ufi open seminar in europe 2010 - budapest - jochen witt
DESCRIPTION
Innovative pricing strategies in the trade fair industry by: Jochen Witt, CEO, JWC, Cologne, GermanyTRANSCRIPT
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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What measures are most efficient?
Example for the influence of different levers
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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What measures are most efficient?
Example for the influence of different levers
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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What measures are most efficient?
Example for the influence of different levers
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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What measures are most efficient?
Example for the influence of different levers
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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What measures are most efficient?
Example for the influence of different levers
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
Key Pricing ToolKey Pricing Tool
• 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
Low margin High margin
PRODUCT
iPhone High‐endNokia
Low‐endNokia
Low margin High margin
* Simplified dependency
Force certain groups of exhibitors to purchase bundles
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Shopping Malls
L i i h diff
Parallels to Trade Fair IndustryParallels to Trade Fair Industry
• Locations with different visitor frequency and infrastructure qualityinfrastructure quality
Key Pricing ToolKey Pricing Tool
• 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
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
Ease of access from a main entrance
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
Parallels to Trade Fair IndustryParallels to Trade Fair Industry
contacts determine the attractiveness of the medium for advertisers
• Location of the ad
Key Pricing ToolKey Pricing Tool
• 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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