UFI Open Seminar in Europe 2010 - Budapest - Jochen Witt

Pricing Strategies in thePricing Strategies in the Trade Fair IndustryTrade Fair Industry

Budapest, June 23, 2010

AGENDA

• What drives our profit?

• What pricing methods do other industriesWhat pricing methods do other industries apply?

H h h d b d h• How can such methods be conveyed to the Trade Fair Industry?

• Practical Examples

L l d f th T d F i I d t• Lessons learned for the Trade Fair Industry

• Conclusions

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Three levers affect profit

Volume

Cost

Price

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What measures are most efficient?

Example for the influence of different levers

Assumptions:

• Turnover 100 Mio $Price • Turnover 100 Mio $

• No. of shows: 40Volume

Fixed cost 40 Mio $

Volume

Cost

Variable cost 50 Mio $

Profit b.T. 10 Mio $

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Fi tVariable Number

P iB

A ti

Fix costs‐ 5%

Costs ‐5%

of shows+5%

Price+ 5%

BaseCase

Assumptions

No. of shows Mio $40

Turnover 100Mio $

Fixed costs

Variable costs

40

50Variable costs 50

Profit 10

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Fi tVariable Number

P iB

A ti

Fix costs‐ 5%

Costs ‐5%

of shows+5%

Price+ 5%

BaseCase

Assumptions

No. of shows Mio $ Mio $40 40

Turnover 100 100Mio $ Mio $

Fixed costs

Variable costs

40

50

38

50Variable costs 50

Profit 10

50

12

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Fi tVariable Number

P iB

A ti

Fix costs‐ 5%

Costs ‐5%

of shows+5%

Price+ 5%

BaseCase

Assumptions

No. of shows Mio $ Mio $ Mio $40 40 40

Turnover 100 100Mio $

100Mio $ Mio $

Fixed costs

Variable costs

40

50

38

50

40

47 5Variable costs 50

Profit

50

12

47,5

12,510

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Fi tVariable Number

P iB

A ti

Fix costs‐ 5%

Costs ‐5%

of shows+5%

Price+ 5%

BaseCase

Assumptions

No. of shows Mio $ Mio $ Mio $ Mio $40 40 40 42

Turnover 100 100Mio $

100 105Mio $ Mio $ Mio $

Fixed costs

Variable costs

40

50

38

50

40

47 5 52 5

40

Variable costs 50

Profit 10

50

12

47,5

12,5 12,5

52,5

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Fi tVariable Number

P iB

A ti

Fix costs‐ 5%

Costs ‐5%

of shows+5%

Price+ 5%

BaseCase

Assumptions

No. of shows Mio $ Mio $ Mio $ Mio $ Mio $40 40 40 42 40

P i i hTurnover 100 100

Mio $100 105 105

Mio $ Mio $ Mio $ Mio $Price is the most

importantFixed costs

Variable costs

40

50

38

50

40

47 5 52 5

40 40

50

important profit driver

Variable costs 50

Profit 10

50

12

47,5

12,5 12,5 15

52,5 50

P fit i f 50%Profit increase of 50%

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Conclusion: Pricing is the most important profit driver

Price Quantity (Market‐Share)

Top‐LineTop‐Line

./. Cost./. Cost

Bottom‐LineBottom‐Line

• Price has a strong and simple relationship to the Bottom‐Line (Margins)• Price has a strong and simple relationship to the Bottom‐Line (Margins)

• Strategic: Price positions the company’s brands in the market.

• Pricing Decisions need to be taken at strategic and operational levels.

• Operational: Pricing policies must be put into practice: Training, structural changes in sales organization, clear guidelines for personnel involved in pricing

• Having the right price consistently over time is not simple

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• Having the right price consistently over time is not simple

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Other Industries face challenges similar to the Trade Fair Industry

Airlines Shopping Malls

T l PublishingTelecoms Publishing

ll h i d i h iAll these industries have two aspects in common:

Prices are fine‐tuned such that they reflect the value that customers place on a given product.p g p

The starting point of their pricing strategies is a deep understanding of current and future customer needs.

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They consider both existing and potential customers

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Those four industries show parallels to the Trade Fair Industry – so what can we learn from them?

IndustryIndustry Parallels to Trade Fair IndustryParallels to Trade Fair Industry Key Pricing ToolKey Pricing Tool

Airlines• Perishable goods (a seat going unsold is lost forever)

• High fixed cost• Yield Management

Telecoms• Broad spectrum of goods and servicesV i i

• Bundling

Shopping• Locations with different visitor • Pricing by quality of

• Varying margins

Shopping Malls

frequency and infrastructure quality

infrastructure

Publishing

• Quality and number of contacts determine the attractiveness of the medium for advertisers

• Pricing based on• Reaching target

groupsi

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• Location of the ad • Location

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Price is determined by competition, cost and customer’s perceived value

Pricing ToolsPricing Tools

Yi ld M tYi ld M t

Price

Competition • Yield Management

• Bundling

• Pricing by quality of

• Yield Management

• Bundling

• Pricing by quality of PriceCost

Customer perceived

g y q yinfrastructure

• Pricing based on

R hi t t

g y q yinfrastructure

• Pricing based on

R hi t tCustomer perceived value

• Reaching target groups

• Location

• Reaching target groups

• Location

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Pricing methods of other industries

Sh i M llShopping Malls

Airlines

Publishing

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Telecoms

The Airline Industry

• Perishable goodsParallels to Trade Fair IndustryParallels to Trade Fair Industry

Perishable goods (a seat going unsold is lost forever)

• High fixed cost

Key Pricing ToolKey Pricing Tool

• Yield Managementg

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Airlines Industry: Prices for the same good vary widely over time....

