the solomon robert guggenheim foundation as the...

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DEPARTMENT OF BUSINESS AND MANAGEMENT

Chair of Management

The Solomon Robert Guggenheim Foundation as the pioneer of

the internationalization strategy in the museum sector.

An analysis of its business strategy through its successes and failures.

ACADEMIC YEAR 2016/2017

SUPERVISOR

Prof. Luca Pirolo

CANDIDATE

Carlotta Borelli

Student Reg. No. 189291

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TABLE OF CONTENTS

Introduction………………………………………………………………………………………………….. 4

PART ONE: THE MUSEUM INDUSTRY……………………………………………………………..…. 5

What is a museum? …………………………………………………………………………………... 6

Origins and Evolution of museums…………………………………………………………………….7

Museums: an economic perspective………………………………………………………………….. 9

Value creation and Strategic planning………………………………………………………………. 13

Strategic Market Plan Process…………………………………………………………………......... 16

Porter’s Five Forces analysis of competition………………………………………………………... 18

Marketing Mix analysis……………………………………………………………………………... 20

Value chain analysis……………………………………………………………………………........ 27

PART TWO: THE GUGGEMHEIM CASE………………………………………………………………. 29

The Guggenheim as the first worldwide chain of museums: a museum franchising system………… 30

The brand…………………………………………………………………………………………….. 32

The Guggenheim Network…………………………………………………………………………… 33

The Solomon Robert Guggenheim Foundation and its first museum in New York…………………. 35

The Peggy Guggenheim Collection in Venice……………………………………………………….. 37

The Guggenheim Museum Bilbao…………………………………………………………………… 39

The Deutsche Guggenheim Berlin…………………………………………………………………… 43

The Hermitage Guggenheim in Las Vegas………………………………………………………....... 45

Conclusion………………………………………………………………………………………………….. 47

References………………………………………………………………………………………………….. 50

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FIGURES AND TABLES

Figures

1.1 Degree of design and orchestration of museum experiences……………………………………... 10

1.2 Museum stakeholders……………………………………………………………………………. 11

1.3 Valuable elements of the museum offering………………………………………………………. 13

1.4 Strategic market planning process……………………………………………………………….. 16

1.5 Six forces analysis for museums………………………………………………………………… 19

1.6 5P elements of the museum Marketing Mix…………………………………………………….. 20

1.7 Product concepts in museum marketing…………………………………………………………. 21

1.8 Communication channels for a museum…………………………………………………………. 22

1.9 Pricing policy…………………………………………………………………………………….. 24

1.10 Museum Value Chain…………………………………………………………………………... 27

2.1 Evolution of the number of visitors to the GMB and overnight in the Basque Country………… 40

Tables

1.1 Stakeholder analysis map………………………………………………………………………... 12

2.1 Annual turnout of visitors at the Guggenheim Museum New York and at the Guggenheim Museum

Bilbao (between 2007 and 2012)…………………………………………………………………….. 41

2.2 Annual Inflow of major Spanish museums visitors (between 2004 and 2007)………………….. 41

2.3 Comparison between the tariffs applied by the GMB’s main national competitors……………... 41

2.4 Evolution of the passenger traffic in the airport of Bilbao between 2003 and 2016……………... 42

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Introduction

In the midst of globalization, the role of museums has rapidly changed. Museums have begun to use

management and marketing strategies in order to continue to operate in a more interconnected environment.

In particular, this thesis examines the internationalization strategy of the Solomon Robert Guggenheim

Foundation by analysing both its successes and failures in the business world.

The first part of the paper examines the museum industry, the valuable elements of the museum offering, the

competition within the market and the strategic market planning process. From this business scenario analysis,

a few notable questions emerge. For example, why it is necessary to reform the traditional management of

museums? and what specific development directions can museums take to create a sustainable “branding

system”, replacing a focus on audience experiences and operation in a global framework?

In the second section examines the Guggenheim Network as a case study, analysing how the

internationalization strategy has been implemented and how it enables museums to increase their sustainability

and reduce their storage costs. Here, the aim of the thesis is to present a picture of the global arts business

development strategies of the Guggenheim museums, examining the network, from both an overall perspective

and from the individual perspective of each museum satellite that composes the brand.

To conclude, in the last part of the paper, the focus is placed on the successes of the internationalization

strategy and how it has influenced other museums to follow the same model.

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PART ONE

THE MUSEUM INDUSTRY

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What is a museum?

A museum is “an institution which collects, documents, preserves, exhibits and interprets material evidence

and associated information for the public benefit”.1 In fact, according to the American Alliance of Museum

(AAM)2, its common denominator is that of “making a unique contribution to the public by collecting,

preserving and interpreting the things of this world”3.

Museums are wonderfully diverse. There are many types of museums, including art museums, natural history

museums, science museums, war museums and children's museums. They are operated by nonprofits and for-

profits, colleges, universities and every level of government. However, it is difficult to suss out why

organizations, such as historic houses, interpretive centers or zoos, belong to the museum family, and why

commercial art galleries and private collections generally are excluded. Moreover, the museum is a complex

phenomenon, full of contradictions. Its intentions are not precise, and its meaning to the public is undefined.

In order to seek the unique, diagnostic features, which distinguish museums from all other institutions, Eugene

Dillenburg4 examines in “What, if anything, is a Museum?” three diverse definitions of the word ‘museum’.

“A non-profit-making, permanent institution in the service of society and of its development, and open

to the public, which acquires, conserves, researches, communicates and exhibits, for purposes of study,

education and enjoyment, material evidence of people and their environment.”

The International Council on Museums

“A public or private nonprofit agency or institution organized on a permanent basis for essentially

educational or aesthetic purposes, which, utilizing a professional staff, owns or utilizes tangible

objects, cares for them, and exhibits them to the public on a regular basis.”

The Museum and Library Services Act

“An institution for the acquisition, preservation, study and exhibition of works of artistic, historical or

scientific value.”

The American Heritage Dictionary

Therefore, according to those previous definitions, it emerges that a museum must be a nonprofit and

permanent institution, opened to the public, and which provides a public service, including aesthetics,

enjoyment, and most especially education. Moreover, a museum must own a collection, has to organize

exhibits that may be permanent or temporary and, as a major repository of a country’s stock objects and

specimens of educational and cultural value, it must aim to serve researchers and specialists as well as the

general public.

1 PEARCE, SUSAN. (2000). “Museum Economics and the Community (New Research in Museum Studies)”. Continnuum-3PL. 2 A non-profit association that has brought museums together since its founding in 1906, helping develop standards and best practices, gathering and sharing knowledge, and advocating on issues of concern to the museum community. Formerly the American Association of Museums. 3 DILLENBURG, EUGENE. (2011). “What, if Anything, Is a Museum?” Exhibitionist, spring 2011. 4 Assistant Professor of Museum Studies and Scholar at Michigan State University.

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Origins and Evolution of museums

The word museum comes from the Greek mouseion, a temple of the Muses, the mythological goddesses of

inspiration and learning and patrons of the arts. From this religious and spiritual sense of the word, the concept

of the museum developed into a less mystical one, starting to be conceived as a scholarly and creative center.

That is why one of the earliest museums of the history, the Ptolemaic museum functioned as a scholar’s library,

a research center, and a contemplative retreat. It was built in the third century B.C, in Alexandria, which at

that time, was the preeminent city of learning in the Mediterranean world.

It was only since the second century B.C., that museums started to be associated with the storage and display

of collections acquired in military campaigns. In fact, “the instinct for collecting evident throughout human

history was elevated by Romans into an art form and a systematic enterprise”.5 As a matter of fact, “the center

of Rome itself become a museum”6, filled with thousands of bronze, marble statues, gold and silver pieces

from subdued nations, plundered military campaigns, and imperial wars and conquests.

From the medieval period, the phenomenon of art collections affected both princely estates and the Roman

Catholic Church, who became, during this period, a preeminent intellectual center and patron of the arts.

Instead, it was with the Renaissance that a strong interest in the study of nature, in inventiveness and in artistry

ran rampant, marking the rise of great private collections and museum-like buildings that housed botanical

and zoological specimens, historical artifacts, skeletal remains, curios, shells, coins, bronzes, sculptures and

paintings.

In the eighteenth century, wunderkammer, also known as cabinets of curiosities, drove the act of collection for

its own sake to become a real trend. In fact, those small collections of extraordinary objects attempted to

categorize and tell stories about the wonders and oddities on the natural world, in an almost haphazard

accumulation of natural-history specimens and other bizarre objects. It was in the wake of this trend, that Sir

Ashton Lever, a passionate collector of live and stuffed birds, shells, fossils, costumes, weapons and a large

variety of exotic objects, opened a public museum in London in 1774. This can be considered the first modern

museum in history, designed not only as is an institution which collects, documents, preserves and interprets

material evidence for the public benefit, but also as a business. In fact, to cover costs and regulate the number

and manner of visitors, Sir Ashton Lever provided an admission fee to enter.

After Lever’s experiment, museums gradually evolved into broader, pubic-minded institutions. Since the

Second World War, many municipal museums have been subject to political influences and manipulated to

reflect the stance of the party. After the 1960s, the number of museums has started to grow rapidly. Since then,

in fact, it is no coincidence that 47 percent of all U.S museum have opened.

However, this museum development has taken various forms depending on the geographical context. In fact,

while many European museums were created by the governments as instruments of ruling classes, the great

majority of the U.S. ones were created by individuals, families and the community. For this reason, it can be

easily understandable why, originally, the museum tradition in Europe was closer to the glorification of the

national culture; while in the U.S. the focus was more on the celebration of the local and regional traditions.

Moreover, in the late nineteenth and early twentieth centuries, the new value of self-improvement together

with the explicit purpose of reaching lower-income and working-class people who lacked formal education

and strong acculturating influences, led to the foundation of several museums and parks which could offer all-

encompassing leisure-time activities.

In fact, it is with the 1980s that a new commercial era for museums has begun. Both government and private

benefactors started to support museums economically, consistently and simultaneously with the development

5 KOTLER, NEIL G., KOTLER PHILIP, KOTLER I. WENDI. (2008). “Museum marketing and strategy: designing mission, building audiences, generating revenue and resources”. Jossey-Bass, San Francisco. 2nd Edition. 6 Ibidem.

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and establishment of the free market economy era. Moreover, both education and tourism have contributed

significantly to the museum market potential development. As a matter of fact, museums have benefit from

both the more educated population and the growth of the tourism industry that, during the 1970s and 1980s,

has led to an increase of the overall leisure time of the public. For this reason, as more people have started to

spend more time travelling or enjoying the holidays, museums have to modify their offerings in order not to

disappoint the expectations of the visitors. In the wake of this important economical turning point, “museums

have been encouraged to consider money-making schemes, such as introducing shops, cafés, publishing

ventures, societies of Friends, and business clubs.”7

Today, exhibitions increasingly offer multiple perspectives, narrative exposition, and interactive experiences.

With the aim of attracting various audience segments, collections, the core of most museum, now coexist with

educational programs and participatory social activities. In fact, museums have designed a growing number

of social and recreational programs, such as guided tours, lectures, films, concerts, art festivals, study clubs,

hobby workshops, drama classes, and dance recitals. In addition to this, the introduction of new technologies

and media, has facilitated and vivified the museum-going experience for visitors.

The trend of museums as a profitable business with restaurants, cafeterias and other commercial services is

proliferating worldwide, even among non-profit museums. Moreover, the economic potential of the shop,

located inside the museum, it is always more evident and taken into account. As a matter of fact, museums are

redesigning their internal commercial boutiques that carry expensive items as well as inexpensive gifts.

Nowadays, there are more than 55,000 museums in 202 countries.8 “The great majority of museums in the

United States are organized as private, nonprofit organizations or as agencies of state and local governments.

As nonprofit educational organizations, these museums receive certain privileges and exemptions under U.S.

laws and tax regulations in return for which they are expected to function as a publicly minded educational

and public service organizations. On the other hand, the majority of museums in the European Union are run

by governments and, for the most part, do not have a tax-exempt status.”9

In conclusion, museums can be classified on a scale from small to large. As a matter of fact, a museum as

large as the Metropolitan Museums of Art in New York City, with its over $200 million of total revenue, its

thousand employees, and budgets in hundred millions of dollars is considered a large-scale museum. While,

on the other hand, all those museums with small budgets and volunteer staff, with “five or fewer full-time

paid or unpaid staff”10, are considered small-scale ones.

