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Developing a New Business Model for DMCs by Redesigning Their Value Propositions (executive summary)
DownloadsDeveloping a New Business Model for DMCs by Redesigning Their Value Propositions (Full Study)
Click Here to View the Executive Summary and Focus Groups
Click Here to View Perspectives of DMCs
Click Here to View Perspectives of Meeting Planners
Click Here to View Comparison of DMC and Meeting Planners Views
About this project
With a support received from the Incentive Research Foundation (IRF), this research is a primary study designed to answer a few particular questions arising from the current issues in the destination management company (DMC) industry. To identify current issues and concerns of DMCs, we conducted the research with DMCs as well as meeting planners (MPs) to:
- Identify current trends and issues
- Understand the nature of competition DMCs are currently facing (both existing and emerging)
- Examine the impact of technology development (e.g., online environment and social media use) on DMC business
- Assess current DMC business models
- Identify DMCs’ understanding of their value propositions (both current and desired)
- Identify MPs’ understanding of DMCs’ value propositions (both current and desired)
- Reposition DMCs to effectively meet the new market challenges by developing and redesigning their value propositions
- Our review indicates that there has been no published study or data to answer the same questions raised for this study.
- The information acquired from this research would allow us to examine how similarly or differently DMC and MP organizations react to the external business conditions and how well they are prepared to take advantage of future opportunities as well as prevent their business from possible threats.
- Direct comparisons of the similarities and differences in the perspectives of DMCs and MPs will help us understand the current and future challenges facing DMCs and, thus, help us develop suggestions for future DMC operations.
- We explored in this study the underlying mechanism of this business relationship and attempted to explain how each party got to commit to or leave the business relationship.
Research agenda and procedures
- We followed closely a standard procedure of mixed methods to collect necessary data to answer our research questions.
- Since this is the first attempt to understand DMC business dynamics, first, we conducted focus group interviews with both DMCs and MPs.
- With the outcome attained from the focus group study, we conducted additional phone interviews with DMC experts to verify our findings.
- Nationwide surveys were conducted with DMCs and MPs to gather generalizable data.
1. Focus group results about the DMC business
DMCs (see page 6)
- Issues: economic downturn, shrinking profit margin, slowly recovering, more last-minute projects, no standardization, but unique DMC services, lack of awareness on DMC services
- Strengths: buying power, local expertise, time saving and convenience, quality partnership, due diligence and risk management, and suggestive service provisions
- Weaknesses: sensitive to economic conditions and regulations, lack of communications and collaborations among DMCs, low marketing dollars, and low wage
- Opportunities: new trade shows, opportunities to be involved in legislations, networking with other DMCs, and advancing technology
- Threats: local vendors providing similar services, large DMCs, lack of understanding about DMCs among clients, and technology development
MPs (see page 19)
- MPs’ general perspectives on DMCs: small planning team, asset to the industry, partner to co-create values, critical for successful events, some MPs not aware of DMC offerings
- Competitors: Internet, local CVBs, other DMCs, MPs, and vendors (especially for pricing)
- Strengths: one-stop shopping, local expertise, risk management, and creative programs
- Weaknesses: added costs, difficulties involved in convincing MP clients, and MP clients’ negative perception on hiring DMCs
- Opportunities: available technology, awareness in the market, growing DMC networks, and creative programming opportunities
- Threats: hotels replacing DMCs’ roles, development of technology, economy, CVBs, and loss of creativity over time
2. Field survey
DMCs (see page 9)
- Demographic information: 54.7% female, 56.6% college educated, 76.4% in the DMC business for more than 10 years
- Business characteristics: 45.9% independently owned or part of a national/global consortium, 43.5% conducting 1-20 events in the past year, 26% reporting $2.6 mil- $5 mil in FY2013.
- Business model and partnership with MPs: 54.2% undergone business model changes in the past 3 years mainly because of new competitors (22.9%); and 65.2% DMCs collaborating with MPs for more than 10 times in the past 3 years
MPs (see page 22)
- Demographic information: 59.0% female, 62.9% holding a college degree
- Business characteristics: 40.5% reporting more than 50 employees, 50.8% being incentive house/ third party meeting planners, and 68.8% handling both incentive planning and business meeting
- Collaboration with DMCs: 91.5% experienced with DMCs, 64.5% recommending DMC services, 84.6% viewing DMCs as potential partners, and 43.8% collaborating with DMCs for more than 10 times.
