HomeMy WebLinkAboutROI Memo FINAL To: Vail Town Council From: Economic Development Office Date: January 8, 2013 Subject: ROI Discussion In the recent Town Council meeting, the subject of return on investment (ROI) was raised in the context of continued aggressive investment in special events funding and marketing and Town of Vail marketing overall. As a shared understanding amongst the Council is not yet achieved, to contribute to the discussion, this document provides a thorough examination of the subject of ROI. The content is sourced from numerous available lateral learnings from the many marketing enterprises available in Vail, as well as numerous other examples gleaned from professionals in and around Vail and their experience in other varied organizations. I. Direct/linear ROI The basic metric which measures the direct investment and the specific amount returned via the effect of this spend. This is the most linear measure of ROI. As Council is aware, the CSE engaged RRC Associates to undertake an Economic Impact study which sought to understand the relationship. Their data reveals, on this basis alone, a substantial ROI directly linked to the effect of special events. Measured on two levels; 1) total revenues generated by visitors who visited Vail specifically or in part because of a special event, and 2) tax revenues generated by the same visitors. This data reveals the following: Scenario 1 - Ratio of direct economic impact to event funding received: $92,463,049 - Event economic impact $1,058,506 - Event funding provided by CSE/VLMD/Council (of the events surveyed) $87.35 Payback ratio (incremental community revenue per dollar of event funding) $43.68 Payback ratio (incremental community revenue per dollar of event funding) Note: the $43.68 figure is derived by lowering the economic impact by half with an assumption that event attendance was half of that actually reported by producers – even in this conservative scenario the event ROI remains substantial Town of Vail Page 2 Scenario 2 - Ratio of direct sales tax impact to event funding received: $3,108,835 - Sales tax collections $1,058,506 - Event funding provided by CSE/VLMD/Council (of the events surveyed) $2.94Payback ratio (incremental TOV sales tax revenue per dollar of event funding) $1.47Payback ratio (incremental TOV sales tax revenue per dollar of event funding) Note: As above, we lowered the incremental revenues by half in the interest of conservatism – in this scenario the most basic ROI measure, the return is still close to +150%. In the eyes of most professional opinions, at its most basic core, stripped of any other assumptive return on investment possibilities, a +150% return not only pays for itself, but provides reasonable incremental return relative to comparable investments. We also believe that under the current CSE movement towards greater event effectiveness and more efficient spend, these basic ROI ratios are only likely to grow with or without further investment. II. Guest Satisfaction Increasingly, guest satisfaction and its associated metric, Net Promoter Score, are in use by most Fortune 500 companies as the essential measure of customer loyalty. We also know that word-of-mouth is amongst the most effective and efficient marketing devices in the marketing tool box of the 21st Century. We all know the adage that a satisfied guest tells 10 friends about their positive experience, and a dissatisfied guest tells 20 friends about their negative experience. The CSE believes that the current movement in Vail, shared by the VLMDAC, towards more aggressive, more resonant and ultimately more effective marketing of which special events are a substantive part of, has been one of the drivers behind the meteoric rise in NPS: Year NPS % Detractors 2007 62 7 2010 72 3 2012 82 - A 20 point rise in five years is almost unknown in the consumer durables category and other comparable businesses. At minimum it indicates a massive shift in perception which can only be caused by a similarly strong shift in experience. It’s also worth noting that great companies like Southwest Airlines or Apple, for instance, achieve Town of Vail Page 3 NPS scores in the area of 70%, with many ‘good’ companies like Nike and American Airlines commonly achieve NPS scores far lower. While there is no universal measure for the value of such perceptual change, (some brands value guest experience, some do not), one could look at it in the following manner: - in 2007 62 out of 100 guests were favorable towards Vail and would recommend us to family and friends. 7 out of 100 would negatively tell 20 people each. - By 2012, we’ve grown the population of positive respondents, or ‘active promoters’, by 30%. If you extrapolate that times our summer attendance of say 1,500,000 visitors, we’ve created 500,000 more active promoters who in turn have told 10 friends each. The cost of our having had to spend to reach and convince a similar audience would be exponential and frankly untenable, and this as just a side benefit of our marketing spend on special events. But you could estimate this cost at well in excess of $2,000,000, more or less our current VLMDAC generated media impact per annum. It is legitimate therefore to consider this ‘opportunity’ cost as part of our ROI. Add this to our most conservative ‘direct ROI’ detailed in section I and we are now approaching a 3.5 to 1 ROI. III. Leveraged Media/PR/Marketing Impact While we do not have precise data for this measure, based on a rudimentary formula this number represents media, PR and other marketing impact (word of mouth, lateral marketing, press, social media reach, et. Al.) which Vail would otherwise need to purchase in the open market in order to achieve similar impact. Equally, based on our current strategy, the CSE funded and enabled special events from the principal content for the VLMDAC’s efforts in paid and social media as well as PR efforts. At about 40 or so annual events, with an assumption based on the data we do have of say $40,000 leveraged average value of each event (an event like Bravo exceeds $100,000 in such value, a smaller event less so), this very conservatively generates another $1,600,000 in leveraged value we’d otherwise need to purchase. Add this to the calculations in sections I and II, and our overall ROI is now getting towards 5 to 1. IV. Brand Value A potentially richer category of ROI is the value of the Vail brand. Many top flight brands such as Apple and Nike do indeed value their brands and include this value on their balance sheets. It’s often referred to as ‘blue sky valuation’. Town of Vail Page 4 Potential suitors for such companies would need to account for these valuations in any acquisition scenario friendly or unfriendly. THE VLMDAC has now for several years been committed to detailed brand tracking and monitoring via Intercept studies, as well as prominent third party brand research. As validated by our Burke Research initiative conducted in 2011, and as reinforced by this past summer’s NPS score of 82, the Vail brand, in summer alone is now in the top two of summer destination resort brands. If one factors in Vail’s winter brand standing where it is a clear number one in North America, and additionally factor in the now successful initiative of our having integrated winter and summer brands together, one can only imagine the value of this result. It manifests itself in such practical benefits as consumers placing Vail high in its consideration set when setting out to choose a summer destination, in repeat visitation consideration, in word of mouth, and in frequency of trips. It also manifests itself in less linear decisions such as the Burton US open deciding to choose Vail after 30 years in its Vermont location, a decision which will likely drive $18 million plus in incremental economic impact. Add to this related such decisions, and it’s not difficult to imagine the power and value of brand. We’d not attempt to try and place a value on this impact without more science, but its many multiples of our annual spend, and growing as evidenced by the Burke research data conducted in Summer as well as Winter. V. Ongoing ROI Measurement Finally, all of these metrics are now systematically measured by all the key Town of Vail economic development entities including the VLMDAC and CSE, as well as for instance our front line Vail information services initiative which is both measured in its own right as well as directly impacting our rise in Net Promoter Score. Additionally, our own ROI tracking is now regularly integrated with Vail Mountain’s metrics and methodologies. We share Burke as a brand tracking method. The Vail Marketing Research team conducts our principal Intercept studies; Guest Satisfaction and NPS measures are conducted by precisely the same methodology thus rendering the data fully comparable and reliable. The CSE as reported in an earlier memo has introduced a level of ROI discipline comprehensively in its processes; from Mission Statement, to annual objective setting, to producer and event qualification, each incorporated into a very tightly aligned scorecard which is the primary arbiter of the event selection process. This new series of processes is also tightly joined to the VLMDAC objectives and strategies, which in turn cascade from both the Council’s objectives as well as those of Winter marketing. All of this provides an undercurrent of discipline and validity as it relates to current and future Town investment in all economic development aspects. It has the nature of a defacto singly coordinated marketing enterprise led by the office of Economic Town of Vail Page 5 Development, with shared partners, shared methods, vocabulary and ongoing activities. In the current absence of a single leadership organizational structure, we believe that this is an optimal organizational set up which safeguards and leverages every dime the Town invests; now and in any increased investment scenario - with ROI at the center of the overall enterprise. In conclusion, we’d ask the Council to consider these thought processes supporting its ROI discussions. We believe strongly that this thinking would hold up to examination, would be validated by more thorough research although that is not what we are recommending, and that any competitor or lateral industry would envy the position Vail now enjoys that results from what we consider to be a modest investment in special events and marketing.