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Phil Soar: Pricing trade shows

by EN

In his latest column Phil Soar looks at the pricing of trade shows and asks: Do we know what we are doing? Or why?

 

I tend to think too much about money and prices. No doubt one consequence of growing up on a caravan park in Skegness.

 

But after 33 fun packed years in the trade show business, I am still intrigued by one simple question: “Why do we charge what we charge for our products?”

 

I don’t mean my tedious obsession about pricing at £xx9 – though of the 11 events at the NEC of which answered my anonymous pricing question as many as eight still do not price with a £xx9 at the end – which suggests that I am spitting in the wind with what I write here.

 

So, as a summary of this article (and thus you can move on if these points bore you) my propositions are:

 

  1. Nearly all products in all businesses – tangible and intangible – determine their prices by reference to direct competitors
  2. Hardly any of our larger events have any serious direct competitors – so their pricing seems both random and to a large extent illogical (75% still not at £xx9)
  3. We never ask “What will the market bear?”
  4. That our budgeting and bonus systems tend to reduce our profitability, not enhance it. We are afraid of our margins.

 

The four questions that matter for creating literally anything

 

So, ignoring trade shows for a moment, let’s consider the creation and sale of any kind of product at all – be it tangible (eg a pen) or intangible (eg an online subscription). To succeed, you have four basic questions to answer:

 

  • What does it do? What is it? What is the proposition?
  • Will people want to buy it?
  • What will it cost to produce?
  • What can I charge for it?

If we apply these questions to existing trade shows then we can assume (1) and (2) or the event wouldn’t exist. The third one – “What does it cost to produce it?” is intriguing. Because all trade shows (not consumer shows) are pretty much the same. The NEC or ExCeL, within margins, charge everyone the same per square metre used. The carpets, the security, the shell scheme, the car parking (£16 a time at the NEC whoever you are) etc don’t vary that much. By and large, staff costs are broadly the same at all of our companies. There are some variables – what we spend on promotion or exceptional speakers perhaps – but the basics are the basics.

 

The question which never gets asked – ‘what will the market bear?’

 

So we come back to the only one of the four questions which is really a matter of discretion and affects our outcomes – what we price square metres at.

Some events worldwide do not sell their events on this basis – but 90% do, so let’s assume the industry does this for well-proven reasons.

 

Let’s look elsewhere. I was in New York when I wrote this, so I wandered round an average supermarket looking at what other products might charge:

 

Duracell Batteries 20.49/RayOvac Batteries 21.49

Pop tarts 3.79/Nutrigrain tarts 4.19

Maxwell House 10.79/Dunkin Coffee 9.99

Bud Light 2.99/Corona 3.49

Advil (220) 24.49/Tylenol (200) 22.99

Gillette Razor 9.99/Harry’s 11.99

Monthly Sprint Cell Contract 29.99/Verizon 31.99

Fiji Water 3.99/Dasani Water 1.99

 

Looking at cars –  “The Best Midsize SUVs” according to J D Power –

Honda Passport $37,870/Acura RDX $40,100/Volvo $39,700/Buick Encore $35,500 (generally US domestic brands like Buick sell at lower prices than imports because of quality reputation)

 

On Skyscanner:  London-Barcelona return: EasyJet £179/BA £233

 

Almost everything prices against its competitors

 

That is just a small random sample – it could have been 1,000 items long. But it tells us what we all know. I can’t stress enough that almost everything is priced close to where its competition is priced. So producers then have one core strategy – reduce their cost of production to maintain their prices. The option of increasing their prices materially doesn’t drive their debate because they are not in real control of it – unless their competitors do the same (and in which case someone would break ranks and briefly clean up).

 

I have seen the same in some of our larger trade show companies – where the almost permanent obsession has seemed to be “How do we cut costs? What can we do about the NEC?” rather than looking up and asking: “What price can our product bear?”

 

This can lead to a race to the bottom. WalMart, the biggest retailer in the world, became that way on the back of a slogan and a promise Always Low Prices – now adapted to Save Money. Live Better. They have never promised ‘Better Quality’ or ‘You Get What You Pay For’ or ‘Product Satisfaction’.

 

It’s always cheaper to buy new from WalMart than have a hotel do the laundry

 

WalMart has faced constant criticism for its lower prices meaning lower quality and domestic jobs lost. Importing and selling mountain bikes made in China for $99.95 (visit one of their stores when you are next in the USA) has driven domestic volume manufacturers out of business (as well as many local retailers) and the same story can be told about numerous other product lines. Some 10% of all container traffic leaving China is reputedly destined for WalMart. When I travelled a lot to the US I never bothered having socks, underpants or T-Shirts laundered by the hotels – it was cheaper to go to WalMart, buy new clothes and throw the old ones away. I was saving the company money.

