to
explain international variations.
Survey of 625
U.S. professional
orchestras; 190
responses (30.4%)
Exam ines tax-based indirect aid to the
arts in the context of tax law functions,
focusing on diverse examples of
indirect aid m echanisms.
Severe declines in government
funding and c ontributed support and
constant rising operating c osts
challenge arts organiz ations.
Cultural achievements can be attained
and benefit the public only with
assistance from the public sector.
Reviews accounting standards on
valuation of assets for non-profit arts
organizations; surveyed current
practices of large arts institututions.
Exam ines museum behavior and
problems in the context of the
economic model of human behavior.
Explores art storage as a capital stock.
6 case studies:
Chile, Australia,
Romania, Ireland,
U.S., W. Germany
Sourc ebook of
marketing philosophies, m ethods
and strategies
Interview; update
summarizing
previous research
Questionnaire
survey of 67
institutions; 32
responses (47.8%)
Theoretical
analysis
Orchestra annual expenditures doubled over
10 years. The % of total expenditures covered
by earned inc ome increased. Orchestras have
been able to pass along increased costs
through higher ticket pric es (70% over 10 yrs).
The extent and type of public support and its
effects depend on type of political state.
Personal creativity results from intrinsic
motivation, whic h may be crowded out / in by
different types of public support.
Historic al / institutional arrangements and the
role of non-state influenc es / players in the
formation of cultural policies are not taken into
account in explaining governm ent policy; calls
for a neo-institutionalist perspective.
Tax-based indirect aid requires more
comparative / analytic research to identify and
analyze types and forms of aid; updates 6
propositions from 1987 research.
Overgrowth of the industry, inability to ac hieve
artistic productivity increases, smaller audienc e
sizes and other financial issues require a
marketing approac h that increas es demand.
Without government support, there m ay be
less art, and the nature of arts may c hange.
Frey (1999), Journal of
Cultural Ec onomics
Zimmer & Toepler
(1999), Journal of
Cultural Ec onomics
Schuster (1999),
Journal of Cultural
Econom ics
Kotler & Scheff (1997),
Standing Room Only:
Strategies for Mktg the
Performing Arts
Baum ol (1995),
Challenge
Carnegie & Wolniz er
(1995), Australian
Accounting Review
Frey (1994), Scottish
Journal of Political
Economy
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Theoretical
analysis
Cross-national
(France, Sweden,
U.S.), c omparative
historical analys is
The paper dem onstrated that it is not
technically proper to recognize c ultural,
heritage and scientific assets for financial
reporting purposes.
Legal, governmental, administrative, and
financial constraints affect arts decisions and
staff behavior. Flexibility, dynamism, and
creativity can res ult in better use of art.
Recent Literature –
Government Support and Implications for Marketing
Authors / Source
Topic
Type of Study / Methodology
Conclusions
Arnold & Tapp
(2003), Journal of
Services Marketing
Declining government funding and
competition for leisure time result in
new challenges for non-profit arts
organizations
In most Western countries, government support for arts organizations is
falling and/or coming with strings
attached (e.g. proof of viability).
Recent government stakeholder focus
has been on the need to develop
creative competencies (e.g.
marketing) as part of the growing
knowledge economy.
Government reports outlined policy
principles and recommended
strategies aimed at building audiencebased recognition.
Government and corporate funders
are demanding greater accountability
for funding and requiring marketing
orientation.
With decreasing government support
of nonprofits, new sources of funding
are being sought. Understanding the
motives of funders enables
development professionals to be more
effective.
Since the 1980s, the nonprofit arts
industry has faced declining
contributed support due to recession,
changing philanthropic priorities, and
increased competition.
Research of arts org CEOs
on org factors that influence
marketing; 554 questionnaires; 217 responses
Interviews with marketing
managers of 12 performing
arts presenters in 2
Australian states
Literature review; summary
of recent arts marketing
literature
Fundraising and sales are driven by total
marketing effort, but fundraising is not
positively affected by the implementation
of direct marketing.
