Does the exhibitions industry engage in price shrouding? CloserStill and Nineteen Group chairman Phil Soar details the evidence.
If you haven’t been following the ‘Snickers war’ you should. In this case, it is not a mass protest about Mars changing the name of the UK Marathon Bar to its US name, Snickers. This one is real political theatre.
Joe Biden used his recent State of the Union speech to claim that a Snickers bar has shrunk – a dastardly plot by the confectionery company, Mars to disguise a real price increase.
Mars immediately denied the claim. My research at a US gas station suggests Mars is right.
The objective of Biden’s strange chocolate reference was to side with the common man (the common Snickers eater, one assumes) against big business, the evils of “price gouging” and the tidal wave of “shrinkflation”.
I credit Gillan Tett of the Financial Times for bringing this to my attention. The FT and The Economist are a constant source of ideas about financial trends which have applications to our world.
Is an ‘all-in’ price more attractive?
There is much anecdotal evidence to suggest that buyers are not demotivated by price shrouding. If you like a Cadbury’s (now Kraft) chocolate bar, the fact that it is palpably smaller is unlikely to put you off.
Shrouding can help a seller. One example is mortgage brokers. They can quote a mortgage mentioning, in some detail, their fees and separating capital and interest payments monthly or annually. Or they can say: “£xxx per month” and the simpler, but shrouded, quote appears to be the more attractive.
This also reflects the inability of many buyers to compute all of the information involved and a general lack of mathematical competence. Academic papers have concluded that buyers often prefer simplified (i.e. non-explanatory) but sometimes higher pricing structures because they believe them to be more transparent.
Meanwhile, a price that spells out the cost of all the extras takes more work to absorb. In our own world, many argue that the: “This stand costs £6,000 including shell, carpet, electrics, tables, wastage, shipping etc etc etc” is a more easily accepted proposition than the arguably lesser cost of £499 per sqm. (I’d like to see some research on this – it is an important issue).
Where else is the dreaded ‘shrouding’ seen?
Tett’s recent article about pricing, inflation and cost perception comes under the relatively new word “shrouding”. This is all about how real costs are hidden from consumers and how invisible add-ons cause the “real” price to be much higher than the “published” cost.
There are some obvious examples most of us will have come across. The packaging of toothpaste and cornflakes in the same size boxes but with less real “stuff” in them than, say, six years ago is one.
While Snickers may be innocent on this occasion, confectionary is particularly guilty – all kinds of chocolate bars are palpably smaller year-on-year.
In cases where production lines cannot be easily changed – Easter Eggs are a good example – the price rises can be spectacular. The same chocolate eggs were up around 50% this Easter.
Other examples are airlines and hotels. The Ryanair approach of just giving the base price (“Fly anywhere for £29”) is now so well-known as to barely be deceptive. Extra costs for luggage, for choosing a seat, airport passenger tax, and even £50 for printing a ticket rather than using an iPhone can easily treble the headline price. Governments are trying to make airlines cover all these points in their advertising – but comparison sites can throw so much extra detail at a buyer that any good intentions may be lost.
Hotels, razor blades and car hire
Hotels are a little more subtle. On booking sites, there appears deliberate confusion with a string of offers – one queen bed, twins, with or without breakfast, so many square metres, discount to pay in advance, all of which might lead the buyer away from the cheapest.
Then there are the extras such as (in the US) sales tax, plus the local “hotel tax” and quite often a random service charge which was never been mentioned. The result is almost invariably a bill which is at least 25% higher than the price (“From $xxx”) first advertised.
Then there are the “hidden” truths with many consumer goods – cheap printers where the profit is all in the replacement cartridges, razors where new blades are the real (but not immediate) cost and the razor itself just a come-on. Hertz has just added a “convenience fee” to its rentals if there is a Toll Charge – who knows what it means, but $20 on a company credit card $300 booking is easily lost.
Are we guilty of shrouding?
So might we be guilty of these hidden manoeuvres?
Let’s look at the simplest of all our propositions – a sqm of space.
This is very much the norm – next year’s show at £499 per sqm. Or, in some cases, an equivalent “cost per stand” – so stand B14 (which happens to be six sqm) goes for £3,000.
But is this the end of the matter? I’ve looked at several contracts for space from our larger companies (I won’t name them but they are all broadly comparable).
- There might be a “Web Marketing” fee – perhaps £250
- There used often to be a “Catalogue Entry Fee” – say £100
- And then one often sees a “Registration Fee” – say £200 (to be fair almost every sort of event and service does this now – a “facilities” or “booking” fee)
- Then there is the Insurance Package – say £150 (exhibitors have to have this – they can arrange their own – it is still an extra cost whoever does it)
- And maybe “Corners” at £50 a time (much more common in the USA)
- And then some of our companies will charge extra for a position – usually nearer the front.
- And then there might be “Digital and Data Charges” – extra if you want a curated database of the visitors you need to meet………..
