In-House Exclusivity and Value Proposition

At the risk of winding everyone up (or perhaps because it will), I want shed some light on the current discussions regarding exclusivity clauses and fees designed to keep revenue and control of various services with the hosting venue. I see failure on all sides of the issue to make a compelling case for their cause.

Let me make it clear, I am not on any side in this discussion other than I feel that many folks are too emotionally vested to give the issue a proper airing. For the uninitiated, here is an oversimplification of the discussion:

Hotels and Convention Centers are destinations for meetings and events. As such they provide Meeting Services, which include meeting room space, tables and chairs, banquet services, catering, audio-visual tools and service, access to electrical and internet, and a ton of other things required to help a meeting planner put on an event – not to mention hotel rooms. Hotels and Convention Centers often compete with locations that have fewer services such as Special Event Centers, Ballrooms, clubs, and entertainment venues. When audiovisual technology was simpler, a hotel could maintain its own sound systems and the few meeting accessories needed for the average event. What they found was that as events grew, they needed a dedicated staff and often required an expanded inventory to support events. This was a great opportunity for outside AV providers to offer those services in exchange for a revenue-sharing or commission agreement. The AV company provided the expertise, equipment, and personnel to support the technology needs of these events. The venue provided a steady stream of customers and a little closet to work from. As competition with AV providers for these contracts increased, the venues enjoyed better and better financial splits. At the same time, venues began to have trouble repaying building loans (remember the real estate bubbles?) and sought additional revenue streams. This in turn lead to new third-party services for things like business centers, electrical, rigging, and temporary labor. When clients would try to bring in their own vendors for services as they would in any secondary venue (special event centers, entertainment venues, etc…) the Hotel and Convention Centers invented contract clauses that imposed penalties for outside suppliers. Corkage fees, if you will. When these fees failed to deter clients, the next step was stricter exclusivity clauses that simple forbade outside providers. Some Meeting Planners, particularly large buyers, could negotiate these clauses out of the contract. For the right number of room nights, a large food and beverage commitment, and a multi-year contract – exclusivity is much less of an issue. What remains is that the small and mid-sized projects that are bread and butter to outside AV companies have become harder to win when the job is in a hotel.

The above is factual albeit incomplete. The current discussions on this situation is full of anecdotal evidence that the system is broken. The fees that some hotels or convention centers charge for exclusive services can sometimes seem exorbitant, particularly when that fee might be passed on to an outside service provider. For instance, an outside lighting company might provide a lighting system for $15,000 (assume this is a fair market price) vs the hotel’s price of $30,000 (roughly half the revenue is paid to the hotel and half to the in-house AV company). However, if the client chooses the outside vendor, then either the client or the vendor will have to pay for access to rigging and electrical services that are arguably part of the building’s infrastructure and include considerable liability. If those fees amount to $20,000, then using the outside lighting company now costs more than using the in-house services. Game over – in most cases.

More Perspective

To get a better sense of the dialogue and how frustrating this has become on the supplier side, read my blog piece from a couple of years ago.

For a great multi-view dialogue, see this Linkedin thread, which appears in the Group Productions, Stage, Shows and Events. You may have to join the group to see the thread.

There is a very well-worded position paper written by ESCA, Exhibit Services and Contractors Association titled Freedom of Choice. Basically this outlines how this topic affects buyers (eg: meeting planners). While the article you are reading focuses on the supplier side, I think it is very important for everyone to understand the buyer’s point of view.

And, what would this discussion be without an entertaining video?

 

Three Sides to the Issue

There are many reasons why a meeting planner or event producer would want to work with an outside supplier: experience, expertise, or long-time relationships to name a few. Likewise, there are reasons that an in-house provider is often a better choice: on-site service, knowledge of the venue, and equipment tailored for the space are all valuable qualities (plus they tend to dress better). In addition, there are many good arguments why a venue would want to limit access to its facility: security, control of service levels, compliance with house rules, liability, not to mention – profit. All three sides know all of these reasons and many more. There is no point in going negative here, but both in-house and outside providers can cite heinous breaches in service, expertise, and outcomes brought on by the opposing side. Gouging, ineptitude, and general silliness are mutually attributed and sadly, symptomatic. Venue owners may appear greedy, but feel they are simply exercising their rights to control their own space. Plus, they can cite damage to their building, brand, and security from letting in outside vendors. Outside suppliers cite fairness issues, but there is nothing illegal or abnormal about a building owner or operator controlling how a space is utilized. In-house services may not be as skilled or capable as some outside suppliers, but being average is not a crime either. Everyone has stories. The frustration levels are palpable. And, the situation is not going to change in the near future, which is WHY all sides need to do a better job of managing their own roles and quit complaining about what everyone else is doing.

Unsolicited Advice

To that end, I want to share some advice. Let me preface this by saying that I do not see much hope of a return to the friendly relationships local AV companies used to have with the big in-house AV companies. Yes, AV has become big business and little business always seems to lose when going up against the big guys. Sorry, can’t fix that one. However, all the parties seem to be hurting themselves and missing an opportunity or two in the process.