Australian government began requiring
verification of marketing concept knowledge and marketing plans as criteria for
obtaining government support in 1994.
Traditional marketing is not appropriate
for arts marketing; it must be creative and
entrepreneurial. Non-linearity, focus on
change, and non-traditional research
methodologies are needed.
Presents model of transactional /
relationship / loyalty marketing, in terms
of a goal of funder loyalty. Lobbying
funding bodies may be necessary.
Cause related marketing enables arts
organizations to team with private sector
organizations for mutual promotion and
enhanced financial viability.
Marketing motivations are more prevalent
than philanthropic; CEOs give to enhance
their organization’s image/products and
community tradition. Cause related
marketing is proposed, e.g. with sponsorships, to increase corporate support.
Government agencies and foundations
are increasingly restricting their grants for
specific purposes; less funding is
available for general operating support.
Arts organizations must adapt to
changing needs and priorities of donors.
McDonald &
Harrison (2002)
Intlernational
Journal of NVSM
Fillis (2002),
International
Journal of NVSM
Rentschler et al.
(2002), Intl Journal
of NVSM
Rentschler &
Wood (2001),
Services Marketing
Quarterly
File & Prince
(1998), Journal of
Business Ethics
Scheff & Kotler
(1996), California
Management
Review
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Presents theoretical loyalty
ladder model / marketing
objectives mathematical
model
Literature review and
theoretical analysis
proposing a cause-related
marketing approach
Snowball sample
methodology, pre-called;
478 questionnaires mailed
to CEOs in NY, NJ, CT
(USA); 478 usable
questionnaires returned
Statistical analysis; surveys
mailed to 8,000 patrons of 4
performing arts
organizations in San
Francisco
Recent Literature –
Performing Arts Organization Marketing Strategies / Tools
Source
Topic
Type of Study / Methodology
Conclusions
Petkus (2004),
International
Journal of NVSM
Application of the Pine & Gilmore
experiential marketing fram ework to
arts marketing design and promotion
Theoretical analysis
Gainer & Padanyl
(2002),
International
Journal of NVSM
Kolb (2002),
International
Journal of NVSM
Application of the marketing conc ept
to cultural organiz ations, examining
the effect of m arket-driven activities
10-page, 146-question survey of
Toronto / Montreal arts / cultural
organizations; 138 responses
Segm entation of the arts m arket /
audience based on differential
experiences sought c an help marketers
to position arts offerings and refine their
targeting strategies.
Market-oriented activities → m arketoriented culture → satisfaction,
reputation → growth in resources.
Analysis of governm entcompiled data – NEA (U.S.) and
ACE (U.K.) research data
The social aspects of an arts event are
an important motivator for attendance,
especially for ethnic groups.
Arnold & Tapp
(2001), Journal of
Interactive
Marketing
Johnson &
Garbarino (2001),
International
Journal of NVSM
Analysis of arts attendance
motivation and its role in increas ing
audience size and diverse audience
attendance
Im portance of direct marketing for
non-profits; selection of effective
direct marketing m ethods; res earch
of 18 direct marketing methods
2 studies of performing arts
customers subscriber (relational) /
non-subscriber (transactional)
differences
600 questionnaires mailed to
arts organiz ation CEOs; 204
responses
The use of interactive direct marketing
is positively related to sales and fundraising performanc e; newer techniques
are the most effective.
Subscribers have higher levels of
satisfaction, trust, commitment, and
intentions of donating to arts
organizations than non-s ubscribers.