- And then, perhaps, a “One to One” charge (£1,000 has been used in the UK recently) for the organiser to set up for you to meet say a dozen ideal customers
Okay, so no company seeks to charge all of these “extras” – they would cost perhaps £1,800 if they did – an extra 60% on a £3,000 space charge.
But if we took just the three smallest of these costs, then the charge would be another £350, or an extra 12% on a six sqm stand.
So the actual invoice to our exhibitor would be £2,994 + £350 + VAT = which equals £4,013 (exhibitors pay little attention to VAT, but many cannot charge it back such as schools, charities, many public bodies and some international clients). That’s 33% above the apparent initial charge.
Of course, for a company booking 24sqm, the £350 is far less as a percentage – being just 3% and hence rather apparent or significant.
Are VIP tickets part of shrouding?
Consumer shows have similar approaches to exhibitor pricing, but there are also areas when visitors might pay more.
One useful area, though it is not strictly a hidden cost, is a VIP ticket. This is an interesting phenomenon. There are always people who will pay the most expensive price for anything as a matter of principle – so adding a £100 VIP ticket is not as silly as it might sound.
A surprising number of visitors will pay that for a separate entrance, for a special lounge, for a cup of coffee and a chance to meet speakers and “stars”. We see the same effect at concerts – it is often possible to charge £1,000 for the first four rows – and they sell out before the rest. Or the First-Class effect on airlines. The back generally arrives at the same time as the front, but there are enough people who will insist on paying the highest price.
Thinking about venues and their context
The context here is enormously important.
Exhibition tenancies generate the bulk of the revenue for centres such as NEC or ExCeL (this is not just rental fees but ancillaries like car parking, food etc). There are, of course other sources of income such as conferences and examination spaces.
But, to be blunt, venues are largely operating in a slowly but consistently declining market. We are talking about square metres booked and visitors to exhibitions (who don’t pay the venue per se, but buy food, drink and car parking). Though a somewhat crude generalisation, our business is largely about selling square metres of concrete.
In terms of sold net square metres, the UK exhibition market has been declining at a rate of 0.7% per annum for the past quarter-century (since 1998). This rate accelerated after the financial crash of 2008, and the rate of decline since then has been 1.1% per annum. The same is true for gross square metres paid for.
In terms of visitors, and presumably also for what they spend on food etc, in the last 25 years total numbers at UK shows have declined by an average of 1.6% per annum.
This is NOT revenue, which increases with inflation and whatever price rises are generated, but it tells us that the underlying business value driver of venues is in decline. And, unlike many businesses, they cannot go out and demand that Spring Fair or Installer gets bigger next year, or they will be replaced by something which can.
One can argue that these trends may be reversed, but that would seem optimistic in the medium term. As the Institute of Fiscal Studies said recently: “Taxes are at record levels in the UK. Public services are showing visible signs of strain and are………performing less well than in 2010. Further tax rises and cuts in public services are built into current forecasts………….”
But anything may happen……..
How do venues add or shroud extra charges?
Here are just some of the ways that the basic rack-rate for space can be increased by additional venue charges.
- Security – this is usually a tied service and has to be paid
- Catering – the venue takes most of this. If a client wants catering (such as a champagne bar), then the venue charges a considerable additional fee – not unlike corkage charges in restaurants. Restaurant and bar costs for visitors can be contentious as the visitor has nowhere else to go – though I have to say that the NEC, in particular, has never seemed unreasonable.
- Cleaning and waste – this is an obligatory charge and is usually open-ended
- Banners- rigging charges for installations – this can be as high as £5,000 for installing a single banner
- Storage – necessary and a tied service.
- Screens on-site – a particularly sensitive subject. Major screens at the entrance from tube lines can cost £40,000, and the big screens at the venue entrance can cost £20,000.
- Wi-Fi/internet access – there is usually basic Wi-Fi, but to get enhanced Wi-Fi in the hall there are extra charges, which are hard to justify.
- Car parking – this is a big one because it isn’t obvious. Many organisers pay much of the car parking for their customers, but when they don’t high car parking charges could ultimately keep customers away. If a venue has (say) 2,000 cars a day and charges £20, and is open for 300 days a year – that is £12 million in what is a “marginal” income source.
In general, ops teams tell me that these charges will add around 33% to an average tenancy cost and that they spend far more time debating ancillary charges than the actual cost of the space.
The future – charging trade show visitors?
I want to stress that I am not criticising venues for making these charges. Just as organisers charge for “inspection” or “registration”, venues are not a charity and they need to find ways of covering their costs. And a far higher proportion of a venue’s costs are fixed and unavoidable than are the costs of an organiser.
This is particularly true in a situation where the customer base of venues (basically the purchase of square metres) is in long-term decline and it is not obvious how the venues can reverse this trend.
I do not see the trend towards “add-ons” by both organisers and venues reversing. Indeed, it seems likely that there will be an acceleration. If I were to try to make a single prediction, it would be charging visitors at trade shows. This would be part of the registration process as walk-ups slowly disappear. Venues might do the same – asking organisers to pay a “footfall fee” for every attendee.
Call me in 2028 to see if my crystal ball is working.
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