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Thursday, November 29, 2007

Cost, pricing and value

The Metro Toronto Convention Centre. Exhibitor parking is a bargain, but consider the cost of wireless Internet. Cost, pricing, value (and monopoly) all play roles here.

One thing I love and hate about trade shows is the objective lesson they provide that cost, pricing and value are really separate things, and that, when it comes down to the real world, value is in the eyes of the beholder (that is, the client). It is all about need, perception and sometimes monopoly.

Here are some examples.

We have excellent relationships with the Construct Canada show organizers and are able to offer them something they value -- promotional considerations. So, in exchange for some advertising, our booth is free. Great deal all around. No money changes hands but we both receive real value for a really good price -- zero. (The show also threw in free booth power and a carpet which would cost, if I had to pay, a few hundred dollars.)

The Metro Toronto Convention Centre offers exhibitors special multi-day parking passes at prices that are really low compared to anything you would usually find in downtown Toronto. And, because we arrive early, we get a great parking space near the entrance to the building, allowing us to load and unload our relatively small exhibit set-up conveniently. Great price and value.

Through Destination Toronto, the Hilton Toronto offers great rates. I have gold status with Hilton, meaning I receive free booze in the the "executive lounge" and free breakfast -- and more hotel stay credits -- great price, and value.

I found a bargain rental van at Enterprise, using a discount coupon on the Internet. For about $300, I have the van for a week, enough to haul myself and one of my employees to and from Toronto, along with our show stuff, saving shipping costs and wear and tear on my own car. Great price and value, again.

Compare these costs to:

I needed to 'borrow' one cheap table and two chairs for the show. Price: $220.00.

My breakfast might be free at the hotel, but if I wanted to bring a guest to the executive lounge, the fee would be $30. (Downstairs the cost for a simple breakfast is $26.00.)

For the special Toronto Construction Association "Christmas lunch" at the end of the show, I am paying for myself and my two employees at the show, $550.00.

My employees requested permission for reimbursement for a (small) round of drinks at the hotel bar last night, $82.00.

And, the best example, the Metro Toronto Convention Centre might charge $11 a day for parking, but if you want high speed Internet in the building, you can have the special "show rate" of $395 (for one computer hook-up).

How much does it really cost the convention centre to provide that high speed Internet? Does the lunch really cost -- for food and direct labour -- so much that you need to pay $175 a plate! And I think you could buy a table and two chairs (and own them forever) for a whole lot less than $220.00.

The clerk at the exhibitor services counter, where I signed away my $220, said, "Yes, they are expensive, but we provide convenience." I smiled, then made it clear that I understood she didn't set the pricing policy. I can't imagine her employer paying her $220 an hour. As for that expensive lunch, I've never paid for it before, but my salespeople set their own target goals and I could see they would reach them on the first day of the show. So the lunch is worth every cent of the $550 I am paying -- maybe more, if we meet some interesting people in the lunch area.

As for the high speed Internet, we don't absolutely need it, certainly not for our booth, so there is no need to pay the fee. But if your booth depended on the Internet to make the display effective, you'd pay, and I suppose the convention centre and its service providers indeed make a good profit (pricing their service at the level you might have had to reasonably pay when they would have had to run cabling direct to your booth at the show.)

Then there are the expense account expenses. Here, value and pricing of course depend on who is paying -- the employer or the employees. I advocate to my staff that we should all do our best to spend money as if it is our own; and lead by example. We don't have set limits or 'controls' on travel and entertainment costs (outside a key clause in employment contracts strictly limiting them without company approval, of course!) But as a rule, I advocate common sense.

For example, I discreetly invited one of my employees into the executive lounge on Tuesday night, and did not pay the $50 fee for his presence (but had him eat breakfast on his own downstairs the next morning.) We had an engaging conversation about value and pricing, as I explained to him why it is absolutely dangerous to start publicly offering "discounts' and announcing "save money by ordering now."

"If you do that sort of thing, you are inviting the client to think that they are not paying a fair price -- and you will be on a treadmill of either having dissatisfied customers, or, worse, a larger number seeking discounts," I said. "Our public promotional material should always be consistent, only offering price reductions for specific considerations, such as prompt payment."

I then explained how I apply our expense reimbursement policies for employee travel. "One trip, a couple of employees stayed at the cheapest hotel they could find -- it was a fleabag," I said. "So when they expensed a truly costly dinner, I didn't question their judgement." I hate hard and fast rules here -- though believe it is essential to build in controls and accountability for expense accounts and travel costs; so will delegate authority in these areas to someone well trusted only when our business is much larger.

In the end, the trade show costs are worthwhile if we receive value. Construct Canada is worth every cent because the networking and market development opportunities are so great (and with contra-trade, our costs are lower than most exhibitors). But $395 for wireless Internet. Give me a break!

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