Desai, Fletc her, &
Wright (2000), The
Services Industries
Journal
Garbarino &
Johnson (1999),
Journal of
Marketing
Scheff (1999), Intl
Journal of Arts
Managem ent
Databas e marketing is a means of
achieving com parative advantage;
explores correlation with marketing,
information orientation
Study of relationships of satisfaction,
trust, and commitmen,t to
satisfaction attitudes and future
intentions
Erosion in frequency of attendance
at performing arts programs;
decrease in subscriptions
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Questionnaires mailed to 1000
patrons of 1 nonprofit NY OffBroadway theater company; 401
responses; factor/ cluster
analysis
Questionnaires using 2 scales
mailed to large arts
organizations in the U.K.
Questionnaires mailed to 1000
patrons of 1 nonprofit NY OffBroadway theater company; 401
responses; SEM analys is
Surveys mailed to 8000 patrons
of 4 performing arts
organizations in SF, CA; analysis
of com puted %s
Arts industry shows low level use of
marketing orientation, relatively high %
use of database m arketing; an
information orientation is critical.
System atic differenc es in relationalism
of customer groups result in different
evaluations and res ulting future
intentions.
Patrons have little sensitivity to price
increases; decreases in frequenc y of
attendance are due to other factors.
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Premises Developed From The Literature
Performing arts organizations typically require and
receive some level of government support. (Baumol 1995)
Marketing and donor development efforts of performing
arts organizations contribute to the financial health of
those organizations.
Marketing and donor development efforts of performing
arts organizations have traditionally concentrated on
advertising and public relations activities and neglected
the wider range of marketing tools and activities.
The level of support from both public and private sources
is increasingly dependent on the financial health of
recipient performing arts organizations. (McDonald &
Harrison 2002)
Public and private donors increasingly demand
responsible financial government support as a criterion
for support. (Stone 1995)
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Figure 1
Hypothesized Correlations
Hypothesized Correlations
Financial
Level of
Government H1a
Support
(G)
Financial
Level of
Marketing
Activities
(M)
H2a
Page 11
H3a
Financial
Level of
Financial
Health
(FH)
Conceptual Argument / Hypotheses
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Based on the literature, it is reasonable to
assume that there is a significant relationship
between government support and marketing
activities, given increasing government
requirements for marketing plans.
(Rentschler et al. 2002, McDonald & Harrison 2002)
H1a: There is a significant relationship between
the level of marketing activities of
performing arts organizations and the
level
of government support.
Page 12
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Conceptual Argument / Hypotheses
(cont.)
Government support may leave a non-profit
performing arts organization less motivated
to develop and implement additional
marketing activities.
(Stone 1995)
In that case, a negative relationship would
exist between level of government support
and level of marketing activities.
H1b: There is a significant negative relationship
between the level of marketing activities of
performing arts organizations and the
level
of government support.
Page 13
Conceptual Argument / Hypotheses
(cont.)
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Based on the literature, it is reasonable to
assume that government support, examined
independently of the level of marketing
activities, should have a significant
relationship with the financial health of the
performing arts organization.
(Baumol 1995, Kotler & Scheff 1997)
H2a: There is a significant relationship between
the level of government support and the
financial health of performing arts
organizations.
Page 14
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Conceptual Argument / Hypotheses
(cont.)
Government support, examined independently
of level of marketing activities, should directly
result in the increased financial health of a
non-profit performing arts organization.
(NEA 2000, Arts Council of England 1998)
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Hence, a positive relationship should exist
between government support and financial
health.
H2b: There is a significant positive relationship
between the level of government support
and the financial health of performing arts
organizations.
Page 15
Conceptual Argument / Hypotheses
(cont.)
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Based on the literature, it is reasonable to
assume that the level of marketing activity,
examined independently of the level of
government support, should have a
significant relationship with the financial
health of the performing arts organization.
(Gainer & Padanyi 2002, Kotler & Andreasen 1987)
H3a: There is a significant relationship between
the financial health of performing arts
organizations and the level of marketing
activity.
Page 16
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Conceptual Argument / Hypotheses
(cont.)
A higher level of marketing activities,
viewed independently of the influence of
government support, should result in the
increased financial health of a non-profit
performing arts organization.
