Friday, September 26, 2014

How Impact Gets Exaggerated

When early during the last stop in my four-decade career in community marketing, we began to use input-output analysis to benchmark the impact of visitor-centered economic and cultural development, our organization was quickly asked for more.

The request was from Duke University asking us for visitation inputs to what has become a similar periodic computation of its impact on Durham, North Carolina, where I still live in retirement.

I remember initially having to go back and forth to explain why the University couldn’t just add up attendance at its various venues for sports, performing arts, museums and nature areas and trumpet it as generated by the University.

Airports similarly make mistakes on economic impact studies if they are not careful to net out the impact from residents and visitors not drawn just for the purpose of being at the airport such as people there to do business with the airport itself.

I explained that while the University did generate some of that activity, a good portion was from visitors here for other purposes who happened to also take in an event or feature at Duke.

Many are also the same visitors taking in more than one event or site and to merely tally them would be duplication.

This portion qualifies as “participation” in economic activity but not economic “value added.”  At the time, we settled on terming it “generated and participated in.”

But the same clarifications had to be made each year and possibly still do.

The same is true of destinations that might try to leverage more respect by aggregating attendance of all features.  Without an input-output analysis of spending, even if they remember that resident spending never qualifies as visitor impact, the gross numbers do not equal value added to the economy. 

Many of the attendees are the same visitors taking in different events while here for other purposes.  To lump them together may create a short term wow factor but it will also backfire and lesson credibility.

Research in Durham, for example, measures not only participation levels by visitors in various activities but the percentage of visitors for whom that was the main purpose versus the percentage taking in the activity on a trip for another purposes.

For example, the latter represents a third of performing arts attendance, 40% of shoppers, 20% attending sports events and 60% of those attending festivals overall.  This is even true of those attending conventions and meetings.

Organizations are under a lot of pressure from governing boards and sponsors to justify their efforts.  But rather than gloss over these distinctions, it is better to educate these overseers on the following:

  • Drawing visitation is in part a collective effort.
  • A part of that effort is the community’s overarching marketing both to lower barriers to visitation, get on the list for future consideration and generate circulation.
  • It is smart to cross promote and also go after low-hanging fruit, such as visitors here for other purposes including visiting friends and relatives.
  • When non-residents are hired or sponsors and vendors from out of town used, it subtracts from economic impact as leakage.   It also undermines organizations that provide underwriting from taxpayers.

For example, local officials are often perplexed when they see cars from out of town dealers displayed in front of city-owned facilities because they know the sales tax on vehicles sold here represents a significant amount of sales tax revenue used to provide local services.

I’ve tried to smooth this over by explaining that this is one of the results when 75% of attendance at these facilities are visitors, which is a good thing.

It is natural for out of town dealers to buy up sponsorships because they are trying to reach the visitors attending the event.

Local dealers aren’t interested because only 25% are residents.  They aren’t interested in the visitors because contrary to what purveyors of advertising on or in news outlets want us to believe, people rarely commute to by cars.

Still, officials also have a point.  It signals to resident taxpayers that the facilities and events that do this aren’t very loyal.  It undermines support for future facilities, even the so-called “back end” incentives to spur developments.

Those negotiating the latter often fail to stipulate behaviors that will leverage more economic bang for the buck, such as using local vendors or jawboning the importance of hiring locally or making sure new hires relocate here.

Durham’s marketing agency is considered a best practice now by accreditation standards, in part because it not only employs input-output metrics but it has learned to do them for local facilities and events.

In reports such as the one recently published and shown in the image above, the agency gives examples of leakage as well as creates a chart that breaks down why communities that fail to take this factor into account are also guilty of grossing up impact.

For example, Durham visitation creates nearly a billion dollars in spending but only $766 million is spent here in Durham.  But because of leakage such as using out of town vendors, employing non-residents and visitors misdirected while they are here only $560 million is “value-added” to the Durham economy.

In other words, local business practices, if tweaked, could result in another $200 million for the local business climate and a percentage increase in local tax revenues generated from visitors alone.

Policy makers in Durham are taking heed, although they may need to talk to American Tobacco a little bit.  Even just a little jawboning can be very rewarding.

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