Prices for the same route with the same airline on the same day of the week vary widelyPrices for the same route with the same airline on the same day of the week vary widely

€120

€140Germanwings price for single flight Cologne→Berlin on a Monday

€80

€100

€60

€80

€20

€40

€0Nextweek

Nextmonth

In 3months

Time of booking

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The goal: Sell each seat to the right passenger at the right price at the right point of time.

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....Yield Management massively boosts revenue

Result: Dramatic reduction of the number of unsold seats at American Airlines (First Mover)Result: Dramatic reduction of the number of unsold seats at American Airlines (First Mover)

% unsold seats at American Airlines

Introduction of Yield Management in late 70s

The reward:$500m additionaladditional revenue p.a.

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What could the trade fair industry learn from Airlines?

Status QuoStatus Quo Some basic Yield Management is taking place: “Early bird” rebatesQQ

Why rebate at all?Questions raisedQuestions raised

Why rebate at all?

When?

By how much?

FindingFinding

Yield Management is a powerful lever to increase occupancy and boost revenues

Most organizers grant discounts without proper analysis of customers g g p p yperceptions

Yield Management can take arbitrarily complex forms – but simple first steps can be taken fairly easily

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Yield Management for event organizers: Make prices dependent on the time of booking

Exhibitors value different booking times differently*Exhibitors value different booking times differently*

E hibit d t t t b k t• Exhibitors do not want to book too early (unnecessary restriction)...

• ...but also not too late (insufficient time for preparation)ESSENTIAL ESSENTIAL time for preparation)

• 12 months prior to the event offers optimal planning/risk mix

ESSENTIAL ESSENTIAL REQUIREMENTREQUIREMENT:: LEARN

Therefore Exhibitors can be charged according to the time of their bookingTherefore Exhibitors can be charged according to the time of their bookingHOW MUCH THE CUSTOMERBegin by charging the same as last year 24 months ahead of the event

Monitor capacity and inflow constantly to decide on development of price over time

IS WILLING TO PAY AT WHICH

POINT OF TIMECustomers much prefer booking only 12 months ahead – charge them more at that time

POINT OF TIME

•Based on real data from a survey: The data shown was measured for a bi‐annual trade fair.

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The Telecoms

Parallels to Trade Fair IndustryParallels to Trade Fair Industry

• Broad spectrum of goods and services

• Varying margins


• Varying margins

• Bundling

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Telecoms case study: Bundling is used to cross‐sell high‐and low‐margin products

Telecom products are almost always offered as complex bundlesTelecom products are almost always offered as complex bundles

Online“ package Music“ package Entertain“ package„Online package „Music package „Entertain package

Unlimited calls to landlines

100 SMS/month

50 MMS/month

5 Ringtones/month5 Ringtones/month

20 Songs/month

Mobile TV

5 Games/month

250 i t I t t / th

By rearranging the bundle definitions the rationale becomes clear: Cross‐sell high‐ and low‐margin products

By rearranging the bundle definitions the rationale becomes clear: Cross‐sell high‐ and low‐margin products

250 minutes Internet access/month

„Online“ package „Music“ package „Entertain“ package

High‐margin products• Landline calls• SMS, MMS• Ringtones

Medium‐ and Low‐margin products• Game downloads

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• Mobile Internet, Music, TV

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What could the trade fair industry learn from Telecoms operators?

Status QuoStatus QuoEvent organizers are offering bundles – but often haphazardly, ith t d l i f b dl iti

QQwithout deep analysis of bundle composition

Questions raisedQuestions raised

Is current bundling practice based on customers value perception?

Does the mix of products return optimal value?Questions raisedQuestions raised p p

What drives the bundle composition?

Make packages mandatory for certain customer groups?

FindingFindingBundling is a way out of the price trap: Some products simply are inherently low‐margin – Bundling can help cross‐sell them with higher margin offerings

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Like Telecoms, Event Organizers offer products with widely varying margins – why not offer those in bundles?

