Cost and Revenue: New ideas imply new business models. Can we apply creativity to rethink the way we produce revenue?
There is enormous disruption affecting the destination marketing industry. Over the past six months, the Destination Think! team has invested a significant amount of time conducting research on these challenges. Through an extensive series of interviews with more than 50 of the world’s leading destination marketers, we have compiled the most important challenges and the most exciting opportunities that they see for their destinations.
Almost everyone we talked to is struggling to find the right organizational strategy, structure and business model to deal with some major disruptions. We have observed four key observations that impact destination marketing organizations (DMOs) now and in the future. These observations have been grouped under “Four Critical Trends Impacting Destination Marketing Leadership in 2016”:
1. Profit and Planet – A new way of thinking about the supply chain. Can we see problems as solutions?
2. Cost and Revenue – New ideas imply new business models. Can we apply creativity to rethink the way we produce revenue?
3. Product and Promotion – Develop what you promote and promote what you develop. Are you equipped to create experiences?
4. Community and Collaboration – People, not product, are your most important assets. Can you market a destination and attract visitors without engaging residents?
This is a four-part series outlining these trends. In Part 2, we’ll discuss Cost and Revenue.
Without new approaches to managing costs and revenues, and corresponding measurement tools, the future of destination marketing is fragile. Most DMOs are reliant primarily on government funding arrangements. This model is volatile and poses a risk for meaningful strategic planning. The destination marketing leaders that we spoke to on this topic from around the world identified a number of topics that are of growing concern as they plan for the future. These include:
- the need to seek out alternative funding models and new opportunities in order to secure budget and create long-term strategies
- tourism tax, levies and assessment opportunities
- making the best use of big data and new measurement capabilities in order to prove relevancy and return on the potential for investment
- how crowdfunding can play a part in tourism revenue
- shifting away from a reliance on government funding models
- collaborating with industry, and new stakeholder partners
- communicating value to stakeholders, government and residents
From the discussions we had with destination marketing leaders around the world, these key questions came up repeatedly: Are there alternatives that offer a stable, long-term funding model? Some DMOs are entirely funded by industry, and yet product and buying patterns are changing. Where does revenue come from in an economy fragmented by companies like Airbnb? What can be done to secure future revenue? How do we measure the economic impact of our marketing? How can we help stakeholders understand the relevancy of tourism boards and justify their investments?
There are a myriad of ways that destination marketing organizations around the world are funded – from direct funding from government, to tourism destination marketing funds to membership, grant and mixed models of all sizes and shapes.
Many DMOs receive funding from hotel levies or taxes. In these situations, DMOs are largely accountable for driving the number of room nights. This can lead to an imbalance as more hotels appear and new products or experiences don’t.
The new marketing environment and economic landscape often requires a new way of thinking about funding, and how DMO efforts are measured. Budgets can be slashed, cancelled or worse: the organization may be folded up entirely. The risk of stakeholders asking whether they even need a DMO is very real.
So how do you convey the value of destination marketing investments and what can we learn from innovators? Many destinations around the world are attacking this concern head-on via creative solutions.
Up against widespread economic challenges, Visit California understood that it wouldn’t be able to increase its tourism marketing budget through legislation, so it directly approached the industry – hotels, restaurants, attractions and car rental companies who had previously operated outside its stakeholder group – and successfully lobbied to have new assessments added, in exchange for more tourism marketing initiatives and proof that the DMO could grow visitation and revenue. The vote passed with 75% support and the new “Dream Big Dividend” doubled Visit California’s budget to $100million.
Brand USA takes a different approach. For example, tourism operators can place the Brand USA logo on their website, which is valued based on information including market, visitation and volume supplied by the operators to Brand USA. They then receive matched funding that comes from fees paid by international travellers. In addition to uniting the industry, this approach provides new funding revenue that is dispersed throughout the industry, in exchange for aligning behind one national brand. Most importantly, this benefits the consumer through a consistent experience.
In Margaret River, a growing tourism destination in southwestern Australia, the Margaret River Busselton Tourism Association (MRBTA) has a unique approach to funding. The DMO – an association of 700 stakeholders – owns and operates six major attractions and manages the ground handling at its Busselton airport. The profit generated from these businesses fund destination marketing activities and visitor services.
In Europe, which relies more heavily on the grant model, destinations are coming under increasing funding pressure, while others are subject to additional scrutiny on the impact of their investments. Destinations are looking for new ways to measure their impact, and quantify and prove the return on their investments.
Destinations at both DMO and government level have felt the pinch when these grants aren’t forthcoming. On one hand, there’s less money that is being funnelled to destination marketing organizations, and on the other, destinations receive less income that comes in as a result of tourism revenue.
Some destinations, including Sørlandet, Norway with its Arena Usus network and VisitFlanders with its World War I Remembrance program, have started to rethink the answer to the question of “What is tourism?” in order to identify creative funding opportunities, and extend their efforts to new partners including sports, culture and heritage departments.
Other locations, we learned, are making great strides by applying new assessments and tourism taxes. Rome, Italy doubled its tourism tax in 2014 to €7 per person, per night, while Barcelona recently announced it was considering adding a tourism tax for “day trippers” who don’t stay overnight. For cities where the demand is high, raising tourism taxes appears to be a good mechanism to use.
There are hybrid models that encourage collaboration, too. The Netherlands Bureau of Tourism & Conventions (NBTC) is funded by a Public-Private Partnership model in which funds come from public partners (including the Ministry of Economic Affairs), as well as provincial and municipal governments, marketing organizations and businesses within the travel and tourism sectors. At Switzerland Tourism, their partnership model is divvied up into different categories including institutional partners, strategic, strategic “premium” and official partners, as well as members. Once again necessity becomes the mother of invention.
It follows, then, that measurement and proving relevancy becomes fundamental to the discussion, and this was a topic weighing on the minds of many destination leaders. How do DMOs demonstrate success so that the money they collect so diligently is effectively spent? Here are two critical corporate metrics.
From our research, it’s clear that destinations are reaching a point where they are feeling pressure to evolve their business models. Leadership must create and explore new funding models that mitigate risks, measure investments well in order to prove relevancy and ensure that their efforts are being evaluated in line with how consumers navigate tourism experiences in this new era of mass communication and promotion.