By Alesandra Dubin Posted August 13, 2009, 9:00 AM EDT
As economists point to signs that the recession is beginning to ease, and the event industry looks to the approaching fall season—usually a busy time—planners and vendors are wondering about the recession's long-term effect on prices and negotiations. Many vendors have sharply reduced prices this year in an effort to bring in business in a tough time, with some cutting prices so significantly that their new low figures might suggest a false sense of what's reasonable and sustainable in the marketplace.
“We’ve had vendors offer us prices that are below their cost, simply because they’re trying to keep some cash coming in to stay alive,” said Jeremy Driesen, president of New York-based corporate communications production company Ray Bloch. “That’s a short-term strategy and, particularly in the case of capital-intensive businesses like audiovisual companies, it helps them pay the funding on their debt load. [But] in the long-term, they’d go out of business at those levels. Vendor pricing must firm up since the lowest of the current pricing is unsustainable if vendors want to stay in business.”
Valerie Wang, the planner for Southern California public television network KCET, reported that vendors have offered services at 25 percent of what they would normally charge: One rental vendor reduced its fee from about $4,500 to $1,600 to match another company’s bid in the hopes of winning the business.
“We've been concerned to see how much product and service has been given away during this tough economic period," said Deborah Borsum, president of the Meetinghouse Companies Inc., in Elmhurst, Illinois. “Companies have had to do anything to generate revenue and keep their doors open. The problem is, the low or nonexistent margins that many companies are working in will only barely do that—keep doors open. It does not foster growing successful businesses, innovation, and outstanding products and service.”
So, when the economy turns around, what will happen to vendor pricing, and to planners’ expectations?
Many expect it will take time for vendors to raise their prices back to the heights they reached before the downturn. “While I'm optimistic that rates will ultimately be restored to pre-recession levels, it will likely be a slow process. For one, a macroeconomic recovery will probably take a while,” said one Los Angeles-based vendor, who requested to remain anonymous. “On a micro level, the event industry is very fragmented. There are more industry players—vendors as well as planners—now than ever before, and this increased competition has contributed significantly to depressed rates. Some vendors will begin restoring their rates as the economy picks up, but others are sure to continue offering recession-level discounted prices.”
The Meetinghouse Companies’ Borsum agreed. “I believe [prices will go back up] in time, but it will take a long time. We'll have to wait until demand becomes great enough to challenge supply, not only in our industry, but in others. The special events and meetings industry needs to be strong enough so that price cutting to the bottom dollar has no purpose. When prices go up and profits begin flowing at reasonable levels for our corporate clients and for us, then we'll start to recapture the industry growth that we had been experiencing.”
However long the process may take, when prices do go up, some hosts—who have become accustomed to deep discounts—may not take kindly to the adjustment. “When the economy turns around, customers will expect the same discounts they've been receiving. ‘You could do it then, why can't you do it now?’“ Borsum said. “It will take time for some companies to rebuild pricing integrity with customers if it has been badly compromised.”
Driesen at Ray Bloch agreed: “Customers will think like customers—their reaction will be, ‘If you were able to give me that price before, then you can continue giving it to me.’”
Some event pros suggest that the change won’t affect industry vets who understand the market. “If you have a great relationship with a vendor, the pricing should never be a question,” said Katie Hall Jasinski, a Chicago-based producer for XA, the Experiential Agency. “Planners should roughly have an idea of what things should cost.”
Christina Kaye Murphy, the manager for events at the residence of the chancellor of the University of California, Los Angeles—who did not report a price drop from her regular vendors—added, “I’ve been in this business long enough to know when someone is justified in raising their prices and when prices are being raised needlessly out of greed.”
The recession—and the bottomed-out price points—may lead to a thinning-out of the market, a sort of event industry version of natural selection. “Many small or less competitive florists, designers, planners, etc. are going to disappear, and eventually when the market picks back up we are going to have fewer people and companies to supply the things we need,” said Murphy. “I think it’s going to lend even more value to seasoned planners who bring strong relationships with vendors and also have the experience and expertise to negotiate the best deal for their clients.”
Of course, recession-era negotiations have focused on more than just price haggling. And those who have concentrated on finding solutions that work for everyone involved say they'll be ready to work out more mutually agreeable deals as more money gets spent on events.
“We never sold more for less. It's always been less for less," said Scott Fagan, owner of New York-based Tip of the Tongue Caterers. “Those planners who come back to us over and over... they also appreciate the difficulty of this economy and are happy just to have a budget that enables them to give us business.”
Fagan added, “I spoke with one planner who said that her budgets were slashed so ridiculously low that she couldn't in good conscience ask me to work with them. In other words, smart planners understand and take advantage of our relationship to collaborate on creative solutions, not wheedle us for discounts.”