7 MCLEAN, FIONA. (1997). “Marketing the Museum”. Routledge, London. p.30 8 DE GRUYTER, SAUR. (2014). “Museums of the World”. München, 21st edition. 9 KOTLER, NEIL G., KOTLER PHILIP, KOTLER I. WENDI. (2008). “Museum marketing and strategy: designing mission, building audiences, generating revenue and resources”. Jossey-Bass, San Francisco. 2nd Edition. 10 Definition of “small museum” made by the Institute of Museums and Library Services.

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Museums: an economic perspective

From an economic perspective, a museum is “a kind of vertically integrated firm which transforms resources

into output.”11 In fact, it can be viewed as “a productive unit which, in order to achieve certain objectives,

engage in the transformation, via a production technology, of inputs into a mix of outputs that are valued by

others.”12 Moreover, museums increase the market value of areas of cities in which they are located. They

attract media, tourism, and national and international attention, being, at the same time, magnets of economic

development.

Even if museums operate on a nonprofit basis and even if they receive substantial grants from external sources,

they need to generate income for their survival. Here the importance of the market economy for museums that

are exhorted to focus their business on “the three Es’: Economy, Efficiency and Effectiveness”.13

According to Elaine Heumann Gurian14, it is possible to distinguish five different types of museum

orientations, which result in different kind of visitor experiences, learning, and engagement. A museum can

combine one or more of these analytical typologies:

The objected-centered museum, focused on artifacts and collections;

The narrative-centered museum, focused on emphasizing stories that are evocative;

The client-centered museum, focused on targeting different audience segments, offering them a variety

of educational experiences;

The community-centered museum, focused on local relationships and the community life;

The national museum, sponsored by the government, with the aim of celebrating national values.

However, after experiencing the marketing revolution, museums have changed their market approach from a

product-centered orientation to a consumer-centered one. As a matter of fact, at the end of the industrial era,

the new marketing concept of finding product for customers emerged. For this reason, museums, as well as

businesses, evolved into consumer-centered and user-friendly organizations, characterized by “an instinct and

a need to reach and serve the public”.15 Their goals became those of carefully defining their target markets

and attracting different groups with superior offerings.

Moreover, a consumer-centered museum has the following characteristics (Kotler, 2008)16:

it will factor in consumer interests in planning museum exhibitions, programs and services;

it will rely heavily on research to learn about customer needs, perceptions, and preferences;

it will identify market segments with different needs and interests and arrange programs and

experiences to satisfy each target segment;

it will define competition broadly to include all other leisure-time activities and recreational options

that might compete with visiting a museum;

its market strategy will use a variety of marketing tools, not merely advertising and public relations.

From the figure 1.1, which shows how museums offer to the audience different degrees of involvement, from

the simply display of objects and collections to complex and interactive immersion experiences (on the vertical

11 PEARCE, SUSAN. (2000). “Museum Economics and the Community (New Research in Museum Studies)”. Continnuum-3PL. 12 BARRY, THOMAS. JOHNSON, PETER. (1998). “The Economics of Museums: A research Perspective”. Journal of Cultural Economics, 22: 75-85. 13 MCLEAN, FIONA. (1997). “Marketing the Museum”. Routledge, London. p.30 14 Consultant to a number of museums and visitor centres that are beginning, building or reinventing themselves. 15 MCLEAN, FIONA. (1997). “Marketing the Museum”. Routledge, London. p.30 16 KOTLER, NEIL G., KOTLER PHILIP, KOTLER I. WENDI. (2008). “Museum marketing and strategy: designing mission, building audiences, generating revenue and resources”. Jossey-Bass, San Francisco. 2nd Edition. p.32

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axis) and the potential museum experiences (on the horizontal one), it emerges the changed competitive

scenario in which museums operate. As a matter of fact, today museums “are seeking ways to reach a broader

public, forge community ties, and compete effectively with alternative providers of leisure and educational

activities.”17To this end, museums are breaking down the boundaries between them and the other recreational

and educational organizations, by enlarging their offerings, raising the comfort level for visitors, and providing

a range of programs.

Figure 1.1: Degree of design and orchestration of museum experiences

Source: KOTLER, NEIL G., KOTLER PHILIP, KOTLER I. WENDI. (2008). “Museum marketing and strategy: designing mission, building

audiences, generating revenue and resources”. Jossey-Bass, San Francisco. 2nd Edition. p. 6.

It is with its mission statement that a museum communicates its fundamental purposes and orientations, its

core beliefs and priorities. The mission statement is, in fact, an important tool for strategic planning: it

communicates how the museum relates to its publics, who benefits as a result of the museum’s work, and what

programs and services are provided to accomplish the purposes.

This is why, for example, from the Guggenheim museums mission statement:

“Committed to innovation, the Solomon R. Guggenheim Foundation collects, preserves, and interprets

modern and contemporary art, and explores ideas across cultures through dynamic curatorial and

educational initiatives and collaborations. With its constellation of architecturally and culturally

distinct museums, exhibitions, publications, and digital platforms, the foundation engages both local

and global audiences.”

17 KOTLER, NEIL, KOTLER PHILIP. (2000). “Can Museums be All Things to All People? Missions, Goals, and Marketing's Role”. Museum Management and Curatorship, 18:3, 271-287.

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it emerges not only what is the purpose of the museum, its organization and what it does, but also what is

distinctive in what it does, who are its consumers, and the value offered to them. As a matter of fact, a key

element of a mission statement is to “communicate the distinctiveness of what the museum does: the

uniqueness of its collections, exhibitions, and programs, of the facilities and services, the research and

scholarship, and the elements of the museum’s environment”.18

However, mission statements vary considerably because “they reflect a museum world of great diversity in

mission, purposes, and organizations.”19 For this reason, it is possible to distinguish between those mission

statements which emphasize the central role played by the collection to inspire and educate the public and

others more related to institutional core values such as fairness, justice and desirability. Whatever the statement

of a museum’s values is, it characterizes the way a museum will behave, representing also an important tool

for engaging management and staff, as well as members of the board public, donors, and other stakeholders.

As a matter of fact, as far as the stakeholders are concerned, they play a crucial and non negligible role in the

organization’s success, representing, in the long term, the major forces that influence the future path an

organization takes. Moreover, “art museums are highly dependent on donors, collectors, artists, and art dealers

in building and maintaining their collections. In many cases, individuals from one or more of these groups sit

on boards of directors or else serve as major stakeholders in volunteer and friends-of-the-museum

associations.”20

Figure 1.2: Museum stakeholders


audiences, generating revenue and resources”. Jossey-Bass, San Francisco. 2nd Edition. p. 60

18 KOTLER, NEIL G., KOTLER PHILIP, KOTLER I. WENDI. (2008). “Museum marketing and strategy: designing mission, building audiences, generating revenue and resources”. Jossey-Bass, San Francisco. 2nd Edition. 19 Ibidem. 20 Ibidem.

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For this reason, museum leaders should identify, with a stakeholder analysis map (Table 1.1), the stakeholders

who can wield influence the museum organization, determining the potential nature of that influence and

identifying the opportunities and threats that they represent.

Table 1.1: Stakeholder analysis map

Stakeholder Role or

relationship Influence(s) Interrelationships Strategies

Community groups

Professionals

Membership

Donors

Board of Directors



According to Stuart Davies museums have four sources of demand: visitors, users, stakeholders, and society.21

There is a great substantial distinction between ‘visitors and users’ and ‘stakeholders’. In fact, while the former

are “interchangeable since there are various ways of using the service of a museum, other than merely visiting

it”22, the latter can have a direct or indirect impact on the day-to-day policies and operations of a museum.

However, the degree of influence of the funding bodies, governing bodies or other external organizations such

as tourist boards, societies or corporate sponsors varies according to the organizational structure of the

museum.

In conclusion, in the market environment, there are also several external stakeholders, such as local

government agencies, professional accreditations associations or regulatory organizations in general, that

impose rules of conduct on museum organizations. Museums have a keen interest in satisfying these rules to

attract and maintain their legitimacy and integrity, as, for example, those imposed by the International Revenue

Service (IRS) to the U.S. museums. As a matter of fact, “U.S. museums frequently negotiate with the IRS over

rules limiting the types and extent of commercial enterprises they can operate. Museums that receive grants,

subsidies, and other form of support from government agencies are subject to oversight, if not regulation, in

regard to public funds and their compliance with rules and laws protecting individual rights, such as equal

employment and equal opportunity rules.”23

21 DAVIES, STUART. (1994a). “By Popular Demand: A strategic analysis of the marketing potential for museums and art galleries in the UK, London: Museums and Galleries Commission. 22 MCLEAN, FIONA. (1997). “Marketing the Museum”. Routledge, London. p.68 23 KOTLER, NEIL G., KOTLER PHILIP, KOTLER I. WENDI. (2008). “Museum marketing and strategy: designing mission, building audiences, generating revenue and resources”. Jossey-Bass, San Francisco. 2nd Edition.

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Value creation and Strategic planning

The fundamental purpose of a museum is value creation. In fact, it has to offer a unique and remarkable value

to its public, successfully competing in the leisure-time marketplace. For this reason, marketing represents an

essential tool for a museum, whose main purpose is that of offering to its customers as much value as possible

for having born the cost of visiting the museum.

In particular, customers bear two different types of costs: functional and psychic. The functional cost refers to

the actual price the visitor has to pay for the benefits, services and products purchased while the psychic cost

refers to the implicit cost a customer pays metaphorically for having reached the museum. It can be considered

as a sort of opportunity cost because it can be measured in terms of time and effort spent or wasted for reaching

the museum and choosing to have an experience there.

However, the valuable elements of the museum offering consist in a bundle of benefits that a museum provides

to its public in terms of quality, services, experience and price. (Figure 1.3)

The ratio of benefits and costs is “likely to shape a consumer’s judgement of the perceived value accrued in a

museum visit and likelihood of a return”.24 In fact, if the value is high, this means that the benefits exceeds the

cost, and the visitor is satisfied by the museum’s offering.

Figure 1.3: Valuable elements of the museum offering



However, since the potential public is extremely heterogeneous, it is impossible for a museum to be able to

fulfil all the different needs customers have. Moreover, since museums depend on the support of regular

visitors, members and donors, long-lasting relationships between museums and consumers are fundamental.

For this reason, its key of success is that of using the tools of marketing in order to address its offering to a

specific target consumer segment of the market.

To this end, museum marketing managers have to “work to affect the level, timing, and type of demand to

meet the museum’s goals”, taking into account that there are six different demand situations relevant to

museums (Kotler, 2008)25:

24 Ibidem. 25 Ibidem.

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Negative demand: consumers dislike the museum’s offerings and may avoid them;

Latent demand: consumers have a strong interest but may not be satisfied by existing exhibitions

and programs;

Declining demand: museum visitors use programs less frequently over time;

Irregular demand: visitors numbers vary by seasons, month, and day;

Full demand: visitors are adequately participating in the range of museums exhibitions and

programs;

Overfull demand: the museum does not offer enough programs, services, and facilities to satisfy

demand.

Once the origins of the demand situation have been determined, marketing managers have to develop a

strategic plan in order to accomplish their mission. In fact, thanks to the strategic planning, a museum can

determine its target market, define its offering, and analyze strengths, weaknesses, opportunities and threats.

A strategic plan is a process that lasts, on average three to five years. With this, museums establish an action

plan with systematic tasks, identifying at the same time both objectives and personnel responsible for

monitoring implementation. A strategic plan represents, also, a useful tool for “checking on and improving the

museum’s performance, proving a framework for decision making, creating a basis for planning new

initiatives, identifying ways to motivate museum staff, and scanning changes in the external environment and

its effects on a museum organization.”26

In fact, a museum’s strategic plan reflects not only the museum’s vision but also its strategic goals. For

example, the strategic plan of Guggenheim Museum Bilbao (2015-2017) states that its first goal to establish a

cooperation between the Bilbao Museum and the Solomon R. Guggenheim Foundation to define a more

dynamic role for the museum and to create a structure capable of supporting it. Its second one refers to the fact

that the plan must look at the specificity of the Basque Country economy. It must aim at promoting, supporting

and developing knowledge-generating projects in the context of such a creative economy. Its third goal is that

of making it easier to acquire optimum resources to guarantee the museum’s sustainability, and its last one

refers to the creation of alliances, essential to allow the museum to pursue its commitment to innovation.

In light of these goals, there are also four strategic objectives decided for the 2015–2017 period. The first is

the implementation of operational policies and new working methods within the Guggenheim Constellation

according to the principles set out above. The second is the determination to make the Guggenheim Museum

Bilbao’s distinctive artistic identity stronger, in order to maximize its artistic potential and consolidate its

position in the museum and education sectors. The third objective is the identification of new formulas to

ensure the museum’s continued sustainability, especially for the purpose of an easier implementation of the

strategic initiatives, and the last one is the use of exhibitions and education and interpretation programs (both

physical and online) with an aim of increasing audience levels and reinforcing the community support

networks.

