The Power of Promotion in a Challenging Economical

Climate:

Will it keep them coming?Presented by:

Jeffrey EslingerSenior Manager, Research

SETRA Spring ConferenceMontgomery, AL

March 24 – 25, 2009

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About DKSA

Founded in 1982 by Douglas Shifflet

Client support

PERFORMANCE/MonitorSM, Image, ROI, Forecasting, Concept/Ad Testing, etc.

Industry’s Largest Historical, Comprehensive Traveler Database

Monthly detail for over 150 variables trending back to 1992

Contact 165,000 U.S. households for each month – projectable

Mail and Online

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DKSA Clients & Partners

Clients – 50+ destinations CVB’s and State Tourism Offices– 30+ hotel brands and hotel organizations– U.S. government and travel associations– Airlines and financial organizations

Partners– IHS Global Insight– Acxiom – CRM, overlays, segmentation, lists, custom models– American Hotel and Lodging Association (AHL&A)– Hospitality Sales and Marketing Association (HSMAI)– Pacific Asia Travel Association (PATA)– MSW Research – Advertising Testing

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DKSA Data Applications

Understand market changes• Volume and Trends• Competitive Satisfaction and Value

Determine competitive positioning

Develop competitive strategies

Develop targeting strategies

Legislative resource

PR and promotional messaging resource

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Overview

Who is using Promotion Snapshot of Where we are as well as Where we

are going

Develop competitive strategies

Public Tourism Promotion

Colorado Experience and other case studies

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Brands that are Promoting

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Why Not Just Discount?

Discounting without promotion isn’t always enough

Discounting alone does not differentiate

Any promotional offering needs to show what makes your offer stand out

Focus on market segments that traditionally bring in incremental business

Reward your best customers with the best promotions (upgrades, shipboard credits, discounted parking, personal recognition)

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Best Practice Promotion – Carnival Cruise Lines

Targeted Promotions Yields Record Setting Results

One-week period ending March 1, Carnival recorded the highest number of bookings in its history

On a cumulative basis since mid-January, bookings are up 10 percent over 2008.

Carnival attributes its success on its travel agent partners and the consumer’s appreciation for inherent value and affordability of a Fun Ship vacation, as well as marketing efforts.

According to Gary Cahill, CEO, while bookings are at lower pricing, It tells us that despite uncertain economic times, consumers clearly need more fun in their lives and view a vacation as an essential part.

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Person-Trips, Direct Spending & Room-Nights Definitions

Domestic Person-Trips This metric tells you how many unique people visited your

destination. Does not account for multiple visits on a trip or multiple

destinations within a state. Person-Trips are simply the number of people on the trip.

(i.e. if the travel party consists of 4 people then the trip would consist of 4 Person-Trips)

Domestic Direct Spending DKSA collects spending information in 5 major categories

from each Total Direct Spending and Daily Personal Spending are calculated• Transportation• Lodging• Entertainment• Other

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Person-Trips, Direct Spending & Room-Nights Definitions (cont.)

Domestic Hotel Room-Nights This metric tell you how many nights were spent in hotel

rooms and is primarily used by lodging clients. Since hotel rooms house multiple people the "person"

element is not important for this metric. Thus, Room-Nights are the number of nights spent in a

hotel during each Stay (i.e. if 1 night was spent in a hotel in San Jose and 2 nights each were spent in Bend and Portland, the total number of Room-Nights on this trip would be 5 - 1 California and 4 in Oregon)

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Person-Trips, Direct Spending & Room-Nights – Annual % Change

Domestic Person-Trips 2008P/2007 2009F/2008

Total -2.7% -3.9%

Business -7.1% -9.3%

Leisure -1.3% -2.2%

Domestic Direct Spending

Total 3.1% -8.3%

Business -0.8% -11.2%

Leisure 4.7% -7.2%

Domestic Hotel Room-Nights 2008/2007 2009F/2008

Total -1.6% -2.5%

Business 0.3% -3.9%

Leisure -3.3% -1.2%

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Hotel Room-Nights Volume & Forecast

