Sue Huff is frustrated.

"Why does it cost me more to move my materials from dock to booth than to ship them across the country?" asked Huff, director of corporate conventions for Medtronic Inc. "Exhibit-labor-related costs are increasing at an alarming rate."

Using data from Tradeshow Week, Huff illustrated to her finance group the budget impact: From 2006 to 2007, drayage rates for shows in Orlando increased between 7 percent and 11 percent; in Boston, between 30 percent and 36 percent; and in San Francisco, between 51 percent and 61 percent. By the end of 2008, the Medtronic businesses with which Huff is involved expect to spend $633,000 on drayage and $671,000 on installation and dismantle (I&D) out of a total budget of $4 million (including $1.1 million in booth space) at 85 shows.

More than ever, exhibitors are feeling squeezed. "We've seen increases of 7 percent to 25 percent a year, probably going back five to seven years," said Glenda Brungardt, CTSM, tradeshow/ event manager for Hewlett-Packard Company's Imaging & Printing Group Americas Marketing. For HP, exhibit services (including drayage and I&D) account for 40 percent to 45 percent of costs at a show.

Such complaints may not be new, but they're definitely growing louder. According to a recent MAYA White Paper, co-funded by The Expo Group and downloadable at www.theexpo group.com: "Exhibitors feel the weight of costs and inefficiencies shifted to them, and receive little value or attention in return for the sums they have paid." What particularly rankles companies today is their inability to predict their final bill for exhibit services, which puts their budgets at risk. "Convention marketing is already coming under more scrutiny than ever before in terms of value," said Eric Allen, executive vice president of the Healthcare Convention & Exhibitors Association (HCEA). "It's like adding kerosene to a fire when final invoices are 40 percent higher than budgeted, with no reasonable explanation for why this is happening."

When the price-to-value ratio is perceived as too far out of whack, exhibitors do what they must: lighten their materials, downsize their show participation … or pull out completely. "If we continue down this path," said Ray Pekowski, president and CEO of The Expo Group, "the results will be catastrophic."

Fresh Thinking
Fortunately, there's nothing like the threat of catastrophe to encourage innovation. With fees and percentages fluctuating for reasons - and in patterns - no one can quite grasp, new models for contracting exhibitor services are emerging. And they promise to take some of the pain (not to mention guesswork) off the show floor. "In the past, someone pointed a finger at us and said, 'You need to fix this,'" said John Patronski, executive vice president of GES Exposition Services. "Now more parties are willing to sit down at the table and walk through scenarios." Those scenarios might include:

• Flat rates for material handling and blended labor rates, which spread costs more equitably over all exhibitors and keep invoices simple and predictable.
• Custom block pricing, which creates packages of services that groups of exhibitors are likely to purchase.
• Paying the general services contractor (GSC) a "consulting" fee and taking control of the pricing (and margins) of exhibit services.
• Bringing exhibition management in-house - which is the most extreme option.

A revenue play all around the meetings industry is the major force driving these adaptations. Stung by rising fuel prices and fewer exclusives, GSCs must bump up charges and find more services to sell. To host more shows, exhibition facilities tighten move-in and move-out periods, which can jack up overtime. Show organizers try to hold their costs in check by cost-shifting their decorating needs (see sidebar on p. 42). Marketers struggle to decide among more events, a greater array of channels, and more expensive on-floor technology.

Douglas Ducate, president and CEO of the Center for Exhibition Industry Research (CEIR), has heard it all before. "If event value isn't greater today than it was 20 years ago, exhibitions wouldn't be the No. 1 marketing spend," Ducate said. Still, he added, "if we don't do something to get this under control, companies no longer will bring equipment to events. And that's just a step away from not being there at all."

Responsibility for the current state of affairs starts at the top, with show organizers - who, noted Matthew DiSalvo, CMP, senior vice president and general manager of SER Exposition Services, have as much control over the process of setting service charges as they choose to accept. Added Jim Reese, executive vice president of Champion Exposition Services: "No one gives us carte blanche to charge anything we want." For their part, GSCs haven't effectively joined with show organizers in looking holistically at their shows, according to Carrie Freeman Parsons, chief marketing officer for Freeman. "What have we always done," Parsons asked, "that is costing money and not bringing great value?"