However, the strategic objectives have to be interpreted together with the museum strategic initiatives that are

periodically submitted to an analysis of their degree of development and realization. If we consider the

strategic initiatives included in the 2015-2017 plan their focuses are: contents, technology, and stakeholder

relations.

As far as the contents are concerned, a new approach to the art program is foreseen. The purpose is the

realization of a perfect combination of a more visible presence of the Guggenheim Collections and exhibitions

of the finest quality that may satisfy a large and varied audience. On the one hand, works from the Bilbao

holdings are presented on a regular basis; on the other hand, the Museum’s galleries have been provided with

different exhibition formats in order to lend the art program greater stability. The Museum also develops in-

26 Ibidem.

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house projects and co-productions in which Bilbao’s curatorial team plays an important role. Furthermore,

Bilbao’s educational program pursues a 360° approach based on innovation, creativity, participation and

experience. The purpose is offering its varied audience full immersion on the art program and the building

designed by Frank Gehry.

As far as the technology is concerned, the museum is determined to adapt to the development of digital

information. The new digital materials were conceived to improve the visitor experience. Moreover,

technology is not only fundamental in the museum’s interaction with its audience, but also with its

stakeholders. That is why this second relationship is strengthened with digital resources and technology. As a

matter of fact, the nature of museums is radically changing with the new way people access information,

through new devices. The contents’ transmission may be optimized using various methods and media.

Museums are not anymore places of contemplation. They are transforming themselves to hybrid spaces where

digital technology is a part of the visitor’s experience.

Lastly, stakeholder relations are fundamental. The museum is expected to strengthen ties with the community

and with its members. Indeed, this strategic initiative aims at being an accessible forum of social inclusion,

exchange, and dialogue. The museum must strengthen its ties with the community and the local art scene. It

must also maintain programs with an emphasis on social outreach and create a network of emotional bonds.

This will allow it to identify people with a potential interest in its activities. Moreover, another strategic

initiative for this period is to strengthen the loyalty of the different groups of its members by offering benefits

tailored to their specific interests and by creating new museum membership and support categories. To this

end, museums embrace transparent management practices and constant leadership in good governance as a

means of connecting with society and maintaining its trust in the organization.

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Strategic Market Plan Process

Compared to the strategic plan, the strategic market plan process (SMPP) is something different. In fact, a

SMPP is an one-year process, focused on both consumers and short-term variables.

It embraces eight steps (Kotler, 2008)27 :

The external environmental scan (focus on both opportunities and threats)

The internal environmental scan (focus on strengths and weaknesses)

The mission and goal formulation

The strategy formulation

The strategic marketing

The Marketing research

The Tactical marketing

The Monitoring and planning outcomes and implementation

Figure 1.4: Strategic market planning process

Source: Adapted from KOTLER, NEIL G., KOTLER PHILIP, KOTLER I. WENDI. (2008). “Museum marketing and strategy: designing

mission, building audiences, generating revenue and resources”. Jossey-Bass, San Francisco. 2nd Edition. p. 46

Through the SMPP a museum shapes, plans, implements, and monitors both the mission it has to develop, and

the programs and services it offers. To this end, a museum has to perform an environmental scan both internally

and externally, analyzing strengths, weaknesses, opportunities and threats that characterize its business. In

fact, “successful museums maximize their competitive opportunities by identifying attractive markets and

developing organizational strengths and competitive offerings that appeal to their target markets.”28

27 Ibidem. 28 Ibidem.

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Firstly, in order to formulate its own successful strategy, a museum has to analyze the competitive environment

through the “Porter’s five forces model”. Secondly, it has to identify the elements of its marketing mix strategy,

also known as the “4Ps model”. Finally, it has to draw its value chain framework.

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Porter’s Five Forces analysis of competition

Porter’s five forces model allows a business which wants to develop its own strategy to analyze the level of

competition within an industry that, in the museum case, is the leisure-time activities one. From an overall

perspective, because the leisure-time marketplace creates ever increasing competitive pressures for museums,

the competitive environment has to be analyze broadly and continuously.

In fact, museums have to face four different types of contenders (Kotler, 2008)29:

Enterprise competitors: other types of organizations that can satisfy the needs of potential

consumers;

Desire competitors: general desires and preferences that potential consumers might have;

Generic competitors: other ways with which potential consumers can alternatively satisfy a

particular need or desire;

Form competitors: alternatives with which potential consumers can satisfy a particular type of

leisure activity selected.

In general, when Porter’s model is adapted to museums, it is considered a competitive rival for any other

museum that in the area which starts a long succession of exciting exhibitions, diverting the clientele. The

threat of new entrants into the market, instead, suppose a new museum entrance in the area, attracting some

potential visitors’ traffic away from the existing museums. While, the threat of subsidies refers to the

possibility that customers starting preferring different activities to visiting museums. Finally, both supplier’

and consumer’ powers refers to the possibility that either from the supply side or from the demand one, there

will be oppositions in order to force the museum to change its strategy.

However, compared to the traditional five forces model, in the museum case there is also a sixth force that has

to be considered. As a matter of fact, as Sharon M. Oster noticed in her book30 that a museum suffers if donors

decide to lower their contributions. She proposed to add the donor power to the Porter’s model adapted to the

museum case (Figure 1.5).

Thus, competitive rivalry is strong when (Kotler, 2008)31:

Many equally balanced competitors exist;

Small differences among products (offerings) are perceived to consumers, and it costs consumers

little to move from one product area to another

New products are adding to capacity.

29 Ibidem. 30 “Strategic Management for nonprofit organizations: theory and cases”. (1995)

31 KOTLER, NEIL G., KOTLER PHILIP, KOTLER I. WENDI. (2008). “Museum marketing and strategy: designing mission, building audiences, generating revenue and resources”. Jossey-Bass, San Francisco. 2nd Edition.

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Figure 1.5: Six forces analysis for museums



20

Marketing Mix Analysis

From the marketing mix analysis it immediately emerges that in the museum context there are five Ps instead

of the typical four one that characterize other kind of business. As a matter of fact, to the customary four Ps

(Product, Promotion, Place and Price), a fifth one (People) has to be added. (Figure 1.6)

Figure 1.6: 5P elements of the museum Marketing Mix



PRODUCT

The product is much more than the exhibitions, services, programs, events, and facilities which the museum

offers to its visitors. As a matter of fact, according to Fiona McLean, the museum product is also, from a wider

perspective, “a bundle of images in the mind of the user, with the nature of the reaction to the museum product

being psychological, rather than physical. The user aggregates impressions of the product (the museum

experience), with all inputs (be they the display, the appearance of the attendants, or the atmosphere) being

equally important to the composite product received by the user”.32

From a marketing perspective, it is possible to distinguish three different levels of a product: its core, the actual

product and its augmented level. (Figure 1.7)

32 MCLEAN, FIONA. (1997). “Marketing the Museum”. Routledge, London. p.105-106

21

Figure 1.7: Product concepts in museum marketing



The core product is that which is central to advancing the institutional museum mission and that satisfies the

main consumer’s needs. Thus, collections, exhibitions and their conservation can be considered core product

samples. The actual tangible products, instead, are those features that characterize the museum offering, such

as restaurants and shops, the design and decors, the building’s architecture and all those elements that

complement the core product. Whereas, the augmented products are all those elements that a museum offers

to its public in order to add more value to its offering. As a matter of fact, memberships as well as behind-the-

scene tours or visits with museum directors can be considered augmented product samples because they

represent additional benefits that a museum offers.

PROMOTION

With communication, a museum can promote its public image, inform potential customers about the museum

offering and its relevant attributes, and remind funders of the museum value. In fact, promotion plays a vital

role in attracting, building and maintaining a continuous stream of visitors, and represents the main means by

a museum communicates with its target audience. In particular, it is possible to distinguish between two main

channels that compose the communication mix: the external and the internal one. (Figure 1.8) As far as the

former is concerned, both word-of-mouth and media editorials can be considered as typical examples of

messages generated from outside the museum; however, the communication generated from within the

museum has different characteristics when bound to production or promotion.

22

Figure 1.8: Communication channels for a museum

Source: MCLEAN, FIONA. (1997). “Marketing the Museum”. Routledge, London. p. 140

Whatever the source of communication chosen, museums have to follow four steps in order to develop an

efficient communication program. As a matter of fact, only after having identified the target audience and

determining its promotion goals can the museum develop the message and select the communication mix. In

other words, museums should adopt a holistic approach through which they “should be aware of all aspects of

the museum’s operations that impinge on the experience of the visitor.”33

PLACE

Place refers to distribution channels that enable consumers to experience a museum’s product or service in a

location and at a time that is convenient. According to John Rathmell, services can be located alternatively as

where location may be irrelevant, where the services may be concentrated, and where the service may be

dispersed.34 For this reason, the target of the distribution channels is that of delivering the right product, at the

right time, in the right place.

33 MCLEAN, FIONA. (1997). “Marketing the Museum”. Routledge, London. p.155 34 RATHMELL, JOHN. M. (1974). “Marketing in the Service Sector”. Cambridge, Mass.: Winthrop.

23

However, museums have an important obstacle to overcome. They cannot move to other locations in order to

reach a wider public because they are characterized by a pre-determined and inflexible placement. Despite

this, however, they are able to deal with this restriction thanks to both turnaround of their permanent collection

and through touring exhibitions.

The delivery system is designed to meet users’ needs. Moreover, because both museum offerings and museum

capabilities can be considered as a unique inseparable service, museum decisions on operations management

have to lend importance to the delivery system since it represents a major factor in the users’ perception of the

service. Taking into account that users will make more effort and travel longer distances only if really

interested or attracted by something they perceive as exceptional and worth it, museums have to introduce

attractive, unique and remarkable products to entice the visitor. With this aim, and in order to attract even

those patrons who normally do not make the effort to visit a museum, museums currently expand the range

of products by introducing temporary blockbuster exhibitions.

“Location and the physical infrastructure of a museum can impact on a user’s orientation once inside the

museum building.”35 In fact, on the one hand, there are vast museums with labyrinthine corridors, while, on

the other hand, there are small museums where the visitors are guided to move in one direction. Another

important determinant of the location is the museum’s ease of access. As a matter of fact, accessibility requires

good transportation links, a parking lot, and appropriate entry points.

Finally, a museum manager has to take into account that the degree to which the consumer is included in

service delivery can vary depending on the museum. As a matter of fact, the main use of a museum’s

consumers in delivering information is through self-service. However, museums can encourage and equip the

self-service experiences with the use of technology, tape recorded tours, leaflets describing the layout of the

museum and guided tours. These addictions can only enhance the process of information delivery which ight

be seen in museums with location restrictions.

PRICE

Price is the “element of cost in the consumer exchange process. It produces an income stream to help the

museum finance its objectives.”36

Even if most museums are non-profit institutions, they have to generate their own income because they can

no longer rely on public subsidy for survival. “As in all non-profit activities, there are two principal means of

attracting additional resources: income generation and development activities. Income generation

encompasses all aspects of income that can be self-earned, including pricing strategies, catering, retailing,

publications, special events, and conferences. Development activities include all aspects of resource, attraction

from external sources, encompassing fundraising and sponsorship, friend and member schemes, and attracting

volunteers.”37

35 MCLEAN, FIONA. (1997). “Marketing the Museum”. Routledge, London. p.135 36 KOTLER, NEIL G., KOTLER PHILIP, KOTLER I. WENDI. (2008). “Museum marketing and strategy: designing mission, building audiences, generating revenue and resources”. Jossey-Bass, San Francisco. 2nd Edition. 37 MCLEAN, FIONA. (1997). “Marketing the Museum”. Routledge, London. p.157

24

Pricing is also a “tool to encourage target groups to participate”38 and which enables the potential user to make

comparisons among alternatives. As a matter of fact, museums use the price for market segmentation purposes

in order to reach specific target-markets. To this end, they set and follow different pricing policies (Figure 1.9)

that, in turn, are influenced by four factors (McLean, 1997)39:

Those under the control of the museum itself;

Those that operate in the market in which the museum operates;

Those influenced by users’ needs;

Those determined by the marketing environment.