(Arnold & Tapp 2003, Gainer & Padanyl 2002)
Hence, a positive relationship should exist
between levels of marketing activities and
financial health.
H3b: There is a significant positive relationship
between the financial health of performing
arts organizations and the level of
marketing activity.
Page 17
Theoretical Path Flow Model (H4)
Theoretical Path Flow Model (H4)
Financial
Level of
Government
Support
(G)
-
Financial
Level of
Marketing
Activities
(M)
+
+
Page 18
+
Level of
Financial
Health
(FH)
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Conceptual Argument / Hypotheses
(cont.)
Once the various relationships are established in
hypotheses 1-3, the complete set of relationships can
be tested using a more complex methodology.
H4: The amount of government support will have a
direct negative effect upon the level of marketing
activities undertaken by a performing arts
organization, which will, in turn, have a direct
positive effect upon financial health of the
organization, which, in turn, will have a positive
direct effect upon the level of government support.
It is also hypothesized that the level of government
support will have a direct positive effect upon the
level of financial health of the performing arts
organization.
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Empirically Suggested Path Flow Model
Empirically Suggested Path Flow Model
Financial
Level of
Government
+
Support
(G)
Financial
Level of
Marketing
Activities
(M)
Page 20
-
Level of
Financial
Health
(FH)
Table 4
Variables
Variables
Variables Measured as:
Related Data Fields:
Level of
Government
Support
Government support
as a percentage of total
unrestricted operating income
- Government Support:
(Federal, State, Local)
- Total Unrestricted
Operating Income
Level of
Marketing
Activities
Total marketing effort as a
percentage of total expenses
(Total marketing effort: marketing /
promotion + development /
fundraising activity expenditures)
- Marketing / Promotion
Expense
- Development /
Fundraising Expense
- Total Expenses
Level of
Financial
Health
Accrued surplus / deficit
(over 4-year period) as a
percentage of total
unrestricted operating income
(Surplus / deficit: total unrestricted
operating income – total expenses)
- Total Expenses
- Total Unrestricted
Operating Income
Page 21
Data
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Secondary data
American Symphony Orchestra League
(ASOL) Annual Statistical Survey
20 seasons (years) of data for 63 U.S.
professional orchestras which
responded to the annual ASOL survey
for each of those time periods
Data set comprised of a panel of
relevant variables for each orchestra,
with each panel containing a 20-period
time series
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Methodology
Approach
(Adapted from Brooks 1999):
 Analysis with longitudinal data over
time to assess any time lag effects.
(Dawes 2000)
 Simple correlational analysis
 Granger Causality test – regresses each
variable on lagged values of other
variables and itself, followed by
restricted F tests (Granger 1969)
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CORRELATION
RESULTS
Correlation Results
M
G1
.082**
G2
.091**
G3
.107**
G4
.098**
G
M1
.068*
M2
.081**
M3
.082**
M4
.065*
FH
G1
-.116**
G2
-.089**
G3
-.080**
G4
-.084**
G
FH1
-.129**
FH2
-.144**
FH3
-.147**
FH4
-.159**
FH
M1
-.071*
M2
-.068*
M3
-.054
M4
-.045
M
FH1
-.079**
FH2
-.088**
FH3
-.091**
FH4
-.100**
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* p < .05. ** p < .01.
GRANGER CAUSALITY
TEST Test
RESULTS
Granger
Causality
Results
HYPOTHESIS
F
P-VALUE
G “causes” M
1.064
.373
NS +
M “causes” G
1.520
.1941
NS
G “causes” FH
1.461
.2122
NS
FH “causes” G
.082
.978
NS
M “causes” FH
.725
.575
NS
FH “causes” M
.813
.517
NS
+
NS means Not Significant
Page 25
SIGNIFICANCE
CORRELATION
RESULTS
Correlation Results,
Large Orchestras
M
G1
.085
G2
.142*
G3
.185**
G4
.207**
G
M1
.095
M2
.156*
M3
.192**
M4
.219**
FH
G1
-.414**
G2
-.366**
G3
-.293**
G4
-.256**
G
FH1
-.501**
FH2
-.571**
FH3
-.621**
FH4
-.646**
FH
M1
.167*
M2
.167*
M3
.174*
M4
.166*
M
FH1
.157*
FH2
.159*
FH3
.160*
FH4
.164*
Page 26
* p < .05. ** p < .01.
