by Pádraic Gilligan, Managing Partner, SoolNua
A new business model?
My industry friend Dries Jacobus, Managing Director Borealis Incentives, Belgium posed the following question recently on the ADMEI Linkedin Group
As a DMC in Belgium (where taxes on labour are high, so staff is expensive) clients very often re-negotiate the staff cost. Sometimes down to no staff at all. It is against our corporate policy, so we then reject the business, but that also means a loss. Please give your opinion on how you deal with this and how you incorporate your costs and profit into you business model and proposals?
Industry veterans Phil Lee, Beth Lockwood and Bent Hadler joined the discussion with Phil favouring the packaged approach – “create it, package it, service it!” and the rest of us opting for the flexible model, driven by the specific requirements of the customer. Beth agreed with Dries’s policy of never compromising on staff levels stating that “It is what sets us apart as a full service DMC from a reservation agent”.
Better and Faster
The discussion highlighted for me, once again, the rapidly evolving business environment in which we live and caused me to think again about competitive advantage and the “Better, Faster, Cheaper” venn diagram from which, apparently, you can only have two!
The traditional DMC business model has always pivoted around quality – the “better” or “great” circle in the triplet. Our local knowledge and expertise coupled with our unique understanding of corporate or association objectives set us apart as the “better” destination option over receptive agents or incoming tour operators or reservation agents. They are transactional order-takers, we are strategic partners etc. In the distant past this served us well as a core value proposition and allowed us to take longer with responses (creativity needs time!) while charging a premium.
As business activity transitioned more and more onto a digital platform slow response times were less and less tolerated. DMCs were obliged to get up to speed and many companies leveraged the growing number of technology platforms to provide quality responses in jig time – VIPER is a powerful example of this. So we learned to be better and faster but we still needed to charge a premium to have a business worth pursuing.
Dries’s Linkedin posting encapsulates what’s been happening over the past 5 years since the frosty winds of recession started to blow across our global marketplace. Price has been front and centre and clients have been demanding quality service, delivered speedily at a cheap price. Most of us, along with most business commentators and analysts, retain that this is not possible – you can have any two of the three service options but not all three.
Look at IKEA
Then I thought about IKEA. IKEA is all about quality design brought quickly to market and sold at highly competitive prices. It somehow manages to be better, faster and cheaper than any other mid-market retailer of household goods and has blown all competition of out the water. I cannot think of a single country that I’ve been to in the past 12 months that didn’t have a massive IKEA warehouse close to its airport.
IKEA has a very specific business model based around location, demographics and scale and knows it can make money when these elements are choreographed in a particular way. Interestingly IKEA doesn’t appear to threaten luxury retailers of household goods at all – only those in the low and mid space on the spectrum.
Application to DMC World
So what has this got to do with the DMC world where most companies are small enterprises, lacking scale and scalability? I think there are two lessons we can take out of it. First, remember IKEA doesn’t threaten Luxury retailers. So if you’re a DMC in a tier one destination with volumes of MICE business from small meetings to high end incentives – think New York City, think London, think Paris – you can probably play exclusively as an upscale, luxury destination partner working with high level business for which you can charge a premium. You can win competitive advantage by being better and faster while holding on rates as the volume of activity from the high end niches will allow for this.
Thus Phil Lee’s view that you should “create it, package it and deliver it” with a decent margin built it will work really well for you. However, if you’re not in a tier one destination – think Brussels, think St Louis, think Bratislava – then you’ll need to consider an alternative. And this is lesson two.
It’s all about scale
IKEA achieves scale both from the incredible range of household goods that it carries in its warehouses – everything from impulse buys like candles to carefully considered buys like fitted kitchens – and from the extensive footprint of its global locations. So DMCs in tier 2 and tier 3 locations will need to offer services across the 4 sectors of the MICE acronym – meetings, incentives, conferences and events. Indeed they may need to offer additional services from adjacent sectors – upscale FITs, golf trips, AV solutions, production etc.
They will also need to be part of a global alignment of DMCs – a franchise organisation like AlliedPRA, a marketing consortium such as Euromic, a wholly owned enterprise like AIM or Kuoni or a hybrid collection like Ovation Global DMC. This global alignment will limit costs in relation to client recruitment and business development and contribute hugely to overall competitiveness.
Check out the full discussion initiated by Dries on the ADMEI Linkedin Group here. If you’re a DMC then you MUST consider the forthcoming ADMEI DMC CEO Forum in Rome from 19 – 21 January next. Full details here.
Pádraic Gilligan is Managing Partner at SoolNua, a boutique marketing and communications agency working with destinations, hotels and other enterprises on strategy around MICE.