Margin for m² rental grows with sizeMargin for m² rental grows with size Services offer different marginsServices offer different margins

ESSENTIAL ESSENTIAL • Booth construction• Furniture/Equipment rental

•Utilities•Hotel booking

ESSENTIAL ESSENTIAL REQUIREMENTREQUIREMENT:: LEARN HOW

Low margin High margin

REQUIREMENTREQUIREMENT:: LEARN HOW

MUCH THE CUSTOMER IS WILLINGTelecoms equivalentTelecoms equivalent Telecoms equivalentTelecoms equivalent

• Calls• Internet accessTO PAY FOR EACH SINGLE

• SMS•Online Gaming


PRODUCT

iPhone High‐endNokia

Low‐endNokia


* Simplified dependency

Force certain groups of exhibitors to purchase bundles

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Shopping Malls

L i i h diff


• Locations with different visitor frequency and infrastructure qualityinfrastructure quality


• Pricing by quality of infrastructure

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Shopping malls case study: Quality of a shop’s infrastructure and surroundings determine the price

A dark location on the top floor, next to fire fighting equipment:

$75/ ft$75/sqft

A central shop near a café: $125/sqft

A location next to the main entrance:

$140/sqft

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Fairground owners can use similar criteria to evaluate each exhibition hall and price them accordingly

Ease of access from a main entrance


Height of hall

Possibilities of managing visitor flow

Height of hall

Possibilities of managing visitor flow managing visitor flow


Height of hall

Possibilities of managing visitor flow

Must understand customers’ (i.e., event organizers’) preferences: How relevant is each of these criteria to them?

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relevant is each of these criteria to them?Only then can their willingness to pay be determined

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Publishing

• Quality and number of


contacts determine the attractiveness of the medium for advertisers

• Location of the ad


• Pricing based on• Reaching target groups

L ti• Location

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Publishing case study I: Market Price of Ads is driven by the circulation – this relationship is true across publishers

Price of a full‐page ad for various German Women’s MagazinesPrice of a full‐page ad for various German Women’s Magazines

Price for a standard full‐page colour ad (€’000) TitlesTitlesp g ( ) TitlesTitles

PublishersPublishers

Circulation

The number of contacts or the proportion of target group reached determines the price for an advertisement Accordingly events organizers may prices/sqm make dependent on the total

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Accordingly, events organizers may prices/sqm make dependent on the total number of visitors at the gate or the proportion of target group reached

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Publishing case study II: Even within one magazine, “eyeball traffic” determines location‐based pricing

Price of a full‐page ad varies by locationPrice of a full‐page ad varies by location

140Price for a full‐page colour ad (€’000)126,9

100

120

140Price for a full page colour ad (€ 000)

37,0

66,9

40

60

80

24,7 25,5 26,5 27,0

0

20

40

Standardpage

Firstinside page

Page nextto editorial

Page nextto table ofcontents

Back cover Opening spread

(pages 2+3)

CoverGatefolder(around

cover page)

Again, the number of contacts determines the price for an advertisement

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g , pAccordingly, event organizers should make prices/sqm dependent on the attractiveness of the location of each exhibition stall

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Business engagement related pricing with optimized hall planning improves revenue and margins even more

Offer attractive prices to exhibitors that will act as “magnets”, making their surrounding more valuableESSENTIAL ESSENTIAL

REQUIREMENTREQUIREMENTREQUIREMENTREQUIREMENT:: LEARNHOW MUCH THE CUSTOMER ISHOW MUCH THE CUSTOMER IS

WILLING TO PAY FOR VISITORPrice StructurePrice Structure

Premium segment: €171Premium segment: €171

Revenue € 1.91m

Cost € 1.53mFREQUENCY

Comfort segment: € 138

Standard segment: € 107

Comfort segment: € 138

Standard segment: € 107

Profit € 380,000

Organizer profit € 260,000 (+53%)

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“Visitor magnets”: € 107“Visitor magnets”: € 107 Average price / m² 132€

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Implementation: Simple Location‐based pricing is the starting point, sophistication and other measures are added later

Profit potential when implementing pricing strategies of increasing sophisticationProfit potential when implementing pricing strategies of increasing sophistication

160%

180%Profit

120%

140%

Yield Management

100%

120%g

Bundling

Location‐based Pricing

St t Q

60%

80%Status Quo

Degree ofsophistication

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Example for future pricing structures*

400 €

350 €

400 €

Premium

250 €

300 €

price/sqm Comfort

200 €

Standard

100 €

150 €

utlity

0,0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1,0

*based on empirical studies

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SUMMARY: Future Pricing

Survey customer needs andcustomers willingness to paycustomers willingness to pay

Value measurement

Grant choices to customers

I t ti f tiIncrease customer satisfaction

Revenue and profit increase

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There will be a steep learning curve – but a substantial advantage for the first mover!

Enjoy growth and profit !!!!

Thank youThank youfor your attention!

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jwc gmbham roemerturm 1

50667 koeln • germany50667 koeln germany

p: +49 (0)221 27 25 89 60

f: +49 (0) 221 27 25 89 65( )

m: +49 (0)170 57 81 14 2

jwitt@ jwc.eu.com

h l @[email protected]

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BACK UPBACK UP

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Pricing project: Four work steps build upon one another

Value Step 4:Roll outStep 4:Roll out

Step 3:Perform pilot

Step 3:Perform pilot

Step 2:Build new pricing

Step 2:Build new pricing

Step 1:Understand Step 1:

Understand

structurestructure

Steps over time

status quostatus quo

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p

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