 

I included Fiji Water to point out that there are some exceptions. Fiji Water sells at double the price of identical water like Dasani (it’s just H2O for heaven’s sake) – but it does so by creating a strange perception of exclusivity or value signalling and persuading a small number of gullible people that this matters. There are other examples – the front of the plane gets there at the same time as the back, but can cost 10 times more.

 

BA can charge a little more than EasyJet because there is a residual reputation and people prefer to travel from Heathrow. In our own world, VIP tickets for consumer shows, restricted to say 250 in all, sell out at £50 or £75 faster than any normal tickets – and all they really provide is a VIP entry line and a coffee lounge.

 

(If you counter with the fact that there are new products all the time, then I agree. But remember, if you want to succeed in the mouse trap market there are only two ways to do it – produce a better mousetrap, or produce a cheaper mousetrap.)

 

Is there any logic to the charging of trade show space?

 

So I thought I would see what our trade shows were currently charging. I contacted 16 NEC based events with a general enquiry for a six or 12sqm shell stand. I ignored the marginal add-ons like registration fees, website fees, volume discounts etc, so the figures below are attempts to be like-for-like and the best I could get from the relevant sales teams.

 

There are other sources of revenue of course – sponsorship etc – but overall 80% of the revenues of UK trade shows historically come from stand sales.

 

Eleven replied within hours – efficiently and very pleasantly. Impressive. Less impressive – only three of 11 are pricing square metres at £xx9 – which I still find weird (and drives me crazy). Three did not reply at all. One required a very complex registration system before even answering any query, and one refused to give any information at all unless we signed something akin to the Official Secrets Act.

 

Although all the prices are in the public domain, I will just name the sectors rather than the show names – that does not invalidate the material. All are 2022 NEC events.

 

I (Retail)                                            690*

PS (Healthcare)                                639*

F (Retail)                                           519*

DS (Healthcare)                               509*

P (Healthcare)                                  495*

C (Industrial)                                   480*

SD (Services)                                    474*

M (Industrial)                                  395*

MT (Healthcare)                              355*

P (Services)                                       320

TP (Services)                                    300*

 

 

All of those marked *replied within three hours.

 

So, after a long preamble, I have reached the core of what keeps me awake at night.

 

Why do trade shows sell their space at the prices they do? And why do we have events with broadly the same cost base selling at prices between £300 and £700? (and this is a small sample – a larger sample may have thrown up even greater discrepancies).

 

Why do trade shows sell space at the prices they do?

 

Here are some thoughts which might explain where most shows end up.

 

  1. Their cost bases are different. But while they may all be a little different, we know that the large items (venue, staff, stand building etc) vary very little. All the shows above are at the NEC – so much of the cost base must be similar.
  2. They are tied to the equivalent of a trade association within which an “exhibitor’s committee” works to keep prices lower – truthful in some situations, but it is not necessarily to that committee’s benefit to keep profits down. We are all aware that the major activities of many US trade associations are entirely funded by the profits from their annual shows.
  3. They have to compete with other shows. There are a small number of examples where this might be true – there are dentistry shows in London and Birmingham for instance. But one cannot really argue that Spring Fair has to set its prices because of Top Drawer. The great majority of the larger shows in the UK have no meaningful competition at all– and if there are other shows in the sector they are often in the different season (Spring/Autumn) or location (London/Birmingham) and reach significantly different local marketplaces. Some might argue that they have to compete with European shows, but this doesn’t hold water. The German shows are notably cheaper on a square metre basis but the reason this doesn’t apply is that UK shows (with rare exceptions like DSEi) are provincial shows. Exhibitors are there to reach a UK audience – European prices are just not relevant. It’s not much different from arguing that boarding house prices in Blackpool have to watch out for hotel rates on the Amalfi Coast.

 

The bane of management by anecdote

 

  1. Management by anecdote – the bane of so many businesses. Sales staff are naturally worried about anything which might affect their bonuses. How often have you heard: “There’s a lot of price resistance.” And so you dig deeper. “Well, how many customers have actually mentioned price and said they are concerned – be honest?” “Well, three”. Management by Anecdote is also the reason sales teams so often push for early-birds.
  2. Everything goes back to the cell in the bottom right hand corner of the spreadsheet. As our costs are generally very predictable a year ahead, and as the attendance at a trade show cannot affect profits for at least one year ahead – then pricing on a stable show is the one variable which can effectively guarantee the ‘profit’ them upstairs are asking for. So that is the cell which gets flexed – but, critically, only to the required answer and central budget demand, not to what the market might bear. In fact it works the other way round. Show directors can get their bonuses by meeting their budgets – they rarely want to exceed them because it raises the bar for next year. So, paradoxically, the spreadsheet budget processes of trade show companies can result in prices and profits being kept down unnecessarily.
  3. The most likely reason – they don’t think about it at all.

