Commoditization – Will Planning Companies Survive?

There's always somebody cheaper!

This timeless maxim has never been more apt than today, when so many companies are reducing event planning services to a commodity. It's a challenge that's always existed, but the current economy has exacerbated the problem beyond reason. Desperate companies are dropping prices to rock bottom, figuring that low-margin work is better than no work ... and buyers are happy to take advantage of it.

But is it making external planning companies an endangered species? Can the services we provide really be reduced to "X hours at X rate?"

Not in the long term, for three good reasons:

#1 - You Get What You Pay For
Everybody is struggling in this economy and it's tempting to go for the lowest price. However, it's important to keep the goal in mind. Corporate expenditures are being scrutinized now more than ever before and end users are being held accountable for event outcomes. Those who take risks to save money may end up having to answer some difficult questions.

Granted, there are some pretty good companies that are cutting prices to win business, but to balance the reduced income, they are likely to also be reducing costs by cutting corners, hiring less expensive talent or overworking their remaining staff. This strategy works for short periods of time but the longer the economy struggles, the greater the odds of catastrophic project failures.

#2 - Reducing Margins is a Bad Business Strategy
Let's face it, we've all "bought" business at one time or another, but replacing margin with volume just can't sustain a business long-term. Most service companies have found that higher volumes mean more man-hours. Typically, labor and benefits are the largest percentage of overhead costs, so increasing hours means increased overhead. Unless the increased volume is offset by major productivity increases, the cost vs. profit equation gets out of balance very quickly and the company starts losing money.

#3 - There's Always Somebody Cheaper
The theory is: You lower your margins to win the business and then raise them back up on the next project for that client. The reality is that you've established a precedent and the client will expect the same pricing the next time. If you don't give it to them, someone else will. The next thing you know, you're losing money on a large volume of business rather than making money on a smaller amount of business.

In the end, each company has to make their own decisions on how to run their business, and I have no idea what's right for them. I only know that for Equinox Creative, we'd rather do a great job for our clients and earn their repeat business than cut corners and lose their respect.

Michael Vennerstrom is president of Equinox Creative, a strategic consulting company specializing in live communication events. He can be reached at mvennerstrom@equinoxcreative.com.

The information and views of this contributing columnist are not necessarily the views or opinion of Meetings + Events or its parent company, Tiger Oak Publications.