TABLE 6
Granger Causality Test Results,
GRANGER
CAUSALITY TEST RESULTS
Large
Orchestras
HYPOTHESIS
F
P-VALUE
G “causes” M
.879
.477
NS +
M “causes” G
.513
.726
NS
G “causes” FH
6.69
.000
FH “causes” G
18.29
.000
M “causes” FH
1.280
.280
FH “causes” M
5.62
.000
+
NS means Not Significant
Page 27
SIGNIFICANCE
NS
Results
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The study was able to find significant
correlations among the constructs in
question:
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The higher the level of marketing activities, the
higher the level of government support.
The higher the level of government support, the
poorer the financial performance of the
performing arts organization.
Better financial health is associated with lower
levels of marketing activity.
Causal analyses were not conclusive for
orchestras in general. However, significant
causal relationships were found for large
orchestras.
Page 28
Contributions of This Analysis
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First to focus on an empirical assessment of
relationships among levels of government
support, marketing activities, and financial
health of non-profit performing arts
organizations
Measures level of financial health with a
bottom-line statistic – Accumulated Operating
Surplus / Deficit (Wolf 1992, Dempster 2002)
Utilizes a measurement of marketing activities
in quantifiable terms
Results eliminate purely financial
explanations of financial health
Page 29
Limitations of This Analysis
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To draw inferences about the industry
requires extrapolation from self-selecting
respondents to the entire range of U.S.
professional orchestras.
The model does not specifically incorporate
non-financial factors such as the concept of
artistic excellence / vibrancy and the degree
to which it affects level of support and income
from public and private sources.
Issue: How to measure non-financial factors –
e.g. artistic excellence / vibrancy?
Page 30
Managerial / Public Policy
Implications
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Neither government support nor marketing expenditures
have achieved optimal financial results; better utilization
of marketing resources is needed.
Managers should establish clear financial and nonfinancial objectives for marketing and evaluate the
effectiveness of marketing activities in those terms
Government support agencies and managers should
evaluate the effectiveness of use of government funding
in terms of both government and organizational goals.
Performing arts organizations might be better served,
from a financial health standpoint, when they promote
working relationships with marketing directors as
partners and functional co-equals with artistic directors.
Page 31
Potential Future Research

Conduct future research to determine antecedents
of financial health of nonprofit performing arts
organizations.
–
–

Further segmentation and analysis of financial data
Analysis of non-financial data (e.g. governance,
management, vibrancy, and artistic excellence)
Examine root theoretical foundations that may
assist in explaining the interactions of government
support, marketing activities, and financial health
of non-profit performing arts organizations:
–
–
–
Cultural economics
Marketing orientation
Theories of leadership, strategy, structure, path
dependency, motivation, and resource dependence
Page 32

Potential Future Research (cont.)
Identify and incorporate alternative and
improved composite measures of financial
health of nonprofit arts organizations, e.g.:
▬
▬
Addition of balance sheet (Current Ratio) and cash
measures (Wilson & Kattelus 2002)
Use / adaptation of financial ratios such as Altman’s
4-variable Z-score model for non-manufacturers
(2003)
 To develop a global perspective, expand the
scope of study in two phases:
(1) Examine professional symphony orchestras of
Australia, the U.K., Canada.
(2) Examine professional symphony orchestras
worldwide.
Page 33
Questions
and
Feedback . . .
Page 34