I was sitting in the pub reading the menu: ‘Steak Pie 15.95’; ‘Toad in the Hole 15.95’; ‘Pizza 15.95’; ‘Fish and Chips 15.50’; ‘Boeuf Bourgignon 15.75’. And all the rest were 15.95.
I asked the manager whether he thought he sold any more Fish and Chips because it was 15.50 rather than 15.95. “Of course not,” he said. “Then why do it?” “Well, it’s cost added isn’t it.” “So, you are literally throwing away 45 pence every time someone orders Fish & Chips then?” “Well, I hadn’t thought about it like that.”
I was reminded of my very first day at Blenheim, back in the stone ages of 1989 (no Facebook, no iPhones, no Sky, people read newspapers). Blenheim’s biggest show was NETWORKS – 20,000sqm, pretty well wallbound.
I went to talk to the team. Square metres cost £184. I asked whether they would sell any less if the price was £189. “No, of course not. Wouldn’t make any difference at all.” So why £184? “Well. It was last year’s price plus inflation.” And did anyone ask one question – what will the market bear? “No, we’ve never done anything like that.”
Well, simple maths. An extra £5 multiplied by 20,000 metres equals another £100,000 – pure profit with no cost attached. The sales team was already over its budget – another £100,000 would be worth £15,000 to them in bonuses – and £15,000 was a lot of money in 1989. “Well, we hadn’t thought about it like that…” That phrase again.
Dated pricing structure
This lack of attention to pricing has long been a feature of the exhibition world. Up to 2019 among the better examples were the largest events run by one of our two biggest organisers (I won’t quote the events). They had a matrix of square metre pricing with 12 different prices. Of those prices, just two ended in a $xx9, two ended $xx1 and the other eight were spread between. Thirty second maths showed that, as the events turned over $100m, then if every one of the 12 prices in the matrix was increased a tiny bit to $xx9, they would add over $800,000 to their bottom line.
There isn’t an exhibition company in the world which would not welcome $800,000 – and, of course, I am arguing that not a single square metre would be lost if the price were $619 rather than $614. I was never able to elicit a reason why pricing at $614 (as an example) offered benefits to the organiser. (But then WalMart price everything at $X.97 rather than $X.99 and that is an interesting debate in itself).
To be fair, I have noticed this year that the said events are pricing everywhere at $xx0 (eg $640 or $670) which at least has the virtue of consistency. But it nonetheless generates the next question – if $640 why not $649? If $670, why not $679? Would it really cost a single exhibitor; would a single square metre be lost? (And it is worth the debate – another 1.4% on the revenue which goes straight to the bottom line).
I am not arguing here that prices can be increased ad absurdum to any level at all (anymore than the pub should charge £29.95 for Toad in the Hole). But I am arguing that pricing rarely gets the forensic examination it warrants.
The same is also true of conference/delegate pricing. How often do we see a conference price of (say) $1,295 with the inevitable ‘early bird’ discount of 20%?
Well, $1,295 minus 20% equals $1,036. But if the discount offered was $250 rather than 20%, then there are two effects. The first is that the organiser take becomes $1,045 rather than $1,036 (that’s another 1% straight to the bottom line). And the second can be established via very simple research.
Money mind games
In this research (trust me) the potential attendee responds more positively to $250 off than to 20% off – the reason being that we easily understand an extra $250 in our pockets far more instinctively than 20%. In fact, that research shows that a $200 discount works just as well – and that one would increase the organiser take by a whopping 5.7%. (If you don’t believe me, just think how you would react).
Which brings me on to ‘early birds’ – a device used almost universally by exhibition and conference organisers. This is an obsession with sales teams – they genuinely seem to believe that it means they can cement deals they would otherwise miss. And it seems to me that simply keeping the sales team sweet is the only valid reason for early birds.
If an exhibitor has had a good event, if he or she wants to be part of that event going forwards, then offering 10% off next year’s rate does not make the difference between a ‘yes’ or a ‘no’. In fact, what you are doing is offering a discount to exactly the people who are most likely to sign a contract. The same is broadly true of conference discounts – the early adopters sign up because they want to come to the event, not because 10% off makes a difference.
This reminds me forcibly of my merry days owning a football club (Nottingham Forest, as you didn’t ask). We had around 18,000 season ticket holders, and every year the debate was the same with the Supporters’ Club – that we should offer a big discount to existing season ticket holders to reward their loyalty. That, of course, is economic incoherence at its worst.
The Nottingham Forest fan (yes, they do exist – I’ll show you my European Cup) who has been a season ticket holder for 15 years is the absolute core customer – they are the ones who would easily pay far more, not less. They are already committed. What the club should really do is the exact opposite – give the biggest discounts to the most marginal fans – the ones who are not sure, who might just come to the game for a lower price (“Kids for a Quid” etc).
The conclusion inevitably was (and is) that “loyal” season ticket holders still get a discount. Sometimes it does get out of hand. For many years there was a discount given to Pensioners – which until recently meant Men over 65 and Women over 60. As woke correctness developed (though I doubt the word woke is in vogue much in Nottingham) there was a concerted campaign for us to abandon this apparent sex discrimination. Their objective was that men aged 60 should pay the same price as women aged 60. It came down to a Supporters’ Club meeting – where the campaign organisers had to admit that their objectives could only be based on sex discrimination, not age discrimination. So, no problem: we simply raised the age at which there was a pensioners’ discount to 65 for everyone.
And if you think pricing isn’t always vital, become a funeral director. Most independents have a range of four coffins at various prices. The key to be business is how the second cheapest is priced. Very few people pick the expensive ones. Most bereaved don’t want to seem mean by picking the cheapest. So, the second cheapest is the important one and this is the price where the highest margins are to be found.
Because the margins in the trade show business are so good, there has rarely been the attention to pricing which occurs in an industry used to profits of say 5%. This is one example of what we call “the tyranny of the margins”. How often (truthfully) have you ever heard your superiors say: “What will the market bear?” I suspect trade shows are the only industry where I could suggest such a comment.