But all is not lost. The industry can take heart from the fact that marketers continue to value exhibitions. Brungardt's group, for example, annually ships custom exhibits to 200 events and sets up tabletops at another 400. "It is still one of the only venues today that provides the important face-to-face opportunity," she said. However, across all of HP, the number of shows at which the company exhibits has declined by 10 percent to 15 percent, Brungardt estimated, and the best hope is that it will remain flat.

"Services contracting has not reinvented itself as have other industry partners - hotels, DMCs, and CVBs," said DiSalvo. "It was bound to happen sooner or later."

AAP: Consultation Fees
At the American Academy of Pediatrics (AAP), reinvention happened sooner - specifically, five years ago, when Tradeshow Logistics approached AAP about its 2003 exhibition and made a tantalizing offer. For a fee, Tradeshow Logistics would manage the exhibition on behalf of the show organizer. The key difference from the traditional general-contracting model: AAP approves the subcontractors, sets the rates, and retains the profits.

Tradeshow Logistics sources everything in order to remain non-asset-based - the very opposite of the typical GSC. "Our job is to get the most value out of the show," said Tradeshow Logistics President B.J. Enright. "If the goal is to get exhibitor prices as low as possible, that's what we're hired to do. I like being a consultant and helping a show run better."

Under this model, helping a show run better means unbundling every service a GSC offers an exhibition. When all functions are provided, the management fee is built on two components: the number of exhibitors (which drives exhibit-services orders) and project management (which is a function of how much oversight is required). Tradeshow Logistics estimates the revenue from orders and the hours needed to manage the scope of work; the difference is show management's profit.

It's a fairly simple change in payment structure, but it alters the entire relationship and puts control back into the show organizer's hands. It also puts all exhibit services - including lead retrieval and audiovisual - under a single umbrella. "The potential [margin] in this model is much higher than the fee," said Jared Cohen, CMP, AAP's manager of convention and meeting services. Plus, AAP gains flexibility in what to do with its earnings. Depending on the year, it has chosen to reinvest in the show (which draws 11,000 attendees), lower service fees for exhibitors (significantly below competition), or save net income for the organization's budget.

Because AAP pays separately for all its decorating costs, nothing is hidden. "We're an open book," Cohen said. "Again depending on the year, exhibitor costs are a little or substantially lower than what they were used to paying." At the same time, AAP knows exactly how much its exhibitors are spending for show services. "Almost nine of 10 show managers have no idea," Enright said. Meanwhile, the level of customer service being provided has jumped dramatically - without an increase in staff.

Material handling remains the largest expense and the most sensitive issue by far for AAP exhibitors, who in 2008 will fill 75,000 net square feet. "For most general contractors," Enright said, "from 60 percent to as much as 80 percent of their profit comes from drayage." With that in mind, the process for AAP's show has been simplified to three price points per hundredweight: crated, uncrated, or a discounted rate if the exhibitor shipps via AAP's chosen provider. There are no additional fees for overtime, energy surcharge, or special handling. "These are priced accurately," Cohen said, "so that the net income is appropriate for our show."

IMTS: Custom Block Pricing
The consultation fee is just one new model gaining traction in the evolving marketplace. Another is custom block pricing, which AMT - The Association for Manufacturing Technology debuted at its mammoth-sized International Manufacturing Technology Show (IMTS) in 2006. But while AAP embraced innovation after being approached by a GSC, at AMT, the change came from within.

What's more, when rethinking its delivery of exhibit services, AMT started with an advantage. No "free" or "discounted" services were ever cost-shifted to the 1,500-plus exhibitors who occupy 1.225 million net square feet of exhibit space at IMTS. As a result, the bill from the event's general contractor, GES, runs into seven figures. "Since we are a nonprofit run by members - who are the exhibitors - we negotiate fair prices for all, and all pay their way," said Peter R. Eelman, AMT's vice president of exhibitions. Still, his exhibitors weren't immune from spiraling service costs that threatened one of the reasons for the show's success - big machines on the show floor.