Dear Venues,

I don’t envy your business model. Not my cup of tea. However, you need to pay for that building that no one wants to buy from you. I get that. This is better than another mortgage loan debacle in which we citizens have to foot the bill. So, good for you for making it work. Now, about your tenant the Hotel (or maybe you are the operator?):

  • Be good citizens: Local businesses are the lifeblood of your community. Your reputation is often built by what locals say about you. Local AV Companies can be your ally. And one day when you run your in-house provider out of the hotel for whatever reason, one of those locals might come to your rescue.
  • Be consistent: When I stay at a hotel, I don’t get a surcharge for eating at an outside restaurant or bringing the food back to my room. You have factored profit into my room rate and seem satisfied with that and my repeat business. Maybe you should build profit into your meeting room rates?
  • Sell better, Sell differently. It appears that how you sell meeting services is tailored to the objections you receive from meeting planners? Perhaps you should change to a value-based selling proposition and retrain sales staff to turn objections into new opportunities? Otherwise, this is looking a lot like a bait and switch scheme: get the meeting planner to commit to the space that meets their needs with room nights at an apparently reasonable rate, then charge retail for every thing else that is decided later on. Of the three parties in this discussion, the venue has the best opportunity, most resources, and most potential upside for mitigating this argument.

PS- I know AV revenue is a rounding error for you. However, it is profit, so it would make the rest of us feel better if you would spend some of that money on faster internet in the guest rooms. Netflix. Just saying.

Dear In-House Suppliers:

I do know your business model and I generally like it. Low capital investment huge potential upside. Shame you have to take on unprofitable properties in order to get the good ones. Still, you have it pretty good these days. After three decades the venues are finally on your side. In the big scheme of things, it looks like you are winning. But, too much of a good thing and you could get a big head.

  • Be Classy: Most of you are, but some folks spar with outside providers. I don’t expect the chef at the hotel to argue with the chef at the restaurant across the street about whose food is better. You represent a classy hotel or convention center so you can afford to rise above the fray a bit.
  • Know Your Limitations: This may not speak to your business model, but let’s face it – most in-house AV companies have limited resources and expertise when comes to complex projects. Back in the day when in-house AV companies had full service city offices, you could make the claim that you are as good as the local AV Staging company because you were one. Yes, I know your parent company can pull off a huge event if they set their mind to it. That doesn’t mean you can, and that’s OK. Most of your local AV “competitors” are frequently in over their heads too.
  • Respect Relationships: If your client has an existing relationship with a supplier, then your job is to build your own rapport with the client, not tear someone else’s down.
  • Apply The Rules, but Be Nice About It: You can’t have your cake and eat it too. (Yes Officer, I was speeding. Will that be the standard lecture and warning or will that be a ticket? Both? No, unfair!) The rules are there to protect your business and provide consequences otherwise. If the client chooses to pay fees and follow the rules in exchange for bringing in an outside supplier, then that supplier is also your client. I am a keynote speaker and technically, I guess the hotel can decide that they have to provide all keynote speakers or charge a corkage fee if the client brings me in. Does that mean I will be treated like a pariah when I show up at the hotel for my engagement? Think this through from your customer’s point of view.

Dear Outside Suppliers:

I know you are getting pressure from all sides and it is hurting your bottom line. You think your business model has become commoditized, but really it has simply become transparent. Right now it seems that the pendulum has swung towards the venues and their partners. Place blame where you will, but that won’t change anything. The good news is that this situation is cyclical. Don’t expect the wild west days to come back again, though. However, there’s hope that a middle road will return if you are patient and smart. In the meantime…

  • Be Classy: As Mom always said, it takes two to fight. Remember, your argument has always rightfully been that comparing your product to in-house is an apples to oranges comparison. An apple can’t blame an orange for being an orange. In my opinion, sticking to the facts will play better for you in the long run. The client needs to choose. Your job is to educate them.
  • Quit Blaming, Start Solving: This issue is not going away. What have you done to sell differently? It seems to me that outside providers need to make the business case for their clients to utilize them instead of in-house. Do some math. Add up the corkage fees and venue-required services and your costs. Does it still make sense for the client? If not, it certainly isn’t the venue’s fault.
  • It’s All Arbitrary. Get Over It: I agree that the rules, clauses, and fees make no sense in many cases. Sometimes the in-house AV guys came up with the rules and sometimes it was the hotel. They are business partners and you are an outsider. You are not supposed to understand it. And hey, your pricing is arbitrary too (I should know!).
  • Update Your Business Model: C’mon guys! Of the three parties here you are the only one trying to protect an 1990’s status quo. Business has changed; change with it! Perhaps you are no longer a good choice for small meetings that take place in hotels? If that statement were true, how would you live your life differently? Might be time to think about that! Maybe you should start making money on service and manage projects for your clients instead of just trying to rent gear? Seems like a great opportunity to inject an expert into the system to support meeting planner clients that need to use in-house AV companies. One thing I do know, you are very qualified to help your customers! Do it.

At the end of the day…this is really all about differentiation and value proposition. Customers decide which value is best for them. You have maybe one or two chances to promote your position, but that’s about it. Don’t waste the opportunity. Spin a positive light for your services, don’t tear others down, and connect it back to a win for the customer. Now, shake hands and say you’re sorry. Mom’s watching.

Tom Stimson, MBA, CTS, is president of Stimson Group LLC, a Dallas-based management consulting firm specializing in strategy, process improvement, and market research for the Audiovisual Industry. Tom is a Past-President of InfoComm International and a current member of InfoComm’s Adjunct Faculty. 

 

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