Figure 1.9: Pricing policy

Source: MCLEAN, FIONA. (1997). “Marketing the Museum”. Routledge, London. p. 159

38 KOTLER, NEIL G., KOTLER PHILIP, KOTLER I. WENDI. (2008). “Museum marketing and strategy: designing mission, building audiences, generating revenue and resources”. Jossey-Bass, San Francisco. 2nd Edition. 39 MCLEAN, FIONA. (1997). “Marketing the Museum”. Routledge, London. p.160

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Organization

Marketing objectives Prices should be determined by the marketing objectives. The price should also be consistent

with the total marketing strategy for the museum.

Product life cycle

The age of the product can sometimes impact on the level of pricing. A new museum with little

competition in the surrounding area may find that visitors will bear a high price. However, as the

museum is established and is increasingly relying on repeat visits, and as other attractions open

up in competition to the museum, it may find it necessary to reduce the price to guarantee its

visitors.

Product portfolio The price of a product can be influenced by the price of other products in the museum’s

portfolio of products.

Product positioning

Price denotes quality. Generally, high prices denote high quality; low prices poor quality. Due to

the intangibility of services, many potential users will base their decision to purchase on the

value that is perceived from the price.

This may need to be taken into account if the price is to reflect the image of the museum.

Product costs Non-profit organizations often use a cost-plus process to arrive at a price. This is because it is

easier to judge cost than demand.

Market

Competitive pricing

Pricing strategy depends on the type of market in which it is involved. In a competitive market,

if a museum charges a higher price than its competitors it will lose users. If it reduces prices to

below those of competitors it may face over-capacity in demand. A museum needs to be aware

of the prices being charged by competitors. On comparing alternatives, users consider price and

value. The museum’s price should bear a sensible relation to the prices of competitors in terms

of the museum’s product offering.

Segmentation Differential pricing can be used to target different groups of people. It is already widely

practised in many museums, with different prices for senior citizens, the unemployed, students,

groups, and for different times of the day or week.

Customer

Demand/needs

Benefits

Value

The customers will decide if the price is set at the right level, through their power of withdrawal.

The users’ needs must be understood in relation to the nature of the experience. The users’ costs

can be monetary and non-monetary. Thus, the costs perceived by the user will also include the

time taken to travel to the museum. The ease of obtaining the service and the quality of it and

the way it is perceived are all perceived benefits of the user. Price then, should reflect the

perceived value of the museum to the user. A temporary exhibition of a wellknown artist’s

paintings may have more value for the user, for example, and so a correspondingly higher price

may be charged for admission.

Environment

Economic, political, and social factors will impact on the price a museum is able to charge.

The price may be directly regulated by central or local government.

Factors that can impact on the pricing strategy of a museum are:

- Cost associated with the product

- Availability of internal and external funds to subscribe operations

- Total capacity available

- Museum’s need for up-front money

- Extent and nature of competition in any given situation

- Pricing policies of competitors

- Potential market size for a specific product offering

- Additional costs incurred by users

- Price elasticity of potential users

- Purchasing behavior of potential users

- Alternative products offered by the museum

- Changes in the external environment that may affect: users’ ability or willingness to

pay, nature of competition, size of the market, museum’s cost and financial situation,

etc.

Source: Adapted from MCLEAN, FIONA. (1997). “Marketing the Museum”. Routledge, London. p. 160-164

To conclude, it must be taken into account that, besides its monetary meaning, the word price has a wider

interpretation. In fact, from a social interpretation of the term, even the time itself can be considered a form of

price because it represents a precious commodity that comes at a high cost for many people.

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PEOPLE

The term “people” refers to “the museum staff members who serve visitors and interact with a range of

stakeholders in a variety of contexts.”40 This is why, for example, since the front-line personnel have a closest

contact with the consumer, they are able to both interpret and learn how the visitor feels about the museum.

Moreover, “a museum’s staff van either enhance a visitor’s value or diminish it, based on their behavior.”41

For this reason, it is fundamental that they are welcoming, courteous, and informative. As a matter of fact,

they have the dual duty of keeping the museum informed about its visitors as well as being integrated in the

marketing organization. These two responsibilities allow staff-members to actively contribute to a museum’

development and improvement.

To conclude, a museum’s manager has to keep in mind that “people are a fundamental aspect of the museum’s

product, both directly in the form of the visible attendant or shop assistant, but also indirectly as behind the-

scenes support staff.”42

40 KOTLER, NEIL G., KOTLER PHILIP, KOTLER I. WENDI. (2008). “Museum marketing and strategy: designing mission, building audiences, generating revenue and resources”. Jossey-Bass, San Francisco. 2nd Edition. 41 Ibidem. 42 MCLEAN, FIONA. (1997). “Marketing the Museum”. Routledge, London. p.127

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Value chain analysis

The value chain canvas illustrates ten strategically relevant activities that create value and costs. Only when

performing these activities effectively can businesses be able to reach a competitive advantage with regard to

consumers and organizations.

Concerning museums, their surplus depend on their strategical ability to both provide lower costs and

differentiate their offering from that of their competitors. To this end, in fact, museums have to reduce costs

in each of the value adding activities, being also able to focus on their core competencies and capabilities,

delivering to customers a better offering than that or their rivals.

However, according to Micheal Porter43, the biggest error a museum can make is to compete with rivals on

the same dimensions. As a matter of fact, it has to pursue a unique value proposition compared to other

organizations, tailoring a different value chain and choosing activities that fit together and reinforce each other.

Moreover, it has to communicate and promote its offering effectively, adjust pricing appropriately, and

refurbish physical facilities.

With the value chain analysis (Figure 1.10), museums can measure the balance of power in the environment

and set a strategy that can ensure them a long-lasting competitive advantage. In fact, the aim is that of

guaranteeing a continuity in the strategy that “allows the board and the staff to understand and embrace the

strategy, strengthens alignment of activities across the value chain, establishes a clear identity with patrons,

funders, and other outside entities, and builds truly unique skills and assets related to the strategy.”44

Figure 1.10: Museum Value Chain



43 KOTLER, NEIL G., KOTLER PHILIP, KOTLER I. WENDI. (2008). “Museum marketing and strategy: designing mission, building audiences, generating revenue and resources”. Jossey-Bass, San Francisco. 2nd Edition. 44 PORTER, MICHEAL. & American Association of Museums. (2006). “Strategy for Museums”. Boston, Massachusetts. Presentation ppt. www.isc.hbs.edu.

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The aim of a museum does not end with finally reaching a competitive advantage. As a matter of fact, as any

other kind of business, its final goal is to continue growing and maintain its competitive advantage over

time. As Allen and Zook45 explain, it is possible to distinguish between six different alternative growth

strategies that can allow museums to penetrate in existing markets with existing offers46:

Expanding along the value chain

Developing new products and services

Using new distribution channels

Addressing new consumer segments by modifying a proven product or technology

Recognizing opportunities with a new business built around a strong capability

Entering new geographies

As far as this latter growth strategy is concerned, a museum can enter new geographies in different ways: by

travelling to school with its offering, by expanding online, by offering virtual exhibits, or by opening a new

branch at a distance. Certainly, the most both interesting and extreme way with which a business can enter

new geographies is through the internationalization strategy, of which, the Solomon Robert Guggenheim

Foundation represents the undisputed pioneer in the museum sector.

45 ALLEN, JAMES. ZOOK, CHRIS. (2003). “Growth outside the Core.” Harvard Business Review (online version). p.1 46 KOTLER, NEIL G., KOTLER PHILIP, KOTLER I. WENDI. (2008). “Museum marketing and strategy: designing mission, building audiences, generating revenue and resources”. Jossey-Bass, San Francisco. 2nd Edition.

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PART TWO

THE GUGGENHEIM CASE

30

The Guggenheim as the first worldwide chain of museums: a museum franchising system

The Solomon Robert Guggenheim Foundation is the first example of museum franchise in history. As a matter

of fact, Guggenheim Group has been an undisputed pioneer in the internationalization strategy, which consists

in the process of adaptation to other markets or international environments by either a company, a product or

a brand, originally conceived and designed for a defined environment.

It’s their intention and ambition to become the leading brand of the art world, a name recognized as a

significant architectural monument, maintaining an important and quality collection47. The very essence of the

foundation’s strategy is grounded in the creation of a shortlist of satellites museums around the world.

After the foundation, in 1937 in New York, of Solomon R. Guggenheim Museum, the first European tête de

pont of the Foundation was established, by inaugurating the Peggy Guggenheim Collection at the Palazzo

Vernier dei Leoni in Venice.

It has been followed, in time, by the Deutsche Guggenheim Berlin, in cooperation with Deutsche Bank (opened

in 1997 and finally closed in 2013), the Guggenheim Hermitage Museum in Las Vegas, in cooperation with

the Russian Museum (opened in 2001 and finally closed in 2008), and other projects designed for Vilnius

(Lithuania) and Guadalajara (Mexico). The latter two locations have not yet been constructed; however, the

Guggenheim Abu Dhabi opening in 2017 and the prototype Guggenheim Museum Bilbao show the continued

success of the foundation’s strategy.

The adopted approach, which is identical with respect to each of the satellites museums forming part of the

group, assumes the typical forms of the franchise system. In fact, it is characterized by elements such as the

supply and delivery of skills and know-how, the right to use both the Guggenheim brand and world-renowned

architects to design the building. These architectural masterpieces become works of art and tourist attraction

in their own right. The franchise is in fact a form of cooperation between entrepreneurs, which finds on the

one hand a company with a proven business formula (franchisor) and on the other hand a company or an

individual entrepreneur (franchisee) that adheres to this formula.

The parent company, which may be a manufacturer or a distributor of products or services of a particular brand

or banner, grants the franchisee, usually an independent reseller, the right to market its own products and/or

services using the sign of the franchisor, as well as technical assistance and advice on working methods. In

return, the affiliate agrees to comply with standards and management and production patterns established by

the franchisor. Typically, all this is offered by the franchisor to the franchisee through the payment of a

percentage of revenue (royalty) along with the respect of the contractual rules governing the relationship.1

In the specific case of the Solomon R. Guggenheim Foundation, there are many elements that suggest a close

proximity between the managerial model adopted by the group and the franchising system. As a matter of fact,

the use of local entrepreneurs minimalizes the risk associated with foreign direct investments. Likewise, the

Guggenheim Foundation collaborates as much as possible with local investors.

The franchise is characterized, moreover, by a desire to extend the geographic plane, thus minimizing not only

the financial burdens of growth, but also the costs of control relating to the geographical dispersion of the

units. As such, by developing museum’s relays financed by either the host regions and private funds the

Guggenheim Foundation has been able to avoid mobilizing its financial resources while maintaining control

of the cultural and commercial policy of its satellite museums. In Germany for example, Deutsche Bank has

financed the installation of the museum in its own building by paying an annual $ 1.3 million for the

organization of temporary exhibitions directly managed by the Foundation.

47 MENCARELLI, RÉMI. (2008).”Les stratégies d’internationalisation des museés: le cas du Guggenheim”. Association Française du Marketing. Décisions Marketing, 51: 69 - 72.

31

Regarding the typical elements of standardization and franchise replication, the Foundation has declined an

identical model in each of its international museum centers, enhancing its collections, its expertise and its

brand. As a matter of fact, Guggenheim has been a brand since first opening to the public and, since then, it

has become an international brand when it launched its first outpost in Venice.

There is therefore no doubt that the management plan adopted by the Foundation is just the franchise system,

through which the various museum center affiliates can benefit from the guarantee, reputation, know-how and

museum loans of prestigious art works by the franchisor. In addition, because the franchisor provides a part of

its collection on loan, the affiliate is relieved of having to proceed with urgent acquisitions of works of art to

expand their own permanent collection.

From the point of view of the franchisor, this strategy allows the creation of synergies in management and

marketing emphasizing a transition from a logic of accumulation to that of a circulation of works.

One of the central points of the model remains the choice of geographical positioning of the various museum

poles, a choice that has followed three different orientations: the first animated by the desire to create offices

in prestigious areas of the city with a strong artistic tradition (New York, Venice and Berlin). The second

animated by the desire to establish the museum centers in areas devoid of artistic tradition (Las Vegas), and

where a territorial enhancement and economic fabric consolidation strategy, so-called "low cost, big impact",

could have been applied (Bilbao). The third is animated by the desire to create art centers in developing

countries such as China, India, Brazil and the Gulf States, characterized not only by accelerated economic

growth but also a strong artistic, cultural and touristic demand. Hence, why the Foundation has initiated the

project of creating a museum center in Abu Dhabi, United Arab Emirates.