350

400

450

500

550

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009F

Ho

tel

Ro

om

-Nig

hts

in

Mil

lio

ns

Leisure

Business

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Three Segments – Hotel Room-Nights & Forecast

200

250

300

350

400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009F*

Mid-Level

High End

Economy

Ho

tel

Ro

om

-Nig

hts

in

Mil

lio

ns

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Traveler Behavior in the Past Three Months – Travel Segments

7%

16%

5%

4%

73%

8%

12%

7%

2%

72%

10%

11%

9%

2%

68%

December Total February Total March Total

Cancelled a trip due to expenses

Kept planed trip but reduced expenses

Took advantage of a discount travel offer

Other trip changes

No changes

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Traveler Behavior in the Past Three Months – Travel Segments

7%

16%

5%

4%

73%

12%

25%

5%

13%

55%

6%

14%

5%

2%

77%

4%

10%

5%

4%

80%

Total Business Leisure Paid Hotel

Cancelled a trip due to expenses

Kept planed trip but reduced expenses

Took Advantage of a discount travel offer

Other trip changes

No changes

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Traveler Behavior in the Past Three Months – Purpose of Stay

4%

9%

6%

1%

84%

6%

10%

8%

2%

79%

7%

18%

5%

1%

73%

Getaway Wknd. General Vacation VFR

Cancelled a trip due to expenses

Kept planed trip but reduced expenses

Other trip changes

No changes

Took Advantage of a discount travel offer

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Traveler Behavior in the Past Three Months – Mode of Transportation

4%

11%

8%

8%

74%

8%

15%

4%

3%

75%

Air Auto/Van/Small Truck

Cancelled a trip due to expenses

Kept planed trip but reduced expenses

Other trip changes

No changes

Took Advantage of a discount travel offer

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Traveler Behavior in the Past Three Months – Age Groups

10%

9%

5%

1%

80%

9%

16%

7%

1%

72%

4%

10%

4%

5%

81%

18-35 Years 36-54 Years 55+ Years

Cancelled a trip due to expenses

Kept planed trip but reduced expenses

Other trip changes

No changes

Took Advantage of a discount travel offer

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Traveler Behavior in the Past Three Months – HH Income

8%

8%

3%

0%

83%

9%

14%

6%

1%

75%

4%

14%

7%

5%

75%

Under $50,000 $50,000-$100,000 $101,000+

Cancelled a trip due to expenses

Kept planed trip but reduced expenses

Other trip changes

No changes

Took Advantage of a discount travel offer

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Public Tourism Promotion & ROI: Introduction

Introduction

Expenses are on the minds of virtually all decision-makers in business and government today. Alternative uses of scarce public and private funds are being scrutinized from every direction.

Most state and local governments are aggressively cutting departmental programs and expenditures

State and local tourism programs have not been exempt – some have even questioned the need for a state tourism office (STO) at all! Others are significantly cutting back in staff, welcome centers, and (especially) promotional spending.

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Public Tourism Promotion: Is it worth it?

Travel Promotion Spending – An Easy Target

Promotional spending is perhaps the easiest target for budget authorities. It is thought that spending cuts are more benevolent in terms of direct job losses.

More importantly, it is has been hypothesized that the destination is already known and that by reducing/postponing promotional activities will NOT result in appreciable loss in visitation.

Finally they hope and expect the private sector will pick-up much of the promotional slack if public promotion is cut or eliminate entirely.

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Public Tourism Promotion & ROI

Understanding ROI

Knowing if and/or how much to carve out of the STO, CVB or DMO promotional budget is an exercise in understanding the ROI of such activities.

The concept of ROI is widely understood, but the missing ingredient is often solid, comprehensive measures of promotional benefits and systematically comparing them to costs.

ROI studies seek a positive correlation between specific advertising expenditures and resulting visitation/spending.

The ROI answer is more elusive – the measure of a single campaign is not representative of all promotional efforts

Finally, travel and destination decisions are influenced by many more factors than simply, advertising and promotion

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Public Tourism Promotion & ROI

Can the ROI of public promotion spending be estimated?

The challenge lies in having enough data to fuel the process of finding a statistically significant correlation between promotional spending and resulting visitation.

An economic approach provides a less expensive alternative, as well as other research benefits.

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Role of ROI in Public Tourism Promotion

Example of Economic Approach

Highlighted in the February 2009 Journal of Tourism Research entitled Measuring the Return from Australian Tourism Expenditure by Kulendram and Dwyer. The goals of the study were to:

Estimate demand for travel to Australia from various key origins

Estimate visitation from origin markets by income, travel prices, and marketing by the Australian Tourism Board (ATC) in each origin market

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Role of ROI in Public Tourism Promotion

The Result

Significant and quite favorable

Incremental visitation (tourist arrivals) from each key origin was positively related to incremental changes to ATC marketing spending

Once visitor volume was converted into spending, the benefit-to-cost ratio ranged from 3 –to-1 for the UK, 7-to-1 for the US, and 36-to-1 for New Zealand.

Note:This approach works best when promotional data spending history

exists

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Role of ROI in Public Tourism Promotion: The Colorado Experience (1993-1997)

The best “study” of promotional effectiveness

In 1993, Colorado dropped all funding for tourism promotion to shore up the State’s budget

By 1997, Colorado’s overnight leisure visitation dropped by almost 30%

The State’s rank for summer resort travel dropped from # 1 to #17

Expenditures by about $2.4 billion and state/local tax receipts fell by 134 million during that four year period.

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Role of ROI in Public Tourism Promotion: The Colorado Experience (1993-1997)

IHS Global Insight & DKSA Analysis of the situation

According to DKSA historical data, leisure visitation declined -8.4% or 2.6 million visitors

Comprised about 7.7% Colorado’s leisure visitation

Competitive Set – Idaho, Montana, California, Oregon, and Utah

Losses for that time period were not unique to Colorado. Both the U.S. as well as key competitive states also lost Person-Trips, just not at such a high of percentage

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Role of ROI in Public Tourism Promotion: The Colorado Experience (1993-1997)

Example of Economic Approach

Leisure Travel Performance:The Colorado Experience

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Yr-

to-Y

r P

erce

nt

%

US Total Leisure

Colorado LeisureCompetitive Set

Moving Avg -Colorado

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Role of ROI in Public Tourism Promotion: The Colorado Experience (1993-1997)

Leisure Visitation Comparison:Promotional Momentum

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Ind

ex

19

94

=1

00

US

Colorado

Competitive Set

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Role of ROI in Public Tourism Promotion: The New Jersey Example

If New Jersey were to cut its promotional budget

New Jersey’s projected budget shortfall for FY2009 is $1.2 billion

Tourism cuts would result in expenditure savings of about $15 million for FY 2009

If NJ went dark and followed Colorado’s lead, 4 years savings would total $60 million.

See a decline of 4.8M Person-Trips (7.7% of all Leisure visitors)

Highlighted on following chart

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Role of ROI in Public Tourism Promotion: The Colorado Experience applied to New Jersey

SituationLeisure Visitor Loss

Tourism Expenditure

Loss

State & Local Tax Loss

Impact on NJ State Budget

Full CO Experience

-4.8M

(7.7%)-$2.42B -$269M -$254M

½ Colorado-2.4M

(-3.8%)-$1.21B -$134M -$119M

How many lost visitors to negate savings?

268,000

(or 0.4% of NJ total)

-$135M -$15M 0

2007 NJ Leisure Visitor Volume 62.4M Person-Trips

2007 Tourism Spend per Visitor $505

2007 NJ State & Local Tax Receipts per Visitor

$56

2007 NJDTT Budget $15M

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Role of ROI in Public Tourism Promotion

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Ltd

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Role of ROI in Public Tourism Promotion

ConclusionConclusion: :

If you want to reduce the deficit, If you want to reduce the deficit, invest more in tourism invest more in tourism

promotionpromotion

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.K. S

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Discussion & Thank You!

Jeffrey EslingerSenior Manager, Research

D.K. Shifflet & Associates, Ltd. Phone: 703.536.09211750 Old Meadow Rd. Suite 620 Fax: 703.536.0580McLean, VA 22102 Email: Jeslinger@dksa.comwww.dksa.com