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April 16, 2008

Elling Hamso:Time to shift marketing objectives away from short-term gains

Two speakers at Confex this year made my ears prick up. First it was Peter Rand, now director of industry relations with Zibrant, to whom he sold his event management and venue finding agency last year. By his own acclaim, Peter more or less gave birth to the concept of commission-based venue finding in the UK more than 30 years ago. Rand would find your most suitable meeting venue at absolutely no charge, being paid instead a commission by the venue. At Confex he confessed to his sins, having long since recognised that the commission-based business model is flawed, to say the least. As his penance he now encouraged agencies and their customers to make agreements where the customer pays for the services performed by the agency, or better still, the agency is rewarded by performance or results.

The second speaker to catch my attention was Nigel Cooper of P&MM and Eventia chairman. More than 50% of P&MM’s client agreements, he said, include a performance incentive. In other words, the better the event return on investment (ROI), the more P&MM would get paid for the work to plan and execute the project. More than half, that’s astounding! We really have come a long way from commission-based business models, it seems.

What’s wrong with commissions?
But whereas industry leaders like Peter and Nigel clearly recognise that transparent and incentivised business models is the path to better results for both parties, our industry is still riddled with commissions.

Why are commissions so bad? Lots of customers seem to be very happy to have the services they buy paid for by someone else? Commissions are so bad because they define a win-loose relationship between supplier and customer. The higher the price paid by the customer, the greater the value of the commission as a percentage of the price.

Customers need to reduce prices, preferably getting more value for less money by better and smarter event management. To succeed, the help and support of suppliers is a must. They have to be on your team and provide you with all their special skills and resources in order to continuously improve event ROI. How can you honestly expect them to do that if every time they do better, reducing costs and improving value, you punish them even more?

Alignment magic
The litmus test for any commercial relationship is whether objectives are aligned. If what is good for me is good for you and what is bad for me is bad for you, then you can start developing a symbiotic relationship.

As soon as what we may call a value-based incentive contract is in place, a certain magic starts to unfold. Because it makes good commercial sense for the supplier to provide better value at lower cost, he will incessantly search for opportunities to do just that. You need fewer resources to police supplier performance, making sure they deliver their promise according to contract. Cutting corners to make more money for themselves, is no longer a supplier option. Instead, suppliers will be seeking to cut costs where it does not really matter and spend more where a disproportionate increase in value may be achieved.

Moving the goalposts
To align objectives, you have to know what the objectives are, and how to measure success. What you measure improves, what you cannot measure you cannot manage, and probably should not be doing in the first place. This is the second dose of magic; you simply have to figure out what your objectives really are, in detail, communicate them to your suppliers and develop the measurement tools.

You always want more, more for less, that is how the world moves forward. To be best you need the best team. You don’t need the cheapest bidder, you need suppliers who have world record-breaking potential, the competence, smartness, ambition and relentless drive to always do something better next time. Don’t negotiate price, negotiate goals and incentives. Nothing should make you happier than good supplier profits earned from record-breaking performance.

Outsourcing for profit

Unless your core business is the planning and execution of world class meetings, you are not going to break world records. Why then, is there a widespread reluctance to outsource meeting planning to those whose core business it is to do it better than everyone else? Maybe you are afraid to loose control, or you believe that supplier profits could be your cost saving, or you don’t want to invest in the long term relationship needed to understand your business because next year’s cheapest bidder could be someone else.

This is the third dose of the supply chain magic. Because you have alignment of objectives and performance is rewarded against clear and measurable goals, control is much less of an issue, transparency is no longer an issue because there is nothing to hide, and there is no need to begrudge suppliers their profits because they are not earned at your expense.

Procurement on the team
If you are lucky enough to have a procurement department taking an interest in your meetings and events, their skills and experiences will be invaluable in setting up value-based incentive agreements where objectives are aligned. This is what they learn at business school; this is state-of-the-art good procurement practice.

You think this sounds a bit like a fairy tale, with the magic and all that? It is not. It works. But it takes courage, time and commitment. You have to show trust in your customers or suppliers, expose your weaknesses, develop measurable objectives and a scorecard for continuous improvement.

Elling Hamso is a meeting management consultant and managing partner of the European Event ROI Institue.

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