There’s a revolt taking place on our show floors. JWC’s Anna Holzner discusses value-led pricing.
Let’s begin with what isn’t changing. The trade fair industry is competing, as it always has, for wallet share of the marketing spend. As a traditional and important pillar of any marketing strategy, decision makers cannot and will not ignore the high touch experience and valuable face time a trade show provides. That’s the good news.
Now to the bad news. As expectations of choice become increasingly common among consumers and business clients, our industry is challenged. We need to handle this choice, and the associated price points, expected by our customers. Our general practice of basing exhibitor prices on a ‘one price fits all’ model needs a principle overhaul. We must determine what our customers value, base our offerings on those value propositions, and price the offerings accordingly.
Business consultancy JWC introduced value-based pricing to the trade fair industry four years ago and today this innovation is gaining strong momentum, with organisers including UBM adopting this approach to many shows globally. Reed Exhibitions recently announced the introduction of value-based pricing to its North American shows. This is no coincidence. Compared with other initiatives trade fair leaders can undertake to improve the EBIDTA, value-based pricing can be implemented quickly; it pleases customers because it gives them more choice and takes their preferences directly into account. It also leads to predictable and significant bottom-line improvements.
But there is a catch. Pressing forward with such an innovation means reviewing and changing the pricing of your services. Price is a very sensitive topic in any business, it is not something to be tampered with casually.
Let’s first go back and cover a few basics. There are many different ways companies can set prices, manage the discounting process and other forms of price erosion. Additionally, where there are distinct sales channels, companies have to work to influence the ‘street’ price. Put simply, there are three main orientations around which firms and sometimes entire industries tend to set their prices: cost-based; competition-based and value-based.
Cost-based is straightforward. Once a product or service is clearly defined, historical cost figures (if not available, estimates are used) are added to come up with a figure, a margin is added and the price is set.
Competition-based pricing takes an additional input in the form of observations as to relevant prices of competitors and how they are positioned in the market. In more rigorous forms, systemic market research methodologies are also applied.
Value-based pricing rests on a different premise altogether. If you can measure the value an existing or potential customer perceives in a product, a price can be set in accordance with this knowledge. The travel industries were possibly the first to implement this approach and today many mass-market car-makers use complex value-based bundling to optimise their profitability.
A disciplined approach to price setting is still neglected by many businesses, particularly in the trade fair industry. This is very surprising when one considers the three basic levers that impact the bottom line (profit): volume, cost and price. Many trade fair businesses focus only on volume and cost, completely ignoring the opportunity to impact the bottom line with targeted price assessments and changes.
The trick is to know your markets well and focus on finding out what value the customer places on your offer. At the same time, understand that what is valuable to customers in one market might be very different – opposite even – in another.
Let us turn to an illustrative parallel. We need to understand the market at a granular level. Consider for example the value to an exhibitor of each type of exhibition stand. Clearly, the most attractive (valuable) type of space appears to be those that are open on four sides; an ‘island’ stand. This is the most favourable stand layout form when considering visitor flow. However, from recent work done with exhibitors, it becomes clear that there is a strong relationship between the value a company gains from stand layout and the size of that company.
For large sized companies it is true that four-open-side stands are more valuable than those with one, two or three open sides. However small and medium companies are not interested in four open sides at all. They prefer one or two open sides, some three open sides. Of course the challenge still remains to accurately evaluate these perceptions in order to translate such show-specific preferences into real-world prices, incorporating exhibitors’ willingness to pay.
Survival is not mandatory
Value-based pricing rests on one simple rule: if the value of a product or service to the buyer is higher than or equal to the sacrifice, such as the price being asked for, the buyer will buy that product or service. It follows from this that if it is possible to understand precisely what is the value of the product to the buyer, it will also be possible to set a price in accordance with what the buyer is willing to pay.
Statistician and management consultant W. Edwards Deming once said: “It is not necessary to change. Survival is not mandatory.” Changing the price-setting processes in a company, and the changes to price list (structures and levels) is a big change for show management, sales, accounting, customer service and customers. Initially, the resistance to this considerable change comes from within.
During this kind of change the organisation watches its executive leadership very closely. Talking is not enough. Body language and project-related actions must show commitment at an early stage. Management must do four things to succeed:
- Engage – Seek early involvement of everyone touched by the project
- Explain – Articulate the need for change based on a clear vision
- Reinforce consistencies – Be sure to highlight what is not changing
- Communicate, communicate, communicate – Use all available means to keep everyone informed
On the quantitative side of things, there really is less magic to a pricing project than one might think. At a very high level, the preparation phase is about gathering the relevant data. Key areas covered are a detailed evaluation of the show profile, an assessment of relative positioning with regards to the competition, and pricing trends of the show in the last several cycles. An exhibitor survey is then conducted, revealing show-specific results.