SWOT analysis key findings
DMCs (see page 16)
- Highest mean scores: capability to guarantee event quality and client satisfaction and their in-depth local knowledge, expertise, and networks
- Lowest: DMCs’ ability to handle local legislative issues
- Highest: national economic slump
- Lowest: low marketing budget and lack of creativity
- Highest: creative program offerings
- Lowest: substitutability of some DMC services
- Highest: unethical MPs
- Lowest: struggling to survive
MPs (see page 26)
- Highest mean scores: DMCs’ in-depth local knowledge, expertise and networks with local vendors and DMCs’ services to help MPs save time for local arrangements
- Lowest: DMCs’ handling of local legislative issues
- Highest: many DMC services replaceable by MPs’ own services
- Lowest: MPs’ lack of understanding about the value of DMCs’ role
- Highest: DMCs’ growing networks across the nation
- Lowest: ease of elimination of some DMC services and additional education for MPs about DMC service provisions
- Highest: DMC services unnecessary for some events
- Lowest: DMCs struggling to survive
3. Comparison between DMCs & MPs
- DMCs tended to rate their strengths and opportunities more favorably but their weaknesses and threats more defensively than did MPs.
- DMCs’ three highest strengths: (1) guaranteed high quality events and client satisfaction, (2) flexibility in handling unexpected clients’ requests, and (3) effective risk and crisis management service ability
- DMCs’ top two self-defined weaknesses: (1) misunderstood role and value of DMC services to MPs and MPs’ clients and (2) lack of collaboration among DMCs
- MPs’ top two perceived weaknesses of DMCs: (1) DMCs’ lack of creativity over time and (2) DMC services replaceable by MPs’ own work
- DMCs being more optimistic than MPs about their business to be more promising and have more opportunities than have threats
- Hotels’ in-house DMCs, Internet search engines, and social media are key threats agreed by both DMCs and MPs; social media, however, were also viewed as opportunities for promotion and education.
- Each party’s opportunistic behavior, engagement in communication activities, and mutual financial dependence are key determinants of mutual relationship trust.
- Mutual trust between the DMC and MP partners was key to building commitment to the business relationship.
- Continue building a strong reputation around their dynamic local expertise and network of local vendors.
- Proactively take advantage of available new technologies (social media) to provide more convenient services to MPs.
- Proactively seek out and use new vendors in local destinations.
- Differentiate services through creative program development for each RFP received rather than send out generic responses.
- Provide a “satisfaction guarantee” for DMC services (quality assurance).
- Build stronger international site inspections to highlight language and local cultural/legal differences for MPs and program attendees.
- Develop risk management services for MPs and promote them.
- Develop programs to educate the clients of MPs about the role of DMCs and persuade them of their necessity when operating a program.
- Differentiate and explain why the quality of certain DMC services that an MP can perform is more economical and effective with the use of a professional DMC.
- Justify cost and value of DMC services
- Work with larger DMC consortiums to create a regional, national, and/or global partnership that will not jeopardize the unique, customizable programs local DMCs can deliver based on their local skills and familiarity.
- Develop informational programs and demos to be presented in front of the MP to raise the visibility and awareness of DMC services.
- Conduct frequent self-assessments and appraisals of the client’s perspectives to close the gap in understanding the DMCs’ role and value. This should include other clients than MPs.
- Create a strong, positive brand image of DMC services to clarify the value of DMCs’ services as well as establish additional business from their MP clients.
As a key professional service provider of tourism destinations, the destination management company (DMC)  has been well established in its reputation, sharing extensive local knowledge, expertise, and resources with diverse market segments of clients. A key strategy of DMCs’ success in the market lies in its role to negotiate on clients’ behalf by always keeping the client’s best interest and budget in mind with their keen knowledge and expertise in local destinations. However, DMCs’ client-centered business activities have been distressed by the Internet’s unprecedented power with easy access to information, visuals, reviews, products and services, and responses to specific inquires. The Internet’s continuing expansion into traditional DMC markets has challenged the value proposition and historic role of DMCs as one of the key intermediaries in the travel industry.
This changing landscape of technology and the Internet’s search engines (e.g., Google) and social media (Facebook, Twitter, etc.) have the potential of causing the disintermediation of some, if not many, of the services of the traditional DMCs. Due to the abundance of information available for potential clients, in particular, about price for services and products of their competitors, DMCs have been disadvantaged in their price competitiveness. In many cases, however, DMCs will enjoy more publicity to potential markets and potentially acquire more business opportunities in this highly competitive online business environment. DMCs used to have ignored or discounted this disruptive technology, but now they begin to understand and accept the changing market forces. Acknowledging potential impacts of disintermediation on their business practices, DMCs must identify more significant challenges they will be facing in 2015 and beyond. Such market changes will definitely give DMCs an imminent opportunity to re-evaluate their value proposition and services to determine how to more effectively serve their business meetings and incentive event clients as well as, at the same time, to redefine their essential roles and potential collaborative business opportunities with their key business clients and competitors, meeting planners (MPs).
Reviewing the recent business situations and issues DMCs have been facing in this competitive, digital market, we investigated the key positioning issues for DMCs through their self-evaluation as well as peer-evaluation by MPs to answer DMCs’ market competitiveness and business impacts. Through this comparable business analysis, we attempt to develop competitive business strategies for DMCs and redesign their value propositions.
 A professional services company possessing extensive local knowledge, expertise and resources, specializing in the design and implementation of events, activities, tours, transportation and program logistics, per the Association of Destination Management Companies International.
This research is a primary study designed to answer a few particular questions arising from the current issues in the DMC industry. Our review indicates that there has been no published study or data to answer the same questions raised for this study. The questions for this study are customized largely to those proposed by the Incentive Research Foundation (IRF), which is the funding organization for this research, but we also expanded our investigation to generate scholarly contributions to the field as well as address some additional relevant issues. The key research goals and their corollary questions are as follows:
- To identify current issues and concerns of DMCs from their own perspectives as well as from their key clients, MPs in this study. We addressed this goal through focus group discussions and/or interviews with both DMC operators and MPs by seeking answers to the following questions:
1.) What are the current and emerging services being offered by online “business travel guide sites?” As the online travel information sites are growing in business these days, we believe these businesses pose serious threats and opportunities to the DMC business. We will attempt to identify several of these online sites as examples.
2.) What are DMCs’ perceived current and future market impacts of these sites?
3.) What are the changing/emerging dynamics of competition and markets for DMCs as perceived by DMCs and MPs? a. Identify existing and new key competitors.
4.) Identify key drivers of current and emerging competition.
5.) Assess the extent to which the current business model of DMCs will be impacted.
- To reposition DMCs to meet the new market challenges effectively by developing and redesigning their value propositions We address this goal through national field surveys with both DMC and MP group samples to obtain generalizable information. We designed the survey questionnaire around the following specific questions:
1.) How is DMCs’ traditional value proposition being challenged by the newly forming market?
a. What is DMCs’ own perceived value proposition?
b. What are MPs’ perceived current and desired value propositions for DMCs from a client’s perspective?
2.) How is the DMC’s experience factored into this changing environment? Are there any measurable differences in the experience (i.e., client satisfaction) between the two basic options (DMC or online) from the perspective of MPs?
To answer the research questions, we designed our study in mixed methods including focus group discussions, personal phone interviews, and nationwide surveys. We administered the same matched procedure of the study to the primary DMC operator group and its key client/competitor, MP group. In this way, we could examine both parties’ perspectives in understanding of the on-going industry issues. Such information would allow us to examine how similarly or differently DMC and MP organizations react to the external business conditions and how well they are prepared to take advantage of future opportunities as well as prevent their business from possible threats. Direct comparisons of the similarities and differences in the perspectives of DMCs and MPs will help us understand the current and future challenges facing DMCs and, thus, help us develop suggestions for future DMC operations. We do not find any research effort addressing this issue by examining the perspectives of these two key business clients/competitors simultaneously and, hence, we hope to provide useful, current information to relevant industries. Research on the dynamic business relationship between DMCs and MPs, as both clients and, at the same time, competitors to each other, is rare. In fact, the DMC and MP businesses are somewhat neglected areas of researchin general, not to mention their complicated business relationship. We tackle in this study the underlying mechanism of this business relationship and attempt to explain how each party gets to commit to or leave the business relationship, in application of a widely adopted relationship theory. By doing so, we aim to contribute to the scholarly literature on relationship marketing particularly in terms of the DMC and MP businesses.
1.4.1. Focus Groups
We followed closely a standard procedure of mixed methods to collect necessary data to answer our research questions. Figure 1.1 summarizes the research procedure followed with brief explanations of activities involved. We formulated the research questions in collaboration with IRF. Two focus group discussions, one with DMC operators and the other with MPs, focused on (1) discussing current trends, issues, and business conditions for the DMC business in the first session and (2) identifying strengths, weaknesses, opportunities, and threats (SWOT) facing the DMC business in the second session of the approximately 90-minute meeting with each group separately. For focus groups, we invited DMC and MP professionals who were going to attend the World Education Congress (WEC) 2014 held in Minneapolis, MN from August 2nd through August 5th, 2014. Three researchers led the focus group discussions following the predetermined procedure during the WEC conference in Minneapolis. We strived to balance between genders in the sample and limit the sample size for efficiency. As a result, 18 (10 DMC and 8 MP) professionals agreed to participate in the respective discussion. All participants signed the consent form before entering the discussion and they were compensated $50 each for their participation.
We complemented the DMC focus group with additional individual, telephone interviews with five DMC professionals later because only five of the 10 agreed DMC professionals showed up for the focus discussion. These additional personal interviews followed the focus group procedure as closely as possible, albeit individually, in the order of presenting research questions. First, the researchers explained the purpose of the research project, following a brief introduction of each participant. The participants were then encouraged to freely discuss key trends and issues in the DMC business in the first half, followed by a discussion on SWOT of the DMC business. We followed up the discussion with a few additional questions about major competitors and strategic partnerships between DMCs and MPs in order to enrich our understanding of the DMC business. All discussions were recorded for transcription and content analysis later. At the end of each focus group, we presented a summary of the discussions to the participants to (1) assure we captured all key ideas discussed and (2) ask them to rank order the SWOT items in order of their criticality to the success of the DMC business. We recorded some observable facts about the participants for descriptive purpose, debriefed the research process, and adjourned the meeting.
1.4.2. Field Surveys
Based on the results of the two focus groups, we developed the research questionnaire for a national survey with DMC and MP professionals to obtain more generalizable data. Before we launched the survey, we refined the instrument a few times based on the review and input by several hospitality research experts as well as IRF. The instrument was then piloted to 20 DMC and MP professionals to assure relevance and face validity of the questions being asked. Upon finalizing the instrument, we constructed two websites on Qualtrics™ to host each of the DMC and MP surveys for national surveys.
The survey questionnaire for both the DMC and MP groups was matched for questions as much as possible to raise comparability in the results between the two groups (see Appendix 1and 2 for the actual survey questionnaire used for each group). The questionnaire included roughly four sections. The first section askedquestions related to the characteristics of the participant’s business and organization. The second section listed a number of SWOT statements for the DMC business that were developed from the earlier focus groups so that the participants could evaluate each of them. In the third section, we asked a series of questions designed to help us understand and explain theoretically the strategic business partnership between the DMC and MP organizations. The last section of the questionnaire deployed a few questions about the participant for descriptive purposes.
For generalizable results, we strived to gather data from at least 100 DMC and 100 MP professionals. We deemed a sample size of 100 for each group sufficient given the fact that the participants were professionals loaded with professional knowledge and experience and that the population sizes were thought relatively small, albeit undefined. The surveys were launched in early October, 2014 and closed in the second week of January, 2015. For sampling, we relied on the directories of DMCs retained by IRF and MPs through the networks retained by the research team. We followed up the initial survey distribution a few times during the survey period to increase response rates. We offered incentives to randomly selected participants (one $500 gift card and four $250 gift cards for each group) to encourage participation. All responses were automatically sorted through the Qualtrics™ system into data spreadsheets for analyses.
- A professional services company possessing extensive local knowledge, expertise and resources, specializing in the design and implementation of events, activities, tours, transportation and program logistics, per the Association of Destination Management Companies International.
Click Here to View the Executive Summary and Focus Groups
Click Here to View Perspectives of DMCs
Click Here to View Perspectives of Meeting Planners
Click Here to View Comparison of DMC and Meeting Planners Views