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The brand

In general, a brand is “a name, term, design, symbol and any other feature that identifies one seller’s good or

service as distinct from those of other sellers; a brand may identify one item, a family of items or all items of

that seller.”48 Therefore, two elements are needed for a brand to be considered as such: the extrinsic elements

(often referred to as “logos” or “physical symbols”) and the intrinsic features. The physical symbols are easy

to detect, as in the case of McDonalds ‘Golden Arches’ or even the “unique and immediately identifiable shape

of the Manhattan Guggenheim Museum”.49 On the contrary, intrinsic features of a brand are less easily

detectable. In fact, according to Kotler and Scheff50, they amount to perpetual entities rooted in reality that, at

the same time, reflect the perception of consumers.

As far as the museum brand is concerned, Margot A. Wallace believes that “each museum already has a brand

identity, and this is communicated through how the public views the museum”.51 This means that in Wallace’s

opinion the nature itself of a museum has an intrinsic value.

However, Richard Armstrong (current director of the Guggenheim Foundation) is wary when talking about

Guggenheim as a brand. He claims that the Guggenheim museums exchange feeling and impressions rather

than tangible goods. Nevertheless, feelings influence consumers’ perception when they are acquired over time.

In fact, tourists going to New York City and choosing which museum to visit are influenced by this perception

and this makes Guggenheim a brand.

As a matter of fact, Carol A. Scott affirms that branding is “an engineered perception made up of the name of

an organization and the personality that goes with it”52, where with personality is meant “a combination of the

organization’s projects, services and perceived attributes”53. Similarly, Wallace says that branding “has to

reflect the perception of the consumers, which means that identification is not enough”54; again, intrinsic and

extrinsic features are both necessary for a brand to be considered as such.

Furthermore, following Wallace’s definition of branding, it is undeniable that the nature of museums lies in

the realization of complex relationships between audience, customers and other supporters. According to

Wallace, “branding a museum gives it an image and personality that supporters can identify with, and an

institutional ally to whom they want to contribute funds.”55 The relationship between the supporters and the

museum is a very important one; they have a silent or expressed agreement that the administration will

maintain the brand’s standards. In fact, branding requires the commitment of the institution in order to maintain

a standard of services offered, which will influence the investments of supporters.

Therefore, given that Guggenheim is a brand, the question arises as to which of the factors of the so-called

“brand equality”, a concept illustrated by Niall G. Caldwell, is more developed. As a matter of fact, he affirms

that “brand equality” (the ideal “brand value” or “brand image” reached by the process of branding itself)

includes three aspects: leadership, partnership and architecture; each is developed differently by institutions.

In particular, in the Guggenheim case, “these three components are all integrally linked together as a recipe

for a successful brand identity, where its essence is its high level of name awareness and the positive

associations which attach to the name and are called to mind by the name.”56

48 Definition of ‘brand’ made by the American Marketing Association. 49 HAI, XINGYU. (2012). “Guggenheim Foundation and its Global Network”. Thesis presented to The Graduate Faculty of the University of Akron, in partial fulfilment of the requirements for the degree – Masters of Arts. 50 KOTLER, PHILIP. (1969). “Broadening the concept of marketing”. Journal of Marketing 33 51 WALLACE, MARGOT. A. (2006). “Museum Branding”. Oxford: Altamira Press. 52 SCOTT, CAROL. A. (2000). “Branding: Position Museum in the 21st century”. International Journal of Arts Management. 35-39. 53 Ibidem. 54 WALLACE, MARGOT. A. (2006). “Museum Branding”. Oxford: Altamira Press. 55 Ibidem. 56 CALDWELL, NIALL G. (2000) “The emergence of Museum Brands”. International Journal of Arts Management, 2 (3). p. 28-34

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The Guggenheim Network

"Committed to innovation, the Solomon R. Guggenheim Foundation collects, preserves and interprets the

modern and contemporary art, and explores ideas across cultures through dynamic curatorial and educational

initiatives and collaborations. With its constellation of architecturally and culturally distinct museums,

exhibitions, publications, and digital platforms, the foundation engages both local and global audiences."

Mission statement, Solomon R. Guggenheim Foundation

The Guggenheim global network, born in the seventies with the Solomon R. Guggenheim Museum in New

York, includes the Peggy Guggenheim Collection in Venice, the Guggenheim Museum in Bilbao and the

Guggenheim Museum in Abu Dhabi. The development of these entities has created a new model for students

of art administration studies because, for the first time in business history, a “branded chain”57 system was

applied to nonprofit organizations, and in particular to museums. As a matter of fact, the Guggenheim

Museum, under the leadership of Thomas Krens, was the “leader in exploring the model”58: the first museum

that has successfully applied the licensing strategy in order to expand internationally.

Founded in 1937, the Solomon R. Guggenheim Foundation is dedicated (managing the S. R. Guggenheim New

York and the Peggy Guggenheim Collection, as well as administering and providing the programming of the

Guggenheim Museum Bilbao) to the promotion of art, architecture and other manifestations of visual culture

in the modern and contemporary age, and to the collection, preservation and study of the art in our time. The

Foundation realizes this mission through exceptional exhibitions, educational programs, research initiatives

and publications, promising to engage an increasing various and international population through its network

of museums.

However, to see the Guggenheim network as only an extension of collaboration between museums to share

collections of art for exhibition is to miss much. In particular, by rotating the works of the permanent collection

within its network of museums, the Foundation is able to achieve economies of scale, which allow, in part, to

offset the high fixed costs that characterize the operational management of all the museum facilities.59 In fact,

the greater the number of strategic outposts of the group, the greater the audience achieved per dollar spent.

In this way, the costs of organizing, promoting and financing the exhibits are spread over a larger revenue base

and efficiency, in terms of cost, increases. In addition, the international structure of networks and

collaborations with other museums have allowed an easier handling of funds for art, a qualitative improvement

of the exhibitions, a reduction of charges incurred in order to qualify a work more accessible to private

sponsors and an increase in the attractiveness of the museum, all in front of a public that does not have an

artistic cultural background.

Moreover, the Guggenheim network solution is able to generate benefits for both parties involved in the

licensing agreement. “On the one hand, the Solomon R. Guggenheim Foundation promotes and exhibits for

worldwide audiences the cultural heritage it holds and invests in both the acquisition of new works of art and

in the preservation of the existing ones. On the other hand, the licensee has the opportunity to develop its

cultural sector, despite the lack of own significant cultural resources”.60

57 HAI, XINGY. (2012). “Guggenheim Foundation and its global network”. Thesis presented to the Graduate Faculty of The University of Akron. 58 Ibidem. 59 FREY, BRUNO S. (1998). “Superstar Museums: An economic analysis”. Journal of Cultural Economics, 22 (2-3): 113-125. 60 BORZA, ANCA. POP, IZABELLA LUISA. (2013). “Increasing the Sustainability of Museums through International Strategy”. Work co-financed from the European Social Fund through Sectoral Operational Programme Human Resources Development 2007-2013.

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“The Guggenheim’s pursuit of a business model of expansion and income generation and its pursuit of

economies of scale and brand name selling, marks a rupture, even from the way that museums have become

increasingly linked to business structures in their scramble for corporate sponsorship.”61 As a matter of fact,

if before 1960s wealthy individuals and financiers supported museum donating their collection of art and the

museums in turn became monuments to their patrons, post 1960s corporate sponsors became museum patrons,

representing a force for rationalization and expansion.

However, even given the influence and impact of corporate sponsorship on museums’ structures and

organization over the last 40 years, the Guggenheim project can still be seen to mark a rupture, by becoming

itself the first museum corporation. Moreover, its collection can be seen as a “considerable cultural

commodity” that can be capitalized by circulating “to expand the image of the museum and to facilitate its

own growth”.62

The Guggenheim brand is so respected that “it is a commodity in itself, as evident by the government and other

organizations on the waiting list to partner with the Guggenheim to develop new museum.”63 In fact,

partnerships - with governments, investors and corporate sponsors - have been the basis of network growth,

contributing in reducing costs, financing projects and improving the brand reputation in the International Art

Management community.

On the other hand, maintaining the vast empire of collections, locations and partnerships require a vast effort,

funding and coordination. For this reason, the weakness of Guggenheim Museums include the setbacks of

museum closed over the past ten years (the Guggenheim Hermitage Museum in Las Vegas, closed in 2008,

and the Deutsche Guggenheim Berlin closed in late 2012), the global economic recession and the challenge of

new competition in leisure sector.

However, the Guggenheim network can maintain and sustain market upkeep both with cultural and internal

innovations and through an active, positive participation in an open and collaborative coopetition with its

competitors worldwide. In fact, the Guggenheim has to consider the capacity of the industry rivalry to drive

the entire international art management sector as one of the opportunity for future innovations. Only by doing

this, it has managed to change its established effective marketing strategies and it will be able to achieve

strategic advantages and quality-evolved performances over other institutions.

61 HAI, XINGYU. (2012). “Guggenheim Foundation and its Global Network”. Thesis presented to The Graduate Faculty of the

University of Akron, in partial fulfilment of the requirements for the degree – Masters of Arts. 62 RECTANUS, M.W. (2002). “Culture Incorporated Museums, Artists and Corporate Sponsorships”. University of Minnesota Press, Minneapolis, London. 63 TEODORI, MATTEO. (2015). “The Guggenheim Foundation Cross-Border Challenge. How can a given International Art Management institution maintain let alone grow market with respect to Cross-Border Rivalries?” Copenhagen Business School, Master’s Thesis.

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The Solomon Robert Guggenheim Foundation and its first museum in New York

Solomon Robert Guggenheim, son of the well-known mining businessman Meyer Guggenheim and uncle of

the famous Peggy Guggenheim, was an American business magnate, art lover and philanthropist who provided

the initial collection and name for the Guggenheim Museum. Born in Philadelphia in 1861, Solomon devoted

his life to art collecting only after his retirement from his family business of imports and mining, when, in

1937, he started his foundation as a non-profit corporation dealing in philanthropy and the arts.

Two years later the Foundation opened its first museum, the Museum of Non-Objective Painting, in a former

automobile showroom in Manhattan. Most of the artworks in the museum were part of Solomon Guggenheim's

personal collection that he had been forming for years: paintings by Kandinsky, Rudolf Bauer, Alice Mason,

Otto Nebel, and by the abstract painter and art collector Hilla von Rebay. This latter, also known as "The

Baroness", played an important and “instrumental role in convincing Solomon to begin acquiring artworks

that favoured abstraction”64, being also the gallery founding curator and director of the museum.

The curatorial choices conceived for the museum’s opening were quite unorthodox for its time. As a matter of

fact, the paintings were hanged low to the ground and mounted on walls covered in thick drapery. Moreover,

a sound system was installed to allow visitors to listen to Bach and Chopin while they viewed striking the

collection.

With the expansion of the art collection, Hilla Rebay commissioned in 1943 the American architect Frank

Lloyd Wright to construct a new museum, asking him for ‘a temple of spirit, a monument’. The idea was that

of creating a “Modernist cathedral for all forms of 19th- and 20th-century art.”65 However, the construction of

the museum was delayed because of World War II (which caused a rise in the cost of building materials) and

because of Solomon’s death in 1949, which made the museum's board of directors agree to change the name

of the Museum of Non-Objective Painting to the Solomon R. Guggenheim Museum.

Wright's plans for the Guggenheim Museum were strongly criticised by many artists who believed Wright's

idea for a spiral walkway and curvilinear slope was "not suitable for a sympathetic display of painting and

sculpture." Many of them, like Adolph Gottlieb, Willem de Kooning, Franz Kline, Robert Motherwell and

Philip Guston, even addressed a letter, expressing their view on the plans, to the new Museum Director James

Johnson Sweeney, who replaced Rebay.

Whilst the Guggenheim collection was growing (in 1948 the Guggenheim Foundation purchased an additional

730 artworks, including paintings by Klee, Chagall and Miró), it also started getting interested in non-painting

artworks and pre-20th-century art. Starting from 1953, Sweeney began purchasing sculptures by artists like

Calder, Smith and Giacometti. Moreover, Sweeney purchased Cézanne's Man with Crossed Arms, a 19th-

century painting, starting to enrich the Guggenheim Museum's permanent collection with paintings from

Impressionism and Post-Impressionism.

Finally, in 1959, the Solomon R. Guggenheim Museum opened its doors on 1071 5th Ave. in Manhattan's

Upper East Side, welcomed with a largely favourable response for Wright's personal vision of a modern-day

cathedral that invited visitors to view paintings in natural light, although the architecture was considered risky.

In 1961 a new director, Thomas M. Messer, replaced Sweeney and he made the museum acquire several

significant Modern works by Gauguin, Manet, Van Gogh and 32 works by Picasso.