This is important because there is no show quite like another. In one, features like booth location are very important, while in another show exhibitors may be very sensitive to price. One show revealed that booking time of the booth (nine months, six months and three months ahead of the event) was very important. The detailed view revealed that in the industry covered by this show, the flexibility to plan up to the last moment was very valuable. Go one level deeper, and these features can also be illuminated at a segment level. When sliced like that we can see, for example, that in one show the larger the stand size, the more valuable location and stand layout becomes.
In another instance, it was discerned which exhibitor nationalities were willing to pay a lot to have a good location or their favourite stand type. This information proved to be extremely valuable for both sales and price setting.
Pricing is about an ongoing definition of the optimal price point, but it also involves guarding against price erosion in the form of discounts and rebates. Robust sales processes and controls need to continue, but the big opportunities lie in measuring the value, analysing it and netting the right prices around that value. Products and services can be defined around those value features and value points.
Pricing projects do not always have to lead to a fully-fledged redesign of the price list. Throughout the project, the learning process for the organisation uncovers opportunities that are parked and assessed in terms of their ease of implementation versus their impact on the bottom line.Implementing some of these simple ideas can unleash a lot of energy around problems that have seemed insurmountable for years. The overall effect is that by combining a solid strategic approach with analytic rigour, revenue upside opportunities are real and significant. Additionally, some shows which have undergone value-based pricing overhauls have used this opportunity to implement key strategic changes such as floor flow changes, redesign of theme zones, that were good for the show in the long term. While this was done, a nine to 13 per cent revenue increase was attained. It is very difficult to argue against this change.
So, hopefully, we were able to dispel the notion that there is a lot of voodoo involved in value-based pricing. Giving it serious consideration has a lot of merit for these three simple reasons.
Firstly, pricing is the most powerful profit improvement lever. Secondly, measuring exhibitors’ preferences and implementing a value-based pricing strategy will increase customer satisfaction, retention and organiser’s yield. And finally, value-based pricing means the sales team, armed with knowledge and insight, will be given the opportunity to talk about values instead of prices; which we all know is a much better way in which to push your products.
Putting the theory into practice:
At first, implementing a change in pricing structures for a major trade fair can be a daunting challenge. Sales people rarely like significant change and exhibitors also might react in unexpected ways. There are timing issues to think about, key accounts must be closely managed and accounting has to get it right from day one.
An approach that can help overcome the initial awe can be summarised by a simple, neat phrase: “The best thing about the future is that it comes only one day at a time”. In other words, a step-by-step approach with some good planning will turn the organisation around. If given enough time (again, think good planning), capabilities previously thought of as unattainable can be reached, risks that were considered unmanageable can be mitigated.
There are many ways to move an organisation towards a more advanced pricing capability: workshops, coaching, process review and optimisation, establishing decision support systems, and many more. But for me, the success of the implementation was centred on training. The vast majority of our employees want to succeed, and want the trade fair to grow and be successful. By providing them with the proper pre-implementation training, we empower them to be effective at what they do and feel good and confident with clients.
A comparison of the old vs the new pricing scheme is critical. This enables the whole organisation to be anchored well around the key changes that they need to master in order to complete the transition to the new price list. Content was developed with this in mind highlighting some of the key benefits:
- The new choices and flexibility inherent in the new price list
- Methodologies and easy-to-follow examples of how the new booth price is calculated
- Entry, lower price headlines were helpful, and ‘easy-win’ sales processes were devised to ensure quick uptake by large numbers of exhibitors early in the sales cycle.
- Two key designs of the new price list were emphasised throughout: simplicity and improved transparency
For me the most important thing throughout the implementation was to keep close to our key project contributors and exhibitors. Two quotes I recall stand out for me. One of the sales staff who was not initially enthusiastic came to our show’s project manager and said: “Giving customers choices makes sales so much easier”. A day or two later, when I talked to a very loyal exhibitor, I was delighted to hear: “The new system is transparent and fairer to all exhibitors”.
By Anna Holzner.
This was first published in the Issue3/2012 edition of EW. Any comments? Email firstname.lastname@example.org