Mr. Gilbert

Sales & Marketing

As 'AIG Effect' Lingers, Resorts Must Spell Out Value of Face-to-Face Meetings for Businesses

By Robert Gilbert, President & CEO, Hospitality Sales & Marketing Association Int. (HSMAI)

Business travel continues to be scrutinized, especially as companies look to cut costs in this current economy and as corporations shy away from incentive travel as public focus lingers on the so-called "AIG effect."

The 2009 decline in U.S. business travel will be about 10.3 percent compared to 2008, according to the National Business Travel Association (NBTA), a group that represents 15,000 business travel professionals. Spending on business travel in the U.S. is expected to dip to $234 billion in 2009.

But cutting back on business travel, no matter the reason, can curb profits, prevent deal-closing meetings and reduce return on investment, according to an Oxford Economics study released in September. Face-to-face encounters create relationships in a way unmatched by any other form of communication, whether at trade shows or other industry gatherings. Emerging high-tech conferencing technologies permit parties to see and hear one another remotely, but they cannot replace the trust, bonds and chemistry created by in-person meetings.

The Oxford study said that a 10-percent increase in spending on business travel would boost the country's gross domestic product (GDP) by 1 percent. The study indicates that such an increase could shift the economy out of recession, said Adam Sacks, managing director at Oxford Economics.

"Cutting back on business travel can, in the short run, have some benefits, but even over a 12-month period, cutting back can create significant negative effects on corporate performance," Sacks said. "As companies perform, so does the U.S. economy.

"When companies reduce their travel budgets there are negative consequences that we can now quantify, in terms of lost revenue and profit growth and in terms of giving competitors a distinct advantage."

Despite the rough waters in the business travel and incentive travel markets, there are steps that sales and marketing teams can take with their valued clients. For example:

• Demonstarte the Value of Meetings
  Corporations of all sizes require strategic planning to accomplish their goals - and that thinking is especially important during the current economy. Bringing people together in a troubled economic climate can reaffirm the path forward and help companies prepare and take full advantage of the upcoming recovery. Growth, profits and overall well-being are at stake. There's value in assembled brainpower. The Oxford Economics study revealed that for every dollar invested in business travel, companies realized $12.50 in incremental revenue.
  
  Further, incentive travel is a smart motivator used by many companies as a reward to top performers - and not necessarily executives at the top of the pay scale. In times of recession, businesses need to reinforce loyalty among high-performing employees at all levels worried about their futures. Failure to connect, whether through travel or other rewards, makes businesses vulnerable to talent raids by competitors.
  
  The Oxford study shows the value of business travel and the positive impacts created by face-to-face meetings. Roughly 40 percent of a business' prospective customers are converted to new customers with an in-person meeting compared to 16 percent without such an encounter.

• Aggressivley Pursue All Market Groups
  Cultivate all leads. In this economy, no potential group can be left uncontacted. When it comes to current clients, assume nothing. Stay in touch. Know the booker, buyer and decision-maker. Ask: How are we doing? Don't let your visit be a one-person show. Get your general manager involved. Appearances by the property's executive committee demonstrate that the client is special. Now is the time to link the efforts of both the sales and marketing teams so that the most creative ideas are used.

• Focus On local Impacts
  Groups may bristle at the potential attention they may receive if they attend a resort as part of an incentive-travel plan. Be prepared to work with the group if the trip receives media attention. While there's a positive impact for the group, there also is a tremendous lift for local economies that depend on resorts and others in the hospitality industry.
  
  Resorts and hotels are economic engines. Meeting and convention business provides high octane. Nationally, business-related travel generates 2.4 million American jobs and $244 billion in spending, according to one estimate. Squashing business-related travel also changes a potential economic multiplier into a heavy-duty subtraction problem for cash-starved governments. Business-related travel generates an estimated $39 billion in tax revenue for federal, state and local governments. Some public services depend on tax revenue generated by conventions and meetings at resorts and hotels.
  
  Business and incentive trips offer a competitive advantage in a crowded arena, and cancellations of these events can affect relationships with key company resources. These trips help build loyalty and increase productivity for a company, both of which are important things to focus on when companies are struggling to meet their bottom lines.

Of course, there are real and existing economic concerns. None of that is to be ignored, though the studies suggest where travel might be categorized as companies rank-order their expenditures and investments.

At a recent business-travel conference, Charles Petruccelli, president of American Express Global Travel Services, said that businesses would continue to be aware of costs. Though Petruccelli forecasts that it may be a "long time" before business consumers readily pay for premium services, opportunities do exist, especially when the case can be made that increased efficiency, cost-savings or revenue would result from business travel.

Petruccelli further cautioned against cutting prices as a primary tactic to gain travelers."Discounting will erode value," Petruccelli said.

Research commissioned by NBTA and American Express Business Travel, which evaluated information from government and other sources, concluded that U.S. companies are missing out on $193 billion in 2009 profits because of cutbacks on business trips. Increased investment in business travel could create 5.1 million jobs and $101 billion in tax revenue.

"We understand there's an economic downturn," says Christopher Pike of IHS Global Insight, an economic forecasting and consulting firm that conducted the study for NBTA and American Express Business Travel. "It doesn't mean cutting business travel by 30 percent when an industry's sales are down by 5 percent. That's where we're saying you're probably going too far."

As the data show, business travel isn't a demon. It's an economic halo.

Curbing business travel can reduce a company's profits for years, the Oxford Economics report found. For instance, the average business in the U.S. would forfeit 17 percent of its profits in the first year of eliminating business travel - and it would take more than three years for profits to recover. Further, executives estimate that 28 percent of current business would be lost without in-person meetings.

"In tough economic times, many business executives have an understandable short-run focus on managing costs," said Dr. Martin A. Asher, adjunct professor of finance at the Wharton School, who read the Oxford report and said that the analysis is sound.

"The report points out the less visible - but significant - long-term benefits resulting from business travel, such as partnership building and new business opportunities. Increased business travel in this economy can actually increase sales and reduce the financial decline companies might otherwise suffer."

For the last decade, Bob Gilbert has been guiding HSMAI through an exciting period of change. At the helm of what has become the definitive hospitality and travel marketing association in the world, he has made tremendous strides and enjoyed great successes as he’s worked to establish HSMAI as the industry champion in identifying and communicating trends in the hospitality industry. Prior to joining HSMAI in 1995 (in an executive capacity), Mr. Gilbert was the vice president of marketing for Richfield Hospitality Services, Inc., at the time, the largest hotel management company in the world. Mr. Gilbert can be contacted at 703-506-3280 or bgilbert@hsmai.org Extended Bio...

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