In 1969, Messer convinced Solomon's niece Peggy, residing in Venice with a collection of Modern art (some

300 Cubist, Surrealist and Abstract Expressionist works, including essential works of art by Duchamp,

Magritte, Ernst and Pollock), to give her entire collection to the Guggenheim Museum upon her death. This

64 WOLF, JUSTIN. (2016). “The Solomon R. Guggenheim Museum”. The art story foundation. The art story Modern Art Insight (blog). http://www.theartstory.org/museum-guggenheim.htm 65 Ibidem.

36

happened in 1978. The Foundation had also acquired Peggy's Palazzo Venier dei Leoni on Venice's Grand

Canal, where the Guggenheim Foundation opened its second museum, the Peggy Guggenheim Collection in

Venice.

The Guggenheim Foundation’s collection expanded even more in the ‘90s. In 1991, the acquisition of the

Panza Collection brought the Guggenheim Foundation several Minimalist works of sculpture and painting by

such artists as Carl Andre, Dan Flavin, Donald Judd and Robert Mangold. Moreover, the new director Krens

expanded the Foundation’s international presence. In fact, in 1997, the Guggenheim Museum Bilbao, that has

been defined by the architect Philip Johnson "the greatest building of our time”, opened in northern Spain. In

the end, it received a collective praise from critics, also thanks to its designer, the American architect Frank

Gehry, who was able to combine titanium, glass and limestone masterfully.

Finally, in 1992, the Foundation opened the Guggenheim SoHo in downtown Manhattan. The building,

designed by architect Arata Isozaki, hosted exhibitions by Andy Warhol, Marc Chagall and Max Beckmann,

among others. However, its closing in 2002 made it will be widely considered a failed venture for the

Foundation.

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The Peggy Guggenheim Collection in Venice

The Peggy Guggenheim Collection, or, more correctly, the Solomon R. Guggenheim Foundation in Venice, is

the Italian branch of the New York Foundation, to which it contributes both in the international mission and

in the promotion of the Guggenheim brand.

The collection also celebrates the life and goals of its founder, Peggy Guggenheim, Solomon’s niece, who is

credited with having created the first Foundation’s satellite museum in the Old Continent. Every cultural

program originated from the collection is, in fact, carried out in her name, as well as both the proximity to

Peggy’s permanent collection relatively to the context of temporary exhibitions, and the attention to the history

of collecting on the policy choices of the museum, appear to be clear.

The presence of the collection on Italian territory has important implications in the management of the museum

itself, as both the collection and the Palace are bound by the Italian Government to follow the legislation not

only with regard to employment contracts but also in tax matters.

It assumes, therefore, both an abnormal and unique position among Italian museums, as it is set up as a private

"non-profit" entity not funded by the government but still subject to direct taxation (taxes up to 80% of income,

taking into account the imposition IRAP).

The only public funding which the collection receives is granted by the Veneto region. This, not only

encourages the cataloging of the museum art library in order to make it accessible to students, researchers and

academics, but also sponsors, partly and symbolically, exhibitions of the collection, recognizing the merit of

having contributed to the development of local culture by either organizing educational activities for schools

and teachers or giving priority to the visits of the residents. That said, it is clear that either the relationship

between a museum and its visitors proves enriched by the role it plays for the establishment within the

community, and how the definition of "private person" (as opposed to "public body") is only applicable to the

restrictive sense that refers to those who hold the institution's governance.66

As a matter of fact, although included in the category of privates, the Peggy Guggenheim belongs to that class

of museums with a high number of visitors, a significant budget for programming and conspicuous

"commercial revenues." It is, however, an entity "with public value." If we take into account that it provides a

service to its visitors and the community in which it is located, not only contributing to both the maintenance

of buildings and the collection, and promotion of exhibitions and educational programs supporting local

culture and international tourism, it also establishes relationships within the community by offering locals the

opportunity to enter the membership.

As a result, the strategic profile of the Peggy Guggenheim Collection appears, in short, quite complex. In

addition to the standard repertoire of the activities of an art museum, the collection is part of an international

network that has a strong growth employment and dynamic programming; it also has a particular vocation to

celebrate its founder’s life and heritage, and it is a non-profit organization active in the public sector.

The core of the strategy is represented not only by the need to acquire the resources (human, artistic, building

and financial) with which to continue its mission, but also by collecting art. Indeed, it is the latter that

determines the success of the entire operation: attracting large numbers of visitors, allowing the museum to be

praised in the guides, supporting school programs, stealing away the attention of the press, allowing the

museum to obtain prestigious loans of art works for temporary exhibitions, soliciting the active participation

of members, supporters, benefactors and government authorities, and contributing to the creation of a

significant intellectual context for the realization of initiatives and exhibitions.

66 FERRARESE, PIEREMILIO. (2010). “Brevi note di management delle organizzazioni museali: con un’analisi della Peggy Guggenheim Collection”. Cafoscarina, Venezia. 122 p.

38

In addition, temporary exhibitions at the Peggy Guggenheim Collection are the result of free curatorial choices

with less focus on box office popularity of the events. The majority of the public, in fact, visits the museum

with the intention of seeing the whole complex rather than a specific temporary exhibition. This means that

curatorial and business decisions about temporary exhibitions are therefore not influenced by the need to be

popular, because they do not significantly affect the data for the influx to the collection, and they do not

therefore represent an important element of strategic management.

The Peggy Guggenheim Collection, since 1979, has experienced an unstoppable and homogeneous growth in

all management aspects of the museum which, from the date of foundation to 2012, reported:

- An increase of personnel (staff) from 1 to 39 people;

- An increase in the operating budget from 800,000 lire to 6.8 million euro;

- An increase in the number of visitors from 60,000 to 400,000;

- An expansion of the museum spaces from 2200 to 4700 m2;

- An expansion of the collection works from 326 to 550;

- The introduction of temporary exhibitions (up to 8 per year);

- The possibility of being visited by students and teachers (from 0 to 10,000 students and 850

teachers)67

As a matter of fact, by the late eighties, it had become tangible the tripartite division into: investment

expenditure (resulting from transactions related to the collection and the buildings), operating costs

(exhibitions and other programs) and fixed costs of maintenance and expansion, to which, in case of

operational deficits or spending surplus, it was up the Solomon R. Guggenheim Foundation to cope.

In June 1993, the museum expanded for the first time space open for the public by adding with the garden and

renting an apartment for further exhibition space and the museum shop. Two years later, the restaurant was

added and, in 1999, all apartments of Ugo and Olga Levi’s Foundation were leased to expand the exhibition

space for temporary exhibitions. In 2001, the museum acquired private property to be used as an entrance, and

in 2007, the enlargement process was completed. Despite these frequent enhancements, the process of

modernization and renewal will continue regularly in the future. From a single private house with a garden,

the current complex houses enough space for temporary exhibitions throughout the year, five cohorts with

sculptures, two shops and a bar/restaurant.

The revenue from ticket sales, which accounts for over 50% of returns, is approximately double the industry

standard. The physical expansion, besides making obvious synergy between the different resources of the

museum, is both a response to the need to accommodate an increasing number of visitors and a healthy

promotion for visitor growth by offering more and more varied services.

The Collection has found that each entry fee increase (the equivalent of € 1 in 1981, reaching € 14 in 2013)

has been generally accompanied by an increase in revenue from tickets and an increase in the number of

visitors, thus by an increase in demand. Although it might seem contrary to the common economic logic,

indeed, the increase in the price of the ticket corresponds with and is followed by an increase in the monetary

value of the major services rendered. The chief influencers of this increase are the among growth of tourism

in Veneto and the growing notoriety of the Guggenheim brand.

The greater number of visitors paying a higher fee, allowed higher revenues, which went to cover higher

operating costs, maintenance and construction of larger spaces, and paying a larger staff and giving birth to

what is called "spiral of success"68. Maintaining revenue increases to meet the demand of rising costs

associated with managing space and programs is vitally important for continued success.

67 FERRARESE PIEREMILIO. (2014). “Profili di management delle istituzioni museali: con alcune note sulla Peggy Guggenheim Collection”. Cafoscarina, Venezia. 169 p. 68 FERRARESE PIEREMILIO. (2014). “Profili di management delle istituzioni museali: con alcune note sulla Peggy Guggenheim Collection”. Cafoscarina, Venezia. 169 p.

39

The Guggenheim Museum Bilbao

The Guggenheim Museum Bilbao is the most important success of the internationalization strategy of the

Foundation, and it has contributed in a definitive way to the affirmation of the Guggenheim brand at the

international level. As a matter of fact, it is talked about the "Guggenheim Effect"69 referring to the contribution

that the museum has given to the economic and urban development of the city of Bilbao, transforming it from

the decaying manufacturing city that it was into the new "Mecca of Urbanism".70

The idea of directing the internationalization strategy to the city of Bilbao was born from the need to find a

solution to the urgent need for liquidity that the Solomon R. Guggenheim Foundation had. In fact, in the 1988-

1990 biennium, the then director of New York Guggenheim museum, Thomas Krens, was to meet, with a

paltry budget, expenses resulting from either the opening of the new wing of the museum in Soho, the

restoration and renovation of the Wright building, and the expansion of its exhibition area. Looking at Europe,

the foundation sought with the most potential for a museum. The location was required to be a place that would

allow it to acquire additional revenue, to exploit synergies and economies of scale that would be generated

with a global project of greater magnitude in a world increasingly transnational and to rotate its collection of

works of art.

The key players who started the negotiations between the Solomon R. Guggenheim Foundation and the Basque

authorities were Carmen Gimenez71 and Alfonso Otazu72, who nominated the city of Bilbao as a potential

satellite venue of the group. At the local level the main promoter and initiator of the project was Juan-Luis

Laskurain73 (head of the Treasury in charge of public expenditure management), who authorized the financial

and political agreement between the Foundation and the Basque authorities.

The first agreement between Bilbao and New York was signed in December 1991 and provided that, in

exchange for the right to exhibit for 20 years works from the Guggenheim Collection, the Basque institutions

would pay $20.9 million to create their own artistic fund and finance the construction of the building and the

museum. Under the agreement, in fact, the Solomon R. Guggenheim Foundation brought its collections, its

special exhibition programs and its experience in international museum management. The governance and

cultural policy, on the other hand, was left to the Basque authorities.

To accommodate the museum, it was necessary to build a spectacular building, a work that was able to embody

and transmit the identity of the city as well as demonstrate its quality and strength.

Following the announcement of a design competition, three design firms were chosen, each from a different

continent: Coop Himmelblau for Europe, Arata Isozaki for Asia and Frank O. Ghery for America.

The winning project was that of the Canadian architect Frank Owen Ghery. His design was the one that best

suited the peculiar form of the area chosen for the location of the museum (a curve formed by an inlet of the

Nervión in the Abandoibarra area) and that best dialogued with the shingling of the Puente de la Salve.

Thus, the Basque Government, the province of Bizkaia and the Solomon R. Guggenheim Foundation signed

an agreement for the development and programming of the GMB. The agreement entrusted the burden of the

museum building to the Basque Administration, which was also in charge of creating a society of Real Estate

Management74 (Inmobiliaria de Arte Moderno y Contemporáneo Bilbao S.L.) to which find the ownership for

the physical location of the museum.

69 PLAZA, B., TIRONI, M., HAARICH, S.N. (2009). “Bilbao’s Art scene and the “Guggenheim effect” revisited”. European Planning Studies, 17 (11): 1711 – 1729. 70 MASBOUNGI, ARIELLA. (2001). “La nouvelle Mecque de l’urbanisme”. Project Urbain, 23: 17-21 71 Former Executive Advisor to the Spanish Minister of Culture, initiator of the Reina Sofia Museum and curator of the Solomon R. Guggenheim Museum di New York. 72 Former Carmen Gimenez’s collaborator in the Spanish Minister of Culture. 73 Head of the public Treasury of Biscay. 74 Inmobiliaria de Arte Moderno y Contemporáneo of Bilbao S.L., owned by the Basque Government (45%), by Bizkaia Province (45%), and by Bilbao municipality (10%).

40

The management and the responsibility of GMB is, in fact, still today, put to the Basque Administration,

which deals with finance capital needs and is concerned to address the management fees and the operating

expenses of the museum. The GMB, whose supreme governing and representative body is the Patronage and

whose management, governance, administration and representation shall be referred to the Executive

Committee, raises funds, therefore, mainly through subsidies received by the Basque Government and the

province of Bizkaia.