 

 

Do our budget processes paradoxically keep profits down?

 

I have done the obvious and asked 30 or so sales teams why they were pricing square metres at the price they were. Ignoring the large number of answers which were basically: “That’s what we were told to do,” the overwhelming response was: “Well last year it was XXX so we have increased it by (say) 5% or (say)£10 a square metre.”

 

The obvious follow up – “Well why was last year’s price XXX minus £10 or XXX minus 5%” – did not elicit a single intellectually rigorous answer.

 

Though I am not speaking here about delegate revenues, very often the same arguments apply. I remember one event with a large number of delegates – over 1,000 – and debating with the team this year’s price. The conclusion was £695. But after the meeting I sent an email about it and I either made the mistake of mistyping £895 or someone misread 695 and printed 895. When the orders started coming in the sales graph looked crazy – there was a massive revenue leap year on year but the number of orders was virtually constant. The event was popular, the delegates were coming anyway, and hardly anyone commented on £895.

 

Delegate pricing can see the same situations

 

I must stress – I am not commenting on why IR should charge £690 and PS £300, nor on the actual pricing of any specific show. I am NOT making any comparisons between shows. Our Furniture Show had one of the lowest charge out rates in history (well below £150) but that was because beds and three piece suites require a lot of space. It still made a clear 40%+ net margin. There is a valid debate about the reasons for such wide discrepancies, but at some other time.

What I am really asking is:  if £650, why not £700 or £750?

If £425, why not £475 or £525?

 

Very few of our shows have direct competitors – is there a “rade show comparison site?

 

What is the basis for the prices we charge in almost every case I could name? They do NOT have direct competitors against which exhibitors can price compare (have you ever heard of a “trade show price comparison site?” – and if there was one how could it account for the number and quality of visitors, location, time of year etc – we can all run very cheap shows on Christmas Day). That is even if exhibitors were remotely inclined to price compare anyway. If you like a show and it does the job for you, you don’t wander off to another city at another time of year in another hall to save 10% on your stand space – exhibitors are not standing in the cereal aisle of Sainsbury’s.

 

So some tentative conclusions

 

You will have gathered by now that I think there is very little logic on what we charge for space at most of our exhibitions.

 

Some of the reasons and realities I can identify are:

 

  • We believe that there are comparatives – if not other shows, then Google AdWords, Facebook, trade magazines, even television and radio advertising. But how real is that? Of course many exhibitors talk about identifying ROI against other media – but email me an example where an exhibitor has produced such an analysis against a trade show in making their buying decision. And – much more importantly – I have argued here many times that companies and people go to trade shows more for the intangibles than the tangibles.
  • The cost of the space at a show is usually a rather small part of an exhibitor’s overall spend. A 12sqm stand at £500 is £6,000. What do you get for that on Google AdWords – or, more accurately, if you chose to spend that you have no idea what the Spend per Word is going to be in advance or how many responses you might get – and spending £6,000 on a series of radio ads will prove what exactly? Exhibitors generally spend far more on dressing and building their stands, on hotels and travel, and on staff time spent away. For what it is worth, over 30 years I have fielded far more calls about how expensive the hotels on site have become rather than how expensive the space is (try the Frankfurt InterContinental at Book Fair time – and you had to pay 100% one year in advance). Being argumentative – what difference would it make if that stand cost £7,000?
  • Once a show is stable (at the extremes a World Travel Market, DSEi, ICE, Vet Show) then exhibitors are not making their decisions to attend on price. For 95% of those involved, these are part of their personal calendars, part of what they believe their industry is, in many ways habitual, emotional decisions. I would never argue “Double the price”, but I do argue that there is little clear logic about the price points most shows have reached.

 

There is no golden rule which leads to 28% margins

 

  • We are afraid of our margins. All of the bigger groups make real profit margins of 25% plus. That can cause complacency but it can also cause us simply not to debate the subject. If 25% from a group of very strong shows, then why not 35% or 40%? There is no golden rule which says 28% and no further. Very few of our large companies have transparent profit margins anyway – it is hard to work out what they really are. RX and Informa have other businesses while most of the other large groups are PE owned and declare profits AFTER reasonably heavy interest charges – which confuse what is really happening on the ground. So the customers don’t know. (I will concede one point. When Blenheim was regularly featured in the Lex column of the Financial Times our margins – then circa 26% – would be mentioned. This did allow some exhibitors who happened to read the FT to bring the matter up).

 

I have long been sure that our pricing is artificial. It has emerged from many years of “add inflation” or “we always add £10” and I have never seen any attempt to research “what will the market bear?”

 

I can only suggest that, if you are involved in pricing your events, that you stand back a little and ask “why?”

 

 

 

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