Just Jack

By Jack Thompson, CMP, CEM, EXPOexpert, inc.

Until the middle class gets back to work and has money to spend…regardless of whether economic soothsayers tell us the recession is ending…business is still sucking wind.  This situation has brought further various problems into the spotlight, problems which have been issues in the meeting, tradeshow, and special event industry for some time.   However, as my friend, Bob Dallmeyer, recently stated during a presentation at the Midwestern Chapter of IAEE, the resurfacing of these issues is good because it gives us an opportunity to see if something beneficial can come from healthy dialogue.

Help with pricing!

We have seen the retail market respond to the economy by implementing dramatic discounts and price reductions.  This is really smart.  After all, if they didn’t cut costs, very few people would be able to afford their goods and they could price themselves out of business. 

  With the exception of the hotel community, which seems to be lowering room rates, it seems to me that many event producers and suppliers do not fully understand the gravity of the current economic situation and its effect on attendee and exhibitor participation in their events.  Some event producers and suppliers are holding pricing at current levels (perhaps at the previous years’ pricing), but it seems that few are actually reducing prices, and many are actually increasing customer costs.  

I’m sure that some of you will disagree with me, because you think discounting or reducing customer pricing leads to a perception of decreasing the value of the product.  However, in the current business climate I don’t think we have a choice but to reduce pricing (without sacrificing service) to encourage attendee and exhibitor participation and business growth.  Specifically;

• Facilities should reduce rental fees to event producers, as well as other costs governed/managed by the facilities, such as electrical, plumbing, telecommunications, etc.
• Other event related suppliers, i.e., general service contractors, audio visual, catering, etc., should reduce pricing to event producers, attendees and exhibitors
• Event producers should reduce attendee registration fees, exhibit space fees, and sponsorship costs

This might seem like taking a few steps back to move forward, but I believe that’s exactly what we must do at this point to stimulate participation.  Event budgets must be adjusted accordingly.  This means not only reducing expenses, but adjusting revenue expectations in order to revitalize attendee and exhibitor participation in the most direct way possible, i.e., make it more affordable for people to take part.

Bodies in the beds

Here’s a quick story to convey the importance of obtaining increased event participation versus revenue.  Several careers ago I was working in sales for the Hyatt Regency Chicago (HRC).  The director of sales and marketing was an older gentleman named, Tony d’Eca.  Tony was a super nice guy (as well as quite a character) who had many successful years in hotel sales and marketing before coming to HRC, including opening several of the mega hotels for Hyatt, Hilton and Sheraton around the country.  Tony was a great teacher and one of the most profound things he taught me was in terms of the “critical mass” needed for business to grow. 

  HRC was already a mega hotel (2,000+rooms), and had just added a new tower of guest rooms with lots of additional meeting space.  Although the Hyatt corporate office was clamoring for the sales teams across the country to increase the average group sleeping room rates, Tony’s philosophy was, “bodies in the beds make up for a multitude of sins.”  What he meant was that if the sales team worked first to increase the occupancy of hotel (as opposed to trying to get the highest possible group sleeping room rate), the hotel would became more popular and full of activity.  Then, once the “buzz” about HRC was in place, the sales team could gradually work to increase the group sleeping room rates with fewer objections from prospective customers.

The philosophy and approach were beneficial to everyone involved.  First, event producers were able to get great deals for placing their groups at the hotel.  Secondly, the hotel was busy and all the employees were working.  And finally, by increasing occupancy first…and then gradually increasing the average group room rates, the sales team was able to meet the corporate office revenue projections. 

This story is a perfect example of the basic marketing concept of supply and demand.  When demand is high (when the event or hotel is perceived as the place to be), and supply is low (once the hotel is busy, or the event is well attended) then pricing can be increased…but not before this basic marketing principle is met.   Hopefully we can learn a lesson from this story to apply in today’s marketplace.  If we don’t put the “bodies in the beds”, or people in the aisles, it will be extremely detrimental to the face-to-face marketing/event industry in both the short term and the long run.

Stop the freebies aka cost-shifting

  “Cost-shifting” is one of those dirty little terms that many don’t understand, and those that do understand it, don’t want to discuss it.  The term means the transferring of costs from one place, or person, to another.  Cost-shifting is a major culprit contributing to rising costs in the face-to-face event marketing business.  The two simplest analogies are; a) there’s no such thing as a free lunch, and b) every time someone else gets involved in a negotiation or a production process, the price goes up.

As most of you know, event producers typically negotiate two sets of pricing with suppliers.  First is the event producer’s pricing, commonly called “show management” items, such as staff hotel rooms, space rental, signage, etc.  Secondly, but as importantly, event producers negotiate pricing with suppliers on behalf of their attendees and/or exhibitors for items such as hotel room rates, furnishings, material handling, etc.  Every time hotel sleeping rooms, signage, tradeshow furnishings, and numerous other items are “negotiated” as “complimentary”, there is a real cost to them that somebody has to pay.  Unfortunately, many times the costs get shifted to the wrong party.  So where exactly are the costs shifting from, and to whom?  

Costs are shifting from event producers as they “negotiate” these items, and I’ve done this too.  Although it may appear that the costs are shifting to and being “absorbed” by suppliers, don’t fool yourself.  The vast majority of the time this is not happening.  The costs are actually shifting through the suppliers on to… you got it…the ultimate customer, the attendees and exhibitors.  And a super no-no occurs when an event producer negotiates “complimentary” or discounted items for themselves, and to obtain them, knowingly accepts higher pricing for their attendees and/or exhibitors.  Although it should be said that many times this travesty happens unknowingly due to the event producer’s lack of experience.

Specific examples of cost-shifting (under the guise of negotiating) in the meeting, tradeshow and event industry are;

• Event producers and suppliers agreeing to and making use of commissionable sleeping rates versus net, non-commissionable rates to pay for supplier services, or other concessions such as complimentary sleeping room allotments, i.e., 1 per 50, complimentary meeting space, etc.
• Event producers and suppliers agreeing to and making use of “complimentary “ show management items at their tradeshows such as, entrance units, furnishings, signage, shipping, material handling, etc.
• Event producers and suppliers agreeing to and making use of the sharing of the revenues obtained by suppliers from exhibitors at the event producer’s tradeshows. This type of arrangement is usually contingent upon the supplier(s) hired to work on the show or at a facility, and may involve the event producer, the general service contractor, the catering company, the audio visual provider, etc. 
• Facilities retaining exclusive in-house suppliers wherein an agreement calls for supplier to share revenue with the facility, leading to higher pricing for attendees and exhibitors.

These are just a few of the most common examples of “cost-shifting.”  I’m sure there are others that are more clever and less transparent.   It seems to me that an obvious one way to reduce attendee and exhibitor pricing, and increase their participation in our events, is to stop the practice of cost-shifting. 

Would this mean the end of negotiation as we know it?  Of course it wouldn’t.  Event producers will need to talk with several suppliers to determine what the best deal is for both themselves and their attendees and exhibitors.  However, it would be good to take the “freebies” or “comps” out of the negotiation process, because they’re not really freebies.   Putting an end to cost-shifting would help put the costs back to where they should be, or maybe get them away from where they shouldn’t be… with our attendees and exhibitors.

  In order to stop the practice of cost-shifting, event producers, suppliers and facilities need to openly address this problem.  As stated earlier, like a dirty little secret, or a dysfunctional family member, it is ignored and accepted for what it is. And, like the corruption we see today in all levels of government, perhaps cost-shifting within the meeting, tradeshow and event industry is too ingrained a practice to reverse without some type of legislative or legal action.  However, if it is allowed to go on “business as usual”, it’s hard to imagine that reduced prices to encourage participation of attendees and exhibitors will occur anytime soon.

It seems that the task of increasing participation in meetings, tradeshows, and special events is dependent on three things.  While we don’t seem to have much control over getting the middle class back to work, as meeting, tradeshow and special event industry professionals, we absolutely do have control over lowering pricing and stopping cost-shifting. 

Here’s a little video, that although does not specially address cost-shifting per say, adds a humerous perspective to the customer/supplier relationship.  You’ll need to decide if any of the character’s portrayed remind you of any of the parties identified in this blog, e.g., event producers, suppliers, or facilities.

I hope these thoughts will stimulate some discussion and action to help encourage participation in meetings, tradeshows and special events.  What do you think?  Your comments, ideas and suggestions are extremely welcome, so thanks for reading and please comment.

Tags: Business ethics, Cost shifting, Increasing event participation

This entry was posted on Monday, February 1st, 2010 at 4:38 pm and is filed under Consulting, Meeting Planning, Special Events, Tradeshow Management. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.