Salomon R. Guggenheim Foundation, instead, provides the museum's artistic funds that are part of its

collections, consenting to the use of both its brand and reputation and committing to supervise and direct the

project, planning, development and organization of the Spanish satellite.

Together with Tenedora Museo de Arte Moderno y Contemporáneo Bilbao SL, a company owned equally by

both the government and the province of Bizkaia, GMB has also signed private contracts, usually lasting three

years, for the sale and conservation of works of art to supplement annual regular income. Together with

Inmobiliaria de Arte Moderno y Contemporáneo di Bilbao S.L., a company which owns the land and buildings

where the Guggenheim Museum Bilbao is located, GMB has signed a thirty-year government contract.

According to this, it is made up of a real right of use on the ground and on edaphic factors in which the Museum

is located, also agreeing that conservation requirements of both land and building will not be borne by the

Foundation, and establishing an annual regular income as consideration.

From its opening in October 1997 until the end of 2012, the approximately 15 million visitors (one million per

year) as well as both the employment and income effects of tourism have shown the undoubted and stunning

success of the GMB. This success has become the symbol of structural change and economic development,

achievable through an urban regeneration strategy based on focus groups and cultural initiatives.75 (Figure 2.1)

Figure 2.1: Evolution of the number of visitors to the GMB and overnight in the Basque Country

Source: PLAZA, B., HAARICH, S.N. (2015). “The Guggenheim Museum Bilbao: Between Regional Embeddedness and Global Networking”.

European Planning Studies, 23 (8): 1459.

The GMB has in fact contributed to the creation of about 1,200 jobs, the improvement of the reputation of the

city of Bilbao at a local, national and an international level, and the improvement of the quality of life in the

territory. An economic boom over the last 15 years, largely resulting from its establishment, has facilitated the

75 PLAZA, B., HAARICH, S.N. (2015). “The Guggenheim Museum Bilbao: Between Regional Embeddedness and Global Networking”. European Planning Studies, 23 (8): 1456 - 1475.

41

creation of jobs in various sectors, especially in real estate, services, manufacturing and construction. In an

economic and political perspective, the museum has been able to act as a tourist magnet, strengthening both

the social and cultural contexts of the area and giving it a worldwide visibility.

The main reasons for the success have been the effective integration of the museum in both the local and

regional environment, that facilitated the embeddedness76 and the ability of GMB to establish dynamic

relations not only with the local environment, but also with other museums, becoming an equal partner in the

global Guggenheim Network (Table 2.1) and in the global network of museums (Table 2.2).

Table 2.1: Annual turnout of visitors at the Guggenheim Museum New York and at the Guggenheim Museum Bilbao

(between 2007 and 2012)

Table 2.2: Annual Inflow of major Spanish museums visitors (between 2004 and 2007)

And it is compared to global competitors that the GMB, in line with the pricing policies adopted by each

marked Guggenheim Museum, differs greatly even in terms of competitive price.

As a matter of fact, the strategy adopted on the subject is the discrimination of third-degree price, based on

the user type; this, as shown in (Table 2.3)77, results in the application of a much higher price than its

national competitors. However, despite the GMB being the most expensive Spanish museum, this did not

prevent its unstoppable success, confirming the validity and effectiveness of the strategy adopted.

Table 2.3: Comparison between the tariffs applied by the GMB’s main national competitors

76 The concept of “Embededness” refers to the degree to which economic activity is constrained by non-economic institutions. Production, distribution and consume depend on social factors and, according to Karl Polanyi, “the economy is embedded in economic and non-economic institutions”. 77 CANADILLAS, I.P., QUINTANA DAZA M.Á. (2009). “Caso prático: la planificación estratégica del Museo Guggenheim Bilbao desde una prospectiva de Marketing”. Universidad del País Vasco / Euskal Herriko Unibertsitatea. Cuadernos de Gestión, 9 (1): 99 - 122. 78 IVAM (Istituto Valenciano de Arte Moderno)

Year Guggenheim New York Guggenheim Bilbao

2007 889,434 1,002,963

2008 1,200,000 951,369

2009 1.263,111 905,048

2010 1,105,352 956,417

2011 1,107,054 962,358

2012 1,188,839 1,014,104

Year El Prado Thyssen Reina Sofia Guggenheim Bilbao

2004 2,001,546 683,491 1,445,253 909,000

2005 1,966,496 643,784 1,590,099 965,000

2006 2,164,763 736,731 1,301,389 1,008,774

2007 2,652,924 978,064 1,418,032 1,002,963

Tariff IVAM78 El Prado Reina Sofia Guggenheim Bilbao

General 2 € 6 € 3 € 12.5 €

Reduced 1 € 1.5 € 1.5 € 7€

42

In addition, through its activities, the museum has generated 274.3 million euro in the GDP (corresponding to

0:42% of the GDP of the Basque Country), state revenues to 42.2 million euro and it contributed to the

maintenance of 5885 jobs each year. 79

The economic impact of the GMB has also affected the economic structure itself of the city of Bilbao, where

the advancement of both the service industry and service sector have replaced the originally prevailing

secondary sector.

As a matter of fact, in recent years Bilbao has witnessed the development of a high-end, high competence and

knowledge-intensive manufacturing, as well as an unheard-of development of both tourism sector and

metropolitan area, which has been made possible thanks to two factors. In fact, on the one hand, since the

beginning the GMB has taken advantage from a political support, also thanks to the alliance concluded

between the Basque administrative authorities. While, on the other hand, the appearance of economic flight

lines have considerably facilitated the movement of millions of tourists, affecting mainly on short-term

tourism.

There is no coincidence that the Bilbao airport traffic has almost doubled over the last decade, from a volume

of 2,839,039 passengers in 2003 to 4,588,265 in 2016 (Table 2.4).80

Table 4: Evolution of the passenger traffic in the airport of Bilbao between 2003 and 2016

However, it is important to remember that the museum activity is not addressed only to the international

market, even if this represents 67% of the total number of visitors, mainly coming from France, Britain and

the United States and being characterized by the high purchasing power these customers have. In fact, it is

addressed also to the national (representing 24% of visitors) and local markets, which accounts for 9% and

from which the Friends of the Museum come. 81

79 PLAZA, B., HAARICH, S.N. (2015). “The Guggenheim Museum Bilbao: Between Regional Embeddedness and Global Networking”. European Planning Studies, 23 (8): 1456 - 1475. 80 Source AENA, Aeropuertos Españoles y Navegación Aérea - Aena S.A., Spanish company that operates in the airport sector and owns most of Spanish airports, except for private ones of Ciudad Real and Lleida-Alguaire. It is also responsible for operating and airport management, as well as for Spanish air traffic control. It is the world’s largest operator in the sector by number of passengers managed and the fourth company in Europe in the provision of airport services. Aena is a company controlled by the Ministerio de Fomento, organ of the Spanish Government. 81 CANADILLAS, I.P., QUINTANA DAZA M.Á. (2009). “Caso prático: la planificación estratégica del Museo Guggenheim Bilbao desde una prospectiva de Marketing”. Universidad del País Vasco / Euskal Herriko Unibertsitatea. Cuadernos de Gestión, 9 (1): 99 - 122.

Year Evolution of the passenger traffic in the airport of Bilbao

2003 2,839,039

2004 3,386,828

2005 3,554,951

2006 3,870,000

2007 4,286,751

2008 4,172,903

2009 3,654,957

2010 3,888,955

2011 4,046,172

2012 4,171,065

2013 3,800,774

2014 4,015,350

2015 4,277,725

2016 4,588,265

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The Deutsche Guggenheim Berlin

The Deutsche Guggenheim Berlin was located in the ground floor of the Deutsche Bank headquarters in

Berlin’s historical cultural district. In fact, in 1997 the Solomon R. Guggenheim Foundation and Deutsche

Bank entered into a joint venture, signing an agreement similar to the one between the Foundation and the city

of Bilbao.

The reason of this agreement can be traced, according to Mark W. Rectanus,82 in the “strong existing ties

between the Guggenheim NY and Germany, namely, the tracing of the Guggenheim family’s origins to

Frankfurt, and the recognition of the large number of German artists already presented in the Guggenheim NY

collection”.83 However, at the same time, it is the same author, Rectanus, who reiterates that some other

economic reasons cannot be neglected. In fact, despite the family and the curatorial reasons, the alliance had

much more to do with the “coalescence of the US-Germany cultural politics, corporate promotion, and Thomas

Krens’s globalization strategy. In this light, the Guggenheim in Berlin can be seen to be a US icon

commemorating the nature of US-Germany relations at the close of the Cold War, while at the same time,

signalling the formation of a new international Berlin.”84

This intention is in fact clear from the words of Hilmar Kopper, member of the Board Group of the Deutsche

Bank, who described the alliance as “a unique joint venture between a museum and a company.” 85 Moreover,

according to Kopper, the global expansion of the Guggenheim Foundation is “necessary and understandable

given the objective of generating the maximum publicity for outstanding art and making the most effective

use of scarce resources”.86

With the joint venture agreement, on the one side, the Foundation is responsible for the museum’s operations

(including providing curatorial expertise and exhibition design) and for the identification, promotion and

exhibition of the work of living artists from Germany and Europe. While, on the other side, Deutsche Bank

must take care of the expenses related to the museum. These include the costs for exhibitions, those for original

commissions (even if the ownership of the product of these commissions is shared) and out-of-pocket expenses

incurred by the Guggenheim Foundation.

This distribution of responsibilities and costs arose some claims from the Germans regarding the opportunity

of a different burden sharing, since only the Deutsche Bank was responsible for all expenses. However, at the

same time, it was also true that not only the Guggenheim brand did not only imply costs for Germany, but also

it was increasing the prestige of Berlin as a cultural center in Europe.

Another important detail that has to be mention concerning the Guggenheim business strategy refers to the

managerial organization of the exhibits. In fact, the museum’s exhibition program showed work from both

collections as well as exhibitions that travelled the Guggenheim circuit, and the Deutsche Bank commissioned

works from artists that the Guggenheim curators would not have been able to realise without patronage. For

this reason, separate agreements were then required for the ownership of artworks, and the distribution of

income deriving from the exhibitions.

82 RECTANUS, MARK.W. (2002). “Culture Incorporated Museums, Artists and Corporate Sponsorships”. University of Minnesota Press, Minneapolis, London. 83 OSTLING, SUSAN. (2007). “The Global Museum and the orbit of the Solomon R. Guggenheim Museum New York”. Griffith University, Queensland, Australia. The International Journal of the Humanities, 5. 84 RECTANUS, MARK.W. (2002). “Culture Incorporated Museums, Artists and Corporate Sponsorships”. University of Minnesota Press, Minneapolis, London. 85 KOPPER, HILMAN. (1999). “1+1=3” 86 Ibidem.

44

A Deborah Solomon article87, published in The New York Times in 2002, showed, for example, that in one

exhibition the Bank and the Foundation owned jointly artworks exposed. However, some of those (including

some precious impressionism paintings) became then part of the Guggenheim’s permanent collection.

The reason is tax-related. In fact, since in the US tax law it is possible not to count the value of artwork as

taxable income, whilst German law does not allow any advantage for “charitable contributions”88. Therefore,

an artwork donated to the Guggenheim Berlin Collection is automatically given to the Guggenheim

Foundation, so that Germany does not levy taxes based on the piece’s fair market value.

After 15 years and 61 exhibitions, the end of the unique collaboration between the Guggenheim Foundation

and the Deutsche Bank was announced. However, the reason of this split does not refer to an event that has

driven a wedge between the two partners or to a mismanagement. Simply, the two parties decided to meet the

20-year contract deadline (1993-2013), without renewing it, considering also the Deutsche Bank’s willingness

to focus on its own art projects and exhibitions.

87 SOLOMON, DEBORAH. (2002) “Is the Go-Go Guggenheim Go going” New York Time, June 30. 88 MARIAN, AMY. (2009) “Questions regarding the Guggenheim Foundation”. Interview cited in the Mater Thesis of HAI, XINGYU. (2012). “Guggenheim Foundation and its Global Network”.

45

The Hermitage Guggenheim Las Vegas

In 2002, the Solomon R. Guggenheim Foundation launched another joint project, this time with the Hermitage

Museum. In fact, the agreement between the Board of Trustees of the Guggenheim Foundation and officials

of the State Hermitage Museum in St Petersburg (Russia), led to the foundation of the Hermitage Guggenheim,

located in the Venetian Casino in Las Vegas, but registered at the same New York address of the Solomon R.

Guggenheim Foundation.

According to the agreement, the casino had to cover the cost of building two galleries: a huge separate gallery

for the Guggenheim and a joint one for both the museums. Moreover, it had to pay for transport costs bringing

exhibitions to Las Vegas, while the coverage of both curatorial and organisational costs was attributed to the

two museums.

The agreement also mandated that merchandising returns, instead, would have gone directly to the museums,

and, once all the costs were covered, the casino and the Guggenheim would have shared entry revenue to the

large gallery.

One of the first actions of the new foundation was raising funds for the “Greater Hermitage Project”, consisting

of the construction of a multi-functional museum complex comprehensive of both galleries and entertainment

and commercial centers for residents and tourists. Moreover, since the beginning, a two-year exhibition policy

so that they would have changed twice a year.

The mission of this new US based non-profit corporation, as conceived by Guggenheim Director Thomas

Krens and the HGF Chairman Vladimir Potanin (a Russian billionaire and entrepreneur), was that of

facilitating arts and cultural exchanges between Russia and the US. Intention that clearly emerged from both

Thomas Krens speech89:

“By combining our expertise and drawing from two great collections and programs, the Hermitage

and Guggenheim working together can create both a brand new range of superb cultural narratives

and exhibitions, as well as new facilities and institutions”

and from that of the Russian Minister of Culture, Dr Schwydkoi90:

“The significance of this project is exceptional for Russian-American cultural relations, first and

foremost because this is an equal relationship, the goal of which is to introduce masterpieces from

Russian and American museums collections into a worldwide cultural and academic circulation.

[…]

The long-term partnership between the State Hermitage and the Solomon R. Guggenheim Foundation

will doubtless bring the humanitarian and cultural collaboration between Russia and the United States

to a principally new level”.

However, the growing-over-time interaction between the Guggenheim and the Hermitage led to the partial

modification of the mission into a plan for “Connecting Museums”: the inter-change of works from the

Solomon R. Guggenheim Foundation, the State Hermitage Museum and the Kunsthistoriches Museum in

Austria. This allowed to organise exhibitions of masterpieces from specific ages rather than specific

collections, whose initiative’s funding have been allocated by the Guggenheim Foundation and the Deutsche

Bank.

89 KRENS, THOMAS. (2000). “A Partnership in Patronage”. Cited in OSTLING, SUSAN. (2007). “The Global Museum and the orbit of the Solomon R. Guggenheim Museum New York”. Griffith University, Queensland, Australia. The International Journal of the Humanities, 5. 90 Ibidem.

46

However, “despite the unique spaces, the euphoric statements and the 35 million visitors a year, the

Guggenheim’s financial problems failed to improve”.91 As a matter of fact, to the costing-money location it

has to be added the extremely expensive rent of the Venetian Casino, which costed the Foundation $50,000

per month, plus $6,000,000 needed annually to keep the project going. Moreover, in the same period, the

Network conditions has become quite critical and “Krens had to face other downsizing”,92 such as the closing

of the SoHo annex in New York, the postponement to 2002 of the elaborate plans for Gehry designed museum

in lower Manhattan, or the serious questioning of the exhibitions Krens has mounted for the Guggenheim.

Meanwhile, the large gallery was closed within 15 months and the list of planned international branches of the

Guggenheim diminished. In fact, “Taiwan pulled out with serious controversy and the project in Rio de Janeiro

was declared by the courts to be an illegal agreement”.93

For all these reasons, the 63,700-square-foot Guggenheim Las Vegas closed its doors 15 months after its

opening.

91 OSTLING, SUSAN. (2007). “The Global Museum and the orbit of the Solomon R. Guggenheim Museum New York”. Griffith University, Queensland, Australia. The International Journal of the Humanities, 5. 92 Ibidem. 93 Ibidem.

47

Conclusion

From the analysis of the Guggenheim’s internalization strategy, it emerges that the Foundation has experienced

both successes and failures. If it is true that, on the one hand, the model of constant growth has not perfectly

worked, it is also true that, on the other hand, the three main network satellites (New York, Venice and Bilbao)

are, individually, a one-off in the museum industry.

According to Kathleen Grace94, what makes the Guggenheim’s reputation so respected and the brand

unassailable is the “landmark bold, unique and striking architectural designs by world-class architects”. In

fact, the key of the Foundation’s success is that the museums not only house some of the world’s best modern

and contemporary art collections, but exhibit in diverse and collaborative ways the experience of exhibiting

art to the public.

Moreover, as far as the network built is concerned, what distinguishes the Guggenheim business model from

those of its competitors is that the solution implemented by Thomas Krens is one that is able to generate

benefits for all parties involved in the licensing agreement. “On the one hand, the Solomon R. Guggenheim

Foundation promotes and exhibits for worldwide audiences the cultural heritage it holds instead of keeping it

locked in a warehouse. Moreover, the Foundation may invest the revenues, obtained from licensing and rental

agreements, in the acquisitions of new works of art or the preservation/restoration of existing ones. On the

other hand, the licensee has the opportunity to develop its cultural sector, despite the lack of own significant

cultural resources. In its turn, a well developed cultural sector will lead to the development of cultural tourism

with all social and economic benefits arising from it.”(Borza and Pop, 2014)95

Even if the worldwide network of museums imagined by Krens hadn’t truly resulted in the huge amount of

savings expected from shared costs in a globalized brand, the outstanding results obtained in Bilbao confirm

that the strategy is successful. For this reason, in 2006 an agreement for the latest expansion of the Guggenheim

Empire has been signed with the Emirates authority. In fact, toward achieving the goal of establishing a brand

presence in Asia, Latin America, and Middle East, the Guggenheim Foundation made an enormous step when

signing a Memorandum of Understanding with Abu Dhabi.

The Guggenheim Abu Dhabi Museum (GAD) is, therefore, to be built on the tip of Saadiyat Island, 500m off

the coastline of the city of Abu Dhabi. It is supposed to be part of a larger cultural plan for cultural and touristic

development of the United Arab Emirates, whose goal is that of transforming Abu Dhabi in an international

arts center and tourist destination. As a matter of fact, four additional museums will be located in the Island of

Happiness area (Saadiyat Island): the Sheikh Zayed National Museum, a performing art center designed by

Zara Hadid, a Maritime museum and a Louvre Museum (part of the $1billion arrangement with the Louvre to

rent the name, art and expertise).

In this context, characterized by a lack of natural attractions, the urban development strategies are always more

focused on developing businesses related to tourism and culture. Moreover, globalization is affecting this

dynamic environment by considerably increasing the level of competition between different regions and

countries. An evident manifestation of the transformed environment can be seen in the recent proliferations of

hotels, resorts, golf courses, marinas and accommodation for 125,000 people that has interested the area in

question, as well as the talks that are taking with Yale University to create an art school that encompasses art,

architecture, dance and drama. 96

94 Former museum artist educator and docent. 95 BORZA, ANCA. POP, IZABELLA LUISA. (2014). “Increasing the Sustainability of Museums through International Strategy”. Economia, Seria Management. Vol. 17 (2). Work co-financed from the European Social Fund through Sectoral Operational Programme Human Resources Development 2007-2013. 96 Ibidem.

48

As Susan Osting explains in her paper97, “the Guggenheim franchise with Abu Dhabi is to operate in a similar

way to Bilbao. Following a down payment, Abu Dhabi would have the use of the brand name for a certain

period, and the Guggenheim NY would manage the museum’s exhibition and educational program as well as

managing acquisitions to develop Abu Dhabi’s major collection of contemporary art. The costs of the building

and operating the museum, instead, would be the responsibility of the Abu Dhabi tourist authority”.

The very essence of this mutually beneficial partnership between the Guggenheim and the Emirates authority

can be summarize with Thomas Krens’s words98:

“They will not take advantage of us, and we don’t take advantage of them. It is like a marriage. We

are providing a lot, and we will get a compensatory advantage, but that is not why we are doing this.

It’s just a smart thing for everybody”.

In fact, in line with the mission characterized by all of the Guggenheim global projects, “the Abu Dhabi venture

is not just about tourism, it is about increasing cross-cultural understanding and forging greater understanding

between nations”99.

The long-term success of the internationalization strategy applied by the Foundation has had an echo

worldwide and influences other museums to follow this model.

One example is the agreement between the French government, the Louvre Museum and the city of Abu

Dhabi. The aim of this partnership is that of establishing a new Louvre Museum in Abu Dhabi that is opening

its doors in 2017, similar to that of the new Guggenheim satellite. The branding and training agreement has a

total value of $1.3 billion and it will last 30 years. In signing it, the Emirates authority agreed to pay $520

million for the Louvre brand and $747 million for borrowing works of art and organizing temporary

exhibitions for museum management expertise.

However, this is not the sole partnership Louvre has established. As a matter of fact, its internationalization

strategy included another agreement that it has concluded with the High Museum of Atlanta in Georgia, USA.

In particular, the Louvre will provide the new wing of the High Museum of Art with nine exhibitions, for a

period of three years. In turn, it will receive from its American partner $10m, and advices on business

strategies, fundraising and marketing.

Despite these examples, the Louvre Museum is not the sole follower of the strategy adopted, launched and

promoted by the Guggenheim. In fact, several museums have followed this strategy. For example, the

Hermitage Museum in partnership with both the Courtauld Institute of Art in London and the city of Ferrara

(Italy), the Centre Pompidou and the Uffizi Museum, individually, in partnership with the city of Shanghai, or

the Rodin Museum who has begun its negotiations with the city of San Salvador (Brazil).

In general, museums have used different methods of expanding internationally: concluding licensing

agreements, organizing temporary exhibitions in different countries, opening exhibitions centers in other

countries, and establishing their own museum satellites abroad based on strategic alliances and licensing

agreements. Whatever the method adopted, what is clear is that the internationalization strategy allows

museums as well as the participating host nations to increase their sustainability.

97 OSTLING, SUSAN. (2007). “The Global Museum and the orbit of the Solomon R. Guggenheim Museum New York”. Griffith University, Queensland, Australia. The International Journal of the Humanities, 5. 98 Thomas Krens’s speech cited by TAYLOR, KATE. (2007). “Abu Dhabi lures western museums”. Wired New York Forum, cited in OSTLING, SUSAN. (2007). “The Global Museum and the orbit of the Solomon R. Guggenheim Museum New York”. Griffith University, Queensland, Australia. The International Journal of the Humanities, 5. 99 OSTLING, SUSAN. (2007). “The Global Museum and the orbit of the Solomon R. Guggenheim Museum New York”. Griffith University, Queensland, Australia. The International Journal of the Humanities, 5.

49

In fact, adopting this strategy, museums can (Borza and Pop, 2014)100:

Increase the capacity and the degree of exposure of the museum’s heritage;

Fulfil its mission of promoting and disseminating the collections it holds;

Increase its international notoriety;

Increase the total number of beneficiaries of cultural products offered by the museum;

Reduce the required storage space and hence the cost of storage;

Increase its own income, thanks to not only the licensing and rental fee collected, but also due

to the greater number of visitors from its head office.

Moreover, due to the higher international visibility of the museum, the number of tourists will increase

consequentially, and this touristic expansion, in turn, will affect the national economy by leading to higher

state-receipts.

Therefore, the recent trend reversal that has led to a more frequent adoption of this strategy from numerous

museums demonstrates the extent to which countries are becoming aware of its value. This represents, without

a doubt, a remarkable “step forwards increasing the sustainability through a more efficient use of all types of

resources of a country, including the cultural one”.101

For this reason, even the licensing parties involved in the agreement have started to change. If originally these

partnerships were typically established only between private organizations (e.g. The Solomon R. Guggenheim

Foundation and The Peggy Guggenheim Collection), recently the strategy has been implemented at a higher

level. As a matter of fact, in time, licensing agreements between private and public organizations have been

concluded (e.g. The Solomon R. Guggenheim Foundation and Guggenheim Museum Bilbao), as well as

between public organizations (Louvre and Abu Dhabi).

To conclude, the essential features that a museum which wants to follow this strategy has to have are the huge

dimensions in terms of flow of visitors and of the architectural complex. Moreover, the key for obtaining the

success through this strategy is the brand reputation. In fact, in order to arouse the interest of potential

licensees, a museum needs first to acquire a certain prestige on its own, to prove that it excels and it differs

significantly from its competitors”.102

100 BORZA, ANCA. POP, IZABELLA LUISA. (2014). “Increasing the Sustainability of Museums through International Strategy”. Economia, Seria Management. Vol. 17 (2). Work co-financed from the European Social Fund through Sectoral Operational Programme Human Resources Development 2007-2013. 101 Ibidem. 102 Ibidem.

50

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