Photo by HerrVebah on Flickr.
This weekend Capital Bikeshare featured half price monthly and annual memberships on the social coupon site Living Social. By the end, more than 8,000 memberships were sold. But is this really good for CaBi?
As the CaBi coupon’s numbers skyrocketed, some Greater Greater Washington contributors weighed in whether Capital Bikeshare had made the right choice.
I’m afraid that CaBi is losing a lot of revenue through the Living Social promotion by allowing people to renew their memberships. Many “power users” like me would have gladly renewed my membership in September at the full $75 price. Since the promotional credit doesn’t expire until October, anyone whose had a membership any longer than December would be foolish not to buy this as a renewal.
You should only sacrifice immediate or short-term revenue if you can guarantee that sacrifice will generate revenue in the medium to long term. By allowing current users who already find value in the program to renew their memberships at an enormous discount — CaBi is probalby lucky if they’re getting 60% of each $37 voucher — they are simply forfeiting future revenue.
There is no doubt in my mind that CaBi should have restricted this to new members only, or made the coupons expire within a month. Living Social is used as a promotional tool to bring new people into your restaurant, your office or your system. This will certainly accomplish that.
But the existing members already are in the system. They have enough personal and contact information on each member that I don’t think it would be difficult to determine whether or not someone is an existing member. The exclusionary concept is not new, I’ve seen plenty of LivingSocial/Groupon deals that have “*new patients only” type caveats in the deal terms.
I’m not saying they shouldn’t have done the Living Social deal. They will get huge exposure and new customers from it. But, I think CaBi should have made the Living Social promotion available to new users only and simultaneously offered a renewal discount through their own website to current members so that they at least didn’t throw away half of the voucher revenue by forfeiting it to Living Social.
Increasing ridership and usage is the ultimate goal. But if we’ve learned nothing else in recent budget and funding debates, things need not only to be used, but also to be financially sustainable. So, why should we just shrug our shoulders at revenue lost unnecessarily? CaBi could have offered renewals directly to current members at a price cheaper than the Living Social deal and still have made more revenue than they will from those existing members through this promotion.
I purchased a voucher for a new annual membership, after waffling for months over whether it was worth it, and questioning whether the promise of Bikeshare along the Rosslyn-Ballston corridor would become a reality anytime soon.
This could have been a great opportunity to use price discrimination to sign up “light users” like myself, who might not have otherwise become a member, while still generating full revenue from “power users” who put a lot more strain on the system.
From everything I’ve read about deal sites, it’s likely that CaBi isn’t receiving the full $37. I’ve heard that commissions for these deals range from 30%-50%. Worst case, CaBi is only bringing in $18.50 for what would have inevitably been many $75 renewals.
The deal was great for generating excitement and buzz, but as far as a strategic tool for economic pricing discrimination, I think it may have missed the mark.
If this deal pushes up demand to the point that Cabi will exceed its capacity, then indeed it is probably not such a good idea. But if the level of demand increases existing ridership without creating abnormal capacity problems, then the economic loss is compensated by the social gain.
I think they may well get new users like me that can not justify $75 given that have little opportunity to ride it other than the weekend. Either way the buzz created may well be worth it. What if the deal is picked up by TV, newsprint and internet? That may get a lot of new people signing up!
One of the issues is whether Living Social terms and conditions allow discrimination as Erik suggests. Also how can you discriminate between current and new customers? at a dentist it is very easy to do this given that there is usually a person in charge of a limited amount of existing patients. Cabi has already 1000’s of member. Would you really be able to check each one of them?
I wonder if the loss of revenue is secondary to the goal of bringing a lot of new users. Many new users might not have previously joined because there wasn’t a close enough station to them to justify a full-price membership. If you bring those people in, you may being to see more requests for new stations.
This is also a good way to reach out to people who might find the full price unaffordable. We’ve talked about as an issue in Wards 7 and 8, though that sort of cancels itself out, given the digital divide issues that are also present in those wards.
I’ve also found that when I’ve bought LivingSocial/Groupon deals to restaurants I’ve never been to, I’ve become a return customer. No doubt they’re hoping to hook people, so that they continue to renew their membership over the years.
If they lose revenue through this, so what? The point of this promotion is to get members and generate buzz, not to bring in huge revenue through the sale. You do a promotion like this as a loss leader, not as a big moneymaker.
You have to be careful about devaluing your product, however. Ted Leonsis talks about that with Wizards tickets - give too many away and people won’t pay for them, and you risk alienating your season ticket base. However, since they’ve allowed this deal to work for renewals, you eliminate that alientation problem.
CaBi is in the startup phase still. Having users is far more important than having revenue at this point. That’s why this is a good deal for CaBi. You do a deal like this to increase your user base, not to generate revenue.
Yes, doing renewals instead of only new memberships is losing money - that’s true of any sale - but I do doubt that forgoing that revenue is a bad thing at CaBi’s stage of development. Build a robust system first, then worry about the operating margins.
If CaBi was doing this promotion in year three of operations instead of month 6 (and the first real month of spring), then I’d be concerned about revenue.
Also, it’s worth noting how big this could be. CaBi currently has about 6,400 annual members. They’ve sold more than 8,000 vouchers on Living Social. If we assume most of those sales are annual memberships - even if half are renewals - that’s a huge increase in total membership coming online just as we get into the nice Spring weather.
One way to look at it is there are going to get a large influx on money in a very short period of time, which bodes well for reinvestment into additional infrastructure. There are some old members who may not plan to renew b/c of cost and the fact they don’t use it as expected. At $37 they are more likely to renew. So instead of getting $0 from them, you are at least getting $37.
If the numbers are already at 6000, the gross revenue is around $220,000. Even after Living Social takes a cut, there’s still plenty of money for additional bike stations.
The lost revenue from renewals is chump change compared to the influx from people purchasing the deal even with Living Social’s cut. They could’ve run this deal through their own site, but they will probably end up with 3 times the takers using Living Social.
Given the way the contract between DC and Alta is structured, I actually don’t object to decision. Here’s why:
David posted last year that the contract is structured as follows: The stations cost about $35,000 for a small station (7 bikes and 11 docking spaces), up to $52,000 for a large 13-bike, 19-dock station. The operating cost will be $155 per bike not counting memberships; the membership revenue DC and Arlington get will go to offset each jurisdiction’s contribution to operating costs.
So it looks to me like it’s DC and Arlington who bear the cost of lower revenue, not Alta. So, in essence, the lost revenue is a government subsidy. I presume the contract with DC and Arlington guarantee them sufficient revenue to make it worthwhile for them. I would be concerned if the lower price impacted the viability of the program more directly.
I think the distinction matters because bike shares have substantial externalities. The public at large benefits from less traffic congestion, lower carbon emissions, etc., as people switch from motor vehicles to bikes. So it makes sense for the government to subsidize user costs b/c it benefits all of us indirectly.
Do I think they will be foregoing some revenue from subscribers who would have paid more? Yes, I do. But I also think there will be a net increase in ridership. I got two new people to sign up today, so I know it’s at least a start. In my mind, that’s the more important public goal.