As it happened, an idea had been germinating in Eelman's mind since 1996, but the big breakthrough came just four years ago. Armed with his decade's worth of ruminations, Eelman embarked on more than a year of hard discussions with IMTS's show committee and GES. To be fair across the board, GES kept looking at peaks, valleys, and exceptions at past shows, as it continually revised the pricing structure of new scenarios. The result, rolled out at the 2006 IMTS, was a radical change: custom block pricing.

Custom block pricing essentially bundles a number of required services into a set number of price levels - in IMTS's case, four - based on the density (weight per square foot) of an exhibit booth. Groups of exhibitors, with varied needs for forklifts and cranes, fall naturally into specific density categories. To offset expenses it incurred with this packaging, GES was able to obtain more discretionary services, such as supplying all the floorcovering instead of the less than 50 percent it had supplied previously.

Both partners took risks. The general contractor had to drive efficiencies in order to make money; under the typical model, Eeelman said, "the less efficient you are, the more money you make." Meanwhile, in trying to change the model, "[Eelman] was putting his skin in the game," GES's Patronski said. "He had to be a great champion and sell it to his advisory board."

And to his exhibitors. Eelman and his team wore them down with explanations and education, even when many of them doubted the new model would work. In the end, Eelman said, move-in and move-out "went smooth as silk, and it was noticed." What really got everyone's attention, though, was the single-line invoice. Under the former system, the average invoice could run eight to 12 pages. Now, it's a very short equation: number of square feet times $17 per square foot - for IMTS's blue package, for example - equals total exhibitor-services charge.

The new model does three things:
1) It gives exhibitors pricing that is simple to understand and the certainty they need to manage their costs.
2) The general contractor has an incentive to schedule rigging, drayage, and carpeting in an efficient flow that maximizes profit - resulting, according to Eelman, in an "incredible" increase in productivity.
3) The pricing encourages exhibitors to bring more machinery to the show, which is what attendees want to see.

Back in his office the day after the 2006 show closed, Eelman waited … and waited … for the letters and complaints he had always received. None came. "With custom block pricing, GES found efficiencies in the system," Eelman said. "And when you have a bad day, you can look the exhibitor in the eye and say it's coming out of the general contractor's pocket." Approaching this year's show, he said, "this second time through [the show is held every other year], exhibitors can build their budgets on fact, rather than guesswork." And they're not complaining about a 3-percent increase in pricing.

PMMI: In-House Model
Consultation fees and custom bulk pricing, as practiced by AAP and AMT, are all about partnering up. But some emerging exhibition-services models hinge on going it alone - regardless of the financial implications. The Packaging Machinery Manufacturers Institute (PMMI), for example, wasn't looking for profits when it took the precipitous step four years ago of bringing exhibition management in-house. Instead, said PMMI President and CEO Chuck Yuska, the organization wanted to help control exhibitors' costs and better service them through a more personalized model. So it formed PackExpo Services (PES), which today has a full-time staff of three, supplemented by on-site freelancers.

PMMI took the plunge after PackExpo Las Vegas in 2003. (Pack Expo International, with 1.3 million net square feet, takes place in even-numbered years in Chicago, while the Las Vegas show, with 700,000 net square feet, runs alternate years.) After four cycles, here's what PMMI has learned - and accomplished:

• PES's margins are less than typical for a general contractor, and are decided year by year. In fact, PMMI probably will cut its margins this year, because rates for 65,000 yards of aisle carpeting have risen so quickly. "We do well on the trade show," Yuska said. "We don't need to make up those margins."
• PMMI revised cost-shifting so that it now absorbs 90 percent of its decorating costs, up from 50 percent previously. "It was a big awakening for my board," Yuska said, "when they learned how much the exhibitors were subsidizing show management."
• Exhibitor fees are indeed lower, and the evidence is more equipment on the show floor. Under the former menu of service charges, exhibitors "couldn't understand the math," Yuska said, especially the fact that separate shipments were not accounted for cumulatively. "Now, there's no guessing" with a flat, per-square-foot fee for drayage.
• The exhibitor invoice is simplified. The back-end technology, provided by The Expo Group, lets exhibitors view their orders and invoices online for all services - exclusive and ancillary. Exhibitors pay PES, and PES pays all subcontractors.
• It takes good supervision to manage labor efficiently and not lose money. That includes educating booth personnel to better manage the labor that PMMI puts there. "If the exhibitor asks for three workers," Yuska said, "and they are there for 12 hours, four hours at overtime or double overtime, were they managed well?"
• Assuming responsibility for the service that exhibitors receive is both a good and a bad thing. "Before, I could point to the general contractor," Yuska said. "It's a complicated system, and we see the frustration exhibitors have." By assigning exhibitors to a specific customer service representative (CSR), PMMI helps establish a long-term relationship. On site, CSRs and floor managers fan out to visit booths, rather than leave exhibitors to seek out their help. And exhibitors have one person to go to for any disputes - but paying drayage with the exhibit space effectively cuts out many complaints.
• The new model required in-house expertise, a board that is not risk-averse, and capital. "We took a pretty good hit the first year," Yuska admitted. But he and his team were able to identify subcontractors that didn't work out and points where the model needed tweaking. Today, PES is in the black, and PMMI can pass along savings to exhibitors. "It's all very transparent," Yuska said.

Which, in the new marketplace, might be the only condition that satisfies organizers, GSCs, and exhibitors alike.

Parsing the Issues

The costs that exhibitors most bemoan are material handling and labor, and the numbers aren't pretty.

Material-handling costs in 2007 increased by 37 percent from 2006 for 123 exhibit managers in Tradeshow Week's 2007 Corporate Exhibitor Survey. More than 55 percent felt drayage costs exceeded the return they get, and 39 percent said drayage was the "single most inflated" trade-show cost. High exhibit-services costs have caused 43 percent of respondents to stop exhibiting at some trade shows.

"We have been stunned at how some of our customers are experiencing 40-percent turnover in exhibitors," said Carrie Freeman Parsons, chief marketing officer for Freeman. Lowering that by 5 percent or 10 percent, she pointed out, by providing better education, ROI tools, and extra help for exhibitors, would be very meaningful. T

hat GSCs bear the brunt of exhibitors' frustration is clearly a sore spot. "We're not seeing convention centers lower rental rates to their clients," said Jim Reese, executive vice president of Champion Exposition Services, "so they can in turn lower booth rates to exhibitors."

• Drayage - A panel at the 2007 annual meeting of the Healthcare Convention & Exhibitors Association (HCEA) cited drayage rates increasing up to 28 percent from 2004 to 2005. When Sue Huff, Medtronic Inc.'s director of corporate conventions, compared drayage in three first-tier cities from 2006 to 2007, rates had increased up to 11 percent in one city, 36 percent in another, and 61 percent in the third.

It's the unpredictability that irritates Huff. The $60,000 drayage at one 2007 show jumped to $180,000 in 2008 - "much more," she said, than the increase in booth space from 5,000 to 8,000 square feet. It's a particularly contentious issue for her, Huff said, because "I don't have a choice. In Europe, my exhibit house brings in my freight, and I pay them. Here drayage is an exclusive."

Graphic Arts Show Company's solution is a flat material-handling add-on fee of $5.50 per square foot. "We end up subsidizing this," said Chris Price, Graphic Arts' vice president, but it's worth it when most offset-press exhibitors think that running their equipment on the floor helps the purchase process.

• Labor - General services contractors can't do much about union costs, which are rising 4 percent to 6 percent annually. That said, positive changes happen when cities have to compete for shows. John Patronski, executive vice president of GES Exposition Services, pointed to more straight-time hours on weekdays at the break of shows in Chicago for most of the major trade unions (the Teamsters negotiate later this year on a new collective bargaining agreement). Also, the number of double-time hours there has been reduced for Saturday work for most trades. And for the majority of work, a two-man minimum for riggers has replaced three-man crews in that city.
  
• Special handling - Exhibit-service manuals explain what merits special handling, staff is trained on making evaluations, and invoices are well-documented, Patronski claimed. Yet this area remains a mystery for exhibitors, according to Eric Allen, HCEA's executive vice president. The big problem, again, is unpredictability. The same booth may be charged for special handling in Dallas but not in New York City.

Years ago, said Tradeshow Logistics President B.J. Enright, 30 percent of freight generally would come in at the special-handling rate. But analysis over the past few years leads her to believe that as much as 80 percent of exhibitors at some shows and 50 percent at others are paying the highest-rate category. "That's why custom block pricing is so much cleaner," Patronski said. "It eliminates all the variables."

• Energy surcharges on petroleum-based products and services - Costs are rising for anything utilizing energy or made with petroleum, particularly carpeting. GSCs apply surcharges - which could be 1 percent or 2 percent across all services - "because they can," said Glenda Brungardt, CTSM, tradeshow/ event manager for Hewlett-Packard Company's Imaging & Printing Group Americas Marketing. "I don't know how they are set, and you can't get them taken off. Yet as a percentage of our overall charges, they can quickly add up."

Plus, energy surcharges aren't applied consistently from GSC to GSC, facility to facility, or show to show. "We would rather have a conversation with customers on what we can do to reduce other costs to offset petroleum charges," Parsons said.

• EAC bundling - Rightly or wrongly, some exhibitors have the perception that GSCs give their exhibitor-appointed-contractor (EAC) clients preference in moving them in and out, since they have negotiated drayage and labor as part of their agreement. "I know GSCs put their best guys on their EAC customers," Brungardt said. "It's not all random."

The Exhibit Designers and Producers Association (EDPA), citing documented reports of bundled discounts offered on material handling, electrical, cleaning, and other exclusive services as an inducement to sign new exhibit contracts, issued a position statement in 2007: "EDPA condemns any illegal bidding practice by GSCs for exhibit design/build or installation/dismantle contracts, which include predatory discounts and/or services that are available exclusively to the GSC in their capacity as the official show service contractor and as a result harm competition…. In effect, all exhibitors using the GSCs' services are underwriting the expense of these discounts."

Convene Readers Chime in

Knowing what their show is worth is essential for show organizers so they can negotiate the most beneficial contracts for stakeholders. Yet only 57 percent of respondents in a recent Convene Reader Panel survey said they know what their exhibit floor is worth in service fees when they bid these out to general service contractors (GSCs). And the other 43 percent don't know total dollars or dollars per service.

As one respondent noted: "It really bothers me how hard it is to get some information from the GSC about my own show - like total weight of my entire show. I know this is where they make their money, but I don't appreciate the runaround in getting that one simple number."

Here are some other findings respondents noted over the past three years:

• General-services costs have risen: less than 5 percent for 17 percent of respondents; from 5 percent to 9 percent for 31 percent of respondents; 10 percent to 14 percent for 12 percent of respondents; and 15 percent to 24 percent for 10 percent of respondents.
• The largest increases by far in exhibit-services costs have come from labor and material handling.
• For one-third of respondents, the GSC sets the rates exhibitors pay for general services; for 22 percent of respondents, show management sets the rates; and rates are set in joint consultation for 43 percent of respondents.
• Twenty-eight percent of respondents have seen significant increases (50-plus percent) in overtime labor charges for their exhibitors (for about the same size exhibit).
• More than 63 percent say that GSCs have applied fuel surcharges on exhibitors.
• Eighteen percent have minimized costs by sharing carpeting at an exhibition facility with either the previous or the next show.

Respondents to the Convene Reader Panel on exhibit services had some good things to say about the way exhibitor services are contracted, provided, and priced:

"Our GSC provides excellent service for us."
"I have always found our GSC to be fair and reasonable."
"I currently have an excellent relationship with my general service contractor and have no issues."
"We have a great working relationship with our GSC. I would like to have a better understanding of what they are making in total from all revenue sources from our exhibitors."

Respondents also raised plenty of issues on the minus side of the ledger:

"The way charges are calculated is too mysterious."
"Financial relationships between GSCs and other suppliers that affect exhibitor or management pricing."
"I have tried, unsuccessfully, to get our GSC to develop packages (including standard skirted tables, side chairs, wastebaskets, and carpeting) for some of our smaller exhibitors, to help them keep their costs down. Our GSC does not seem to want to be bothered, since it creates more work for them and adds another layer of billing issues to the mix. I find this extremely frustrating, since the exhibitors who typically decide whether or not to return to our show are these smaller exhibitors. My other frustration is with the 'shroud of secrecy' with which GSCs operate. They never provide reports on the value of our show from year-to-year in rentals, drayage/material handling, labor, etc."
"Less flexibility with pricing on smaller events and more pass-along of cost increases to exhibitors. Graphics pricing has jumped by quite a lot, too, which makes it difficult to remain creative and represent the show brand."
"Very difficult to control unexpected overtime charges."
"Not straightforward. Lots of games played with deals made and the costs made up somewhere else, usually from exhibitors."
"There always seem to be so many hidden costs. Just let me know upfront so I can handle the situation. Don't blindside me."

The survey was conducted online for Convene in partnership with American Express, by LewisClarkBoone Market Intelligence.

The Tough Issues

Two issues continue to beset the exhibit-services area: cost-shifting and undisclosed third-party payments.

• Cost-shifting - Plenty of show organizers meld their decorating needs with the moving needs of their exhibitors, routinely receiving benefits such as registration areas, signage, drayage, and labor from their general contractor at little or no charge. "In my opinion, many show organizers are looking for as small an invoice as possible," said Sue Huff, director of corporate conventions for Medtronic Inc. "They are not really negotiating on exhibitors' behalf, so costs are passed along to us. If [show organizers] had a vested interest in the rates by paying their portion instead of getting freebies, they would care more."

Added Glenda Brungardt, CTSM, tradeshow/event manager for Hewlett-Packard Company's Imaging & Printing Group Americas Marketing: "I don't believe a lot of exhibitors know this is going on. But if these costs come back to exhibitors, show management needs to relook at the stuff they get for free." Separating the two tasks was the right choice for IMTS - The International Manufacturing Technology Show (whose members are the exhibitors), said Peter R. Eelman, vice president of exhibitions for AMT - The Association for Manufacturing Technology, which puts on IMTS. "We're not here to make a lot of money. It all goes back to our exhibitors in some form."

• Undisclosed third-party payments - When shows don't disclose the benefits they receive to their stakeholders, such payments may present an ethical, and possibly legal, issue. For one thing, the practice "may incentivize abuses by the GSC to make up the discounts they've provided, such as pushing drayage into overtime when it shouldn't be," said James J. Long, Esq., an antitrust lawyer with Briggs and Morgan. Plus, Long noted, "exhibitors may be led to believe they are getting the best prices for services they are required to purchase, when they are not. There are gray areas, and antitrust liability is far from clear." The extent to which all exhibitors are treated equally - such as through blended rates - can reduce any abuse, Long said.

A case in point is the ongoing American Hardware Manufacturers Association (AHMA) lawsuit in U.S. District Court (Northern District of Illinois) against Reed Elsevier, Reed Exhibitions, and Freeman Decorating Co. over the National Hardware Show. In the original complaint filed at the end of December 2003 (and amended in 2004), AHMA alleged that its then-partner Reed Exhibitions was cost-shifting - that is, "receiving goods and services 'free of charge' from [the] general contractor … and then permitting the general contractor to increase the costs of goods and services provided to exhibitors by a commensurate amount…." The increase was estimated at 20 percent. AHMA's complaint also claimed that Reed was paid "a portion of the money [the general contractor] received from the show's exhibitors in the form of commissions, rebates, or kickbacks." All this, AHMA claims, was done without its knowledge or authorization.

Contributing Editor Maxine Golding is an award-winning writer, editor, and publishing consultant.