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HomeMy WebLinkAbout13 - Newport Beach Conference & Visitors BureauCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. 13 November 13, 2007 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Administrative Services Department Glen Everroad, Revenue Manager, everroad(a)city.newport- beach.ca.us, 949.644 -3144 SUBJECT: Murdaugh Marketing Assessment Report on the Newport Beach Conference & Visitors Bureau RECOMMENDATION: Staff recommends Council receive and file the attached assessment report on the Conference and Visitors Bureau. DISCUSSION: Background: The City has contracted with the Newport Beach Conference and Visitors Bureau (NBCVB) since 1989 to "develop, plan, carry out and supervise a program to promote tourism in, and serve the needs of visitors to the City as well as increase the amount of tax collected through their promotional activities ". The current agreement with the NBCVB, executed in 2003, provides that it receives eighteen percent (18 %) of the Uniform Transient Occupancy Tax (UTOT) collected by the City. Last year, the NBCVB received approximately $2.6 million in City funding. City funding represents 94% of NBCVB revenues, with 3% coming from membership dues and another 3% from other sources. Last year, the City Council directed staff to perform an assessment .of the NBCVB. Marshall Murdaugh Marketing was hired to perform the review and his report was provided to staff in August of 2007. The scope of services for his review is listed on pages three and four of the attached report. Generally, Murdaugh was tasked to provide: 1. A competitive analysis of the NBCVB's funding as compared to other cities and their CVBs. 2. An analysis of the current contract with the NBCVB. 3. An assessment of the NBCVB's performance. NBCVB Assessment Report November 13, 2007 Page 2 Murdaugh was directed to review the existing NBCVB administration and its programs. It should be noted that none of the current NBCVB staff were employed during the previous administration and that the current administration has been in place for less than two years. The Murdaugh assessment lists major findings on page six of the report. Murdaugh reports that in contrast to the previous administration, the new leadership at the NBCVB is effective and comprised of seasoned professionals. He relates that the current administration is employing a number of best industry business practices that were absent in the previous administration. Report pages 16 through 19 lists NBCVB performance deliverables that Murdaugh recommends the NBCVB measure and regularly report on. The report also rates the NBCVB on a twenty point scorecard check -list (pages 29 — 32) and summarizes that the NBCVB has "a disciplined, best business practice procedure that employs ongoing third party validation and support for its business planning ". Murdaugh's analysis of the NBCVB contract is found on page 23. He relates that it "clearly defines the delivery requirements for the bureau through development of an annual marketing plan, attendant goals and final results to be achieved ". The report suggests that the current 5 -year term of the contract, while better than the majority of bureaus that operate on a 1 -year term, should be extended and that it be enhanced to specify an annual reporting of major NBCVB activity and productivity, along with quarterly management memos that outline the progress of the annual marketing plan that is now a requirement of the contract. With regards to the competitive analysis of NBCVB's funding relative to other bureaus, Murdaugh relates that the NBCVB funding is "about 60% less than the average CVB throughout the United States ", concluding that "it is at a competitive disadvantage in building share of consumer attention and interest in producing visitation against the larger marketing budgets of many destinations ". The report recommends increasing the NBCVB funding, indicating that the additional funding can be. paid for with an increase in the UTOT. Murdaugh relied on a single survey conducted in 2005 by the Destination Marketing Association International (DMAI) for this portion of the analysis. That survey compiled information from 222 bureaus from across the country (Newport Beach did not participate in the survey). A copy of that report was not provided with his analysis, but the consultant chose to list (on page 13) a sampling of 24 cities from the DMAI report. Staff pressed Murdaugh for details on his conclusion regarding the funding level for the NBCVB and whether the agencies responding to the DMAI survey constituted the NBCVB's competitive set for funding analysis purposes. On page 5, Murdaugh states that his assessment "avoids the use of competitive -set analyses against other destinations because of their limited potential for performance enhancement relative to auditing needs ". Staff has since obtained a copy of the 304 page DMAI report from the NBCVB. While it does provide relate funding levels of bureaus rooms marketed by the bureau, the number of bureau operated budget categories, based on bu to $5 million category. Compa DMAI survey relates: average bureau funding levels, it does not attempt to based on defining factors such as the number of hotel whether the bureau also operates convention facilities, visitor centers, etc. The DMAI report does create six bud NBCVB Assessment Report November 13, 2007 Page 3 size, and the NBCVB's budget falls in the $2 million ring bureaus within the NBCVB's budget category the • The average bureau markets 342% more hotel rooms than the NBCVB. • The average bureau has primary sales & marketing responsibilities for a convention center which the NBCVB does not. • The average bureau receives 15% of its funding from private sources versus the NBCVB 5% private funding. Staff believes that there are important factors that should be included in an analysis of bureau funding and that many of those have not been included in the Murdaugh NBCVB funding analysis. For example, the Murdaugh analysis fails to distinguish funding levels for tourist destinations, like Newport Beach. Tourism adds significant additional public safety costs, offset, in part, by UTOT. Based on the foregoing, staff makes no recommendation relative to the NBCVB funding. The Murdaugh NBCVB assessment report was presented to the Finance Committee on August 28. Noting that City Manager Bludau serves as a member on the NBCVB Board, the Finance Committee recommended the City Manager work directly with the NBCVB on recommendations made in the Murdaugh report, including benchmarking measurements and quarterly reporting to the City Council. The Committee also noted the importance of additional comparison to cities that are like Newport Beach be made before acting on a recommendation to increase TOT. Environmental Review: Environmental review is not applicable. Public Notice: Public notice is not required. Funding Availability: Not applicable. Prepared by: Submitted by: Zj GI rroad, Revenue Manager NBCVB Assessment Report November 13, 2007 Page 4 ' Dennis s Director Attachments: Murdaugh Marketing Assessment Report A Tourism Assessment Prepared for the City of Newport Beach and the Newport Beach Conference and Visitors Bureau MARSHALL MURDAUGH MARKETING August 23, 2007 Table of Contents Introduction................................................... ............................... 2 Industry Background on Assessments & Methodology ......................3 MajorFindings ................................................. ..............................6 SituationAnalysis ............................................ ..............................7 Section I: City Investment in CVB Tourism Marketing ..................... 11 Section II: CVB Performance -based Marketing .. .............................15 Section III: Reporting and Accountability ...... ............................... 23 Section IV: Policies, Procedures, etc .............. ............................... 25 The CVB Audit Scorecard Check list ............... ............................... 29 Profile of the Successful DMO: Comparing Newport Beach ............. 33 Recommended Marketing Budget for the Newport Beach CVB........ 36 This assessment for the City of Newport Beach has been developed as an independent and impartial report by Marshall Murdaugh Marketing, and all of its findings and recommendations are solely those of the consultant. 1 Introduction The City Government of Newport Beach has requested this third party assessment of its current role in economic development through tourism and its contractual relationship with the Newport Beach Conference and Visitors Bureau (CVB). Specifically, it is interested in three major areas: 1. A competitive analysis of community government funding as compared to other cities and their CVBs. 2. A review of the current City contract with the CVB. 3. An assessment of the Conference and Visitor Bureau's marketing work on behalf of the community. In each case, it desires assurance that it is on target in assisting the development of quality marketing and management programs that maximize performance -based results on behalf of the community through appropriate levels of public funding. About the Consultant Marshall Murdaugh Marketing was asked to produce this assignment for the City of Newport Beach because of his track record in the development of performance assessments for government agencies and destination tourism marketing organizations and particularly, convention and visitor bureaus. Murdaugh has produced more than sixty strategic planning assignments and assessments for such communities as the City of Los Angeles, the Fresno CVB, City of Palm Springs, Miami /Dade County and the Miami CVB, the Palm Springs Desert Resorts Convention & Visitors Authority, Pocono Mountains Region of Pennsylvania, Wisconsin's Door County Tourism Region, Atlantic City Convention &Visitors Authority, Baltimore and Niagara Falls, Canada. He authored the chapter on Destination Marketing for the new industry textbook, "Fundamentals of Destination Management and Marketing ". He also assisted in developing the Convention and Visitor Bureau industry's performance reporting and retum- on- investment criteria for the Destination Marketing Association International. And his "Performance Assessment Manual" for destinations has become a major industry auditing resource. Murdaugh's quarterly "E Murdaugh Marketing Newsletter" is read globally by international tourism executives (on the web at: MMTourismMarketing.com). Before establishing his consulting service firm seven years ago, Murdaugh served for more than thirty years as President and CEO for some of America's most successful destinations. He was Tourism Commissioner for the State of Virginia under four Governors (1970 -83) where he is perhaps best known for developing the award - winning "Virginia is for Lovers" marketing campaign that helped bring about a new era of multi- billion dollar tourism business to the Commonwealth. Murdaugh later served as President and CEO for the New York City Convention and Visitors Bureau (1988- 1994), The Atlantic City Convention and Visitors Authority (1994 -2000) and the Memphis Convention & Visitors Bureau (1983 -88). Industry Background on Destination Marketing Assessments The need for performance assessment of tourism and convention destination marketing organizations has become quite prevalent today. Following 9/II and the faltering travel economy, a number of communities were faced with declining tourism impacts, including hotel room tax revenue, and resulting depressed marketing resources required to produce them. As a.result, many communities, both large and small, called for a new wave of assessments and market planning guidance for destination marketing agencies. At the same time, other emerging communities have sought to become new travel business competitors — eager to fund marketing programs that allow them to increase their own market share of the nation's travel industry. Many of them have also proactively sought to evaluate and strengthen their own efforts through the auditing and consulting marketing support process. Today, the evaluation and enhancement of destination marketing organization (DMO) performance has become a top priority as communities assess where they are in relationship to both the marketplace and their competitors. Scope of Services Here are the steps we took in developing this assessment of the CVB for the City of Newport Beach. 1. Prior to onsite work, a thorough review was made of all major operational and marketing materials, including city contract, bylaws, organizational chart, job descriptions, marketing plan, mission statement, goals and quantifiable productivity deliverables, etc. 2. A hands -on, personal assessment was conducted of the bureau's staff skills, core competencies and performance results. Key staff will be interviewed to review programs and resulting success. 3. Review of current marketing plan, including mission statements, goals, objectives and work strategies. Program priorities were analyzed, along with the current budget and funding sources. 4. Review of organizational management, governance and human resource processes. 5. Analysis of major marketing, sales and services programs and processes including direct marketing, bid proposals and presentations, collateral materials, communications, web site, familiarization programs, trade show solicitation processes, etc. 6. Detailed recommendations have been offered to address all relevant issues regarding governance, operations, marketing and other needs as requested. Best practices will be offered as appropriate. Competitive and comparative information will be shared as well. In addition, new bureau funding opportunities, partnership alliances, product development and other strategic issues will be addressed to maximize the benefits to Newport Beach and its travel markets. 7. Written assessment has been provided of the Conference and Visitor Bureau's current role in the City's economic development through tourism. 8. Written assessment has been made of the contract between the City and the Conference and Visitors Bureau. 9. Written competitive analysis is provided for community government funding of other CVBs. 10. We have also offered additional recommendations for consideration by the city and the CVB. Throughout this assessment, our focus was on the current administration and resulting work of the CVB. Auditing Methodology Our methodology included a diagnostics approach to determine the current effectiveness of both qualitative and quantitative efforts, analyzing results based on current industry standards, best business practices, our own special competitive analyses, and other techniques as required. However, because of the limited five -day onsite allocation of time provided for this assignment, this should be considered a macro assessment designed to offer, where appropriate, recommendations for enhanced communications, marketing, management and operations. The consultant also relied on his prior findings from numerous comparative performance assessments conducted for other Destination Marketing Organizations throughout the tourism industry. His recently published "Self- assessment Manual for Convention and Visitor Bureaus" (CVBs) was used as a guide throughout this process. We also reviewed 12 data and reports from both the Destination Marketing Association and the Travel Industry Association of America, as well as from other CVBs. This assessment avoids the use of competitive -set analyses against other destinations because of their limited potential for performance enhancement relative to auditing needs. This is because all communities are inherently different, with different economic conditions, tourism infrastructure, DMO staffing, state tourism initiatives, customer requirements, airport enhancements and service, and a litany of other component parts which all, to varying degrees, impact the community and CVB results of tourism marketing and resulting performance. We also relied on information from the "CVB Organizational & Financial Profile" of the Destination Marketing Association International (DMAI), the industry's most comprehensive study of this kind. (We have recommended that the Newport Beach CVB purchase this 294 -page analysis for future study and also share a copy with the City administration). Study analysis also required a series of follow -up calls to .validate information and findings with both the DMAI research staff and their research consultant, Ruth Trojan of Nadler- Associates. Document review also included the CVB's Employee Handbook, Smith Travel Research Hotel occupancy /demand information for Newport Beach, the first three of four seasonal wave reports that comprise the new Newport Beach Visitor Profile Study from LSC Consulting, NBCVB sales territories and quota results for 06 -07, NBCVB Marketing Department Report 06 -07, Auditor's Management letter and recommendations of Jan. 11, 2007, PKF Consulting July and Sept '06 CVB sales report findings and recommendations, the CVB's follow -up Standard Operating. Procedure Sales Manual 2007, and the current annual CVB budget by departments. Multiple meetings were taken with Bureau President & CEO Gary C. Sherwin and all other CVB staff members, Board Chairman Andy Theodorou, City Manager Homer L. Bludau, City Revenue Manager Glen Everroad, and other telephonic calls to industry leadership to validate information. In addition, a broad -based orientation of the community was taken throughout the week for destination familiarization. Thanks to all participants Finally, we wish to express sincere appreciation to everyone who participated in meetings and shared their candid beliefs, concerns, interests and recommendations that were intended for the greater good of the community's tourism industry and the Newport Beach destination it serves. Note: for the purpose of this report, the use of the terms Destination Marketing Association, DMO, CVB, NBVCB and Bureau are usually synonymous with the Newport Beach Conference and Visitors Bureau. Major Findings of this Assessment During the past year, new executive leadership of the Newport Beach Conference and Visitors Bureau has laid the foundation for an exceptional CVB model for the community, employing a number of best industry business practices for destination marketing and management that were previously lacking at the bureau. The senior staff are seasoned industry professionals with track records of significant achievement. • The CVBs current marketing plan is on target to deliver performance based results In the areas of conference sales, media publicity, website consumer usage and CVB member support. It also continues to refine its ongoing marketing efforts through consumer research and third party support. To further optimize performance deliverables, we recommend a number of tactical approaches, along with methods for delivering and measuring return on investment. ■ Among the new initiatives now In place is state of the art new Newport Beach Branding program designed to build higher volumes of customer awareness leading to interest, desire and ultimately visitor action. However, the amount of city government funding invested through visitor taxes to support this important economic development initiative -- specifically through the transient occupancy tax -- is low when compared to other competing cities and CVBs. The Newport Beach CVB currently operates with a budget that is about 60% less than the average CVB throughout the United States. Thus, it is at a competitive disadvantage in building share of consumer attention and interest in producing visitation against the larger marketing budgets of many destinations. ■ We recommend an expanded CVB market funding initiative for the Newport Beach community through the city that will produce resulting higher quantifiable returns of visitor receipts and new tax revenue benefits for the community. Ci Situation Analysis: The Tourism Destination Marketing Organization's Models and Mission —and where Newport Beach fits The history of tourism and convention programs and visitor associations dates back to the 1800s, but it was during the last 100 years that local tourism offices and convention /visitor programs began to more rapidly be developed across the country to promote the visitor industry and its benefits to diverse communities. Today, a variety of destination marketing organizations for regions, counties and cities are principally viewed as full- service destination marketing organizations or DMOs. Most of them lead the development of their community's hospitality and tourism sector and are often a driving force in the local economy. There is now a tourism office or conference/convention and visitor bureau (CVB) in most every US community as well as throughout the world. For background, it is important to note that measuring and valuing tourism is as complex as the industry itself. Indeed, there is no other comparative business model that remotely resembles it. For unlike other industries that can be described as vertical, tourism is generally regarded as the vast, collective and diverse categories of all businesses that serve travelers. It is therefore, a major contributor to federal, state and local economies. In 2006, according to the Travel Industry Association of America, the U.S. travel industry received an estimated $700 billion from domestic and international travelers excluding international passenger fares. These travel expenditures, in turn, directly generated more than 7.5 million jobs with $177 billion in payroll income for Americans, as well as an estimated $109 billion in resulting tax revenue for federal, state and local governments. Community tourism promotion agencies have slowly transitioned over the past few decades from less effective general service response- oriented programs that focused primarily on activity, to today's sophisticated organization, whose principal business is marketing; that is, determining customer needs and then filling them through a variety of tactical programs (advertising, direct sales, customer service programs, collateral development, media publicity, the Internet, etc.) These pro- active "umbrella" marketing initiatives - -in partnership with industry business sectors —are designed to produce incremental economic returns for the community through additional visitors, including new visitor expenditures, tax revenue and resulting jobs that are generated and sustained through this spending. Indeed, a variety of tourism offices and CVBs are now officially regarded and recognized as "Destination Marketing Organizations" or DMOs. And the international trade association for them has resultantly changed its name from the International Association of Convention and Visitor Bureaus to Destination Marketing Association International (DMAI). 7 To fulfill its mission, a successful CVB /DMO serves as a coordinating entity, effectively bringing together diverse community stakeholders — from local government to trade and civic associations to individual businesses including accommodations, transportation, restaurants, retail, the arts and sports –to attract visitors to their area. It consolidates community wide disparate marketing efforts under one much more efficient, integrated "umbrella" program. Today's DMO is certainly an unusual industry business model, in that it primarily functions as an independent 501-c6 non -profit agency, fueled primarily by government funding (principally through the transient occupancy tax paid by visitors) to produce business returns that ultimately benefit the entire community. Newport Beach and Tourism Development Despite Newport Beach's rich, long -term tradition of hosting visitors, it wasn't until 1989 that the CVB was created from the Chamber of Commerce. In contrast, the average US CVB was formed a quarter century earlier. Today, the Newport Beach Bureau operates with a staff of 14, which matches the industry average of 11 full time and three regular part-time employees for a CVB, according to DMAI, the CVB industry trade association. However, its annual budget of about $2.6 million is about 60% less than the average CVB budget of $4.4 million *. This is not particularly unusual considering Newport Beach's limited infrastructure of an estimated 2,655 hotel rooms as compared to the average of 10,310 rooms in the primary funding area of the average CVB. Correspondingly, the Newport Beach CVB has about 200 business partner members. The average bureau has 569. At the same time, Newport Beach has recently undergone dramatic growth in the range of about $125 -$150 million in new visitor product: hotel additions, renovation and new construction; retail shopping, attractions, golf facilities and airport enhancements. This further supports the need for an enhanced community -wide CVB marketing program to introduce new potential customers to Newport Beach's exciting, expanded visitor offerings. Unfortunately for Newport Beach, the principal liability in having a much smaller destination marketing budget, as compared to the average CVB, is that it places the community in an unfavorable competitive position when it comes to purchasing marketing tactics/programs (such as advertising, sales initiatives, media publicity, direct mail, trade show booth space, etc.) