2013 – The Year Of Process Change
Our World | On 11, Jan 2013
I have called 2013 the year of process change because I believe the way agents, corporates, hotels, venues and DMC’s do business must change.
A recent agency survey identified events volumes in 2012 had remained largely static, but that there had been significant churn, i.e. the same clients were not doing the same events year on year. This for me is the biggest change in the market and also potentially the greatest challenge. This is not unique to events as many companies in many markets spend more winning an order than its initial value. Whilst on the surface an insane business practice, the belief is that the potential lifetime value of the customer is greater than the 1st product sale loss. Amazon for example probably doesn’t have a great margin when someone orders a 99p spatula and they deliver it for free.
In events, the time spent identifying the opportunity, building a relationship and then preparing, planning and delivering the pitch is increasing. It is also becoming more difficult to recover over time if clients do not repeat the same activity.
The cost of tendering
The percentage of business going to tender has increased in 2012 and therefore so has the sales cost. That extra cost flows through the industry.
A simple law of economics says that if you only win 1 in 4 pitches, then the one you win is paying for the 3 you lost. I heard recently that DMC’s only win 1 in 9 pitches from agencies – hardly surprising if 3 agencies put forward 3 recommendations, in effect creating 9 proposals for what is ultimately only one piece of business. If the average tender list grows to 5 agencies and therefore 15 DMC proposals and up to 50 hotel quotes for one piece of business – that is a very expensive event and very inefficient process. Of course, not all business goes via agencies, probably more than 50% goes direct from in house teams. Does this save money? Not necessarily as the corporate has the direct employment cost, allocated overhead and the other employment intangibles. Added to this, do you think a DMC, venue, airline or hotel discriminate between a quote to an agency and one to a corporate? So in essence, when a corporate goes direct, they not only have their own increased costs, they end up subsidising part of the supply chain. Not only is this totally bizarre, it’s ludicrous and the industry needs to change.
The tender process is designed to create the best ideas and generate the best value, but does it? Whilst every procurement department believe they have secured a good value deal, surely the inefficiencies that are built into the events system dictate that these sales and marketing costs end up being paid for elsewhere.
I recognise that every product has this from baked beans to an A380, but in most sales environments the cost of acquisition is being driven out of the industry through technology and communications. In events, the protracted procurement process whilst designed to reduce costs is potentially increasing them. This is why I believe the process has to change and soon.