Friday, August 12, 2011

Beware of Lost Business to Justify New or Larger Facilities

I am amazed at the number of community/destination marketing (DMO) executives across the nation who still push for newer or larger facilities based on data from flawed “lost-business” reports, even though this rationale has long been discredited.

This obsession almost always indicates that a DMO is operating in a long-outmoded sales mentality at the expense of more holistic marketing. Ironically, it also means the DMO may be ignorant of and/or simply failing to grasp the pivotal difference between traditional economic development (often known as smoke stack chasing or big game hunting) and visitor-centric economic and cultural development.

The traditional approach is supply driven. The visitor centric approach of DMOs is demand driven.

The former pursues facilities and organizations that may hopefully generate demand but, unfortunately, these have been shown recently to displace almost as much.

The latter focuses on generating visitation demand that will make existing facilities sustainable and improve the market-driven feasibility for future facilities.

Most often lost-business reports are cited in relationship to convention facilities and increasingly of late to sports facilities.

To understand why they can be misleading, let me use conventions and meetings as an example, but a similar analysis applies to sports events as well.

There are roughly 1 million conventions and meetings held each year in the USA give or take. The market has fallen back to the mid-2000s level because of the great recession and isn’t projected to surpass those levels again until 2012 or later.

However, only 1% of these are the major conventions so many DMOs obsess over. Each region of the nation is eligible for roughly a quarter of these or a couple of thousand meetings each year. They average about 1,000 room nights per day and a quarter of these events use convention centers. Far too many DMOs are fighting over this small 1% slice.

Far too few DMOs go after the 17 or 18 times larger segment of other association meetings which are much more manageable and can be fit into periods where visitation is needed without displacing other types of visitation. Still fewer DMOs focus as well on the 80 times larger corporate meetings market.

Community and business leaders must be aware of the market when evaluating a DMOs use of “lost-business” as a rationale for expanding or building facilities. Much too often the reasons why business is being lost can be determined by examining the following circumstances:

  • A DMO may be poorly prospecting and pre-qualifying the groups it pursues. A dead give-away to poor targeting is if the DMO is still offering or providing underwriting subsidies or giving kick-backs in order to land groups. It means they are focused on a much to thin slice of the market.

  • A DMO may be neglecting to make sure the needs-periods are based on surveys of local public and private facilities not just speculation or conventional wisdom or ego. Business lost because the DMO is pursuing groups that are too large for existing facilities or during periods when availability is low due to other visitor markets is not really “lost-business.”

  • Also check to make sure the DMO is monitoring its fair share of each potential visitor market including but not exclusively the 10-15% related to conventions, meetings and sports events and comparing it against stringently defined competitor sets which include comparable nearby communities.

  • Make certain the DMO isn’t still using the gross economic impact of groups instead of the more relevant net-value-added impact on the entire business climate, not just hotels, and also in terms of the return in local tax revenues on investment in public facilities and infrastructure.

  • Make certain the DMO is not only staying current with but voluntarily circulating third-party analysis of mega-conventions and sports events to local stakeholders, officials and news media, especially those that reveal fallacies about mega-groups. Good economic development is rarely about ego.

  • Make certain the DMO isn’t attributing lost business to a particular facility without first factoring in competition within the overall community, public and private. Lost-business needs to be lost to the community as a whole not just a particular facility or district.

  • Beware of DMOs promoting the need for new or larger facilities on the premise that they will in turn generate construction of surrounding facilities. Facilities rarely if ever spawn other facilities and regardless, even when they might, there are much less expensive ways to do so, such as generating demand for existing facilities.

Contemporary, best practice DMO’s stay focused on and calibrated to generating demand to fill existing capacity rather the antiquated sales-driven lobbying to increase the supply of facilities. The market will signal when expansion is needed.

More often than not, a DMO crying for newer or larger facilities is failing to focus on fair market share, filling needs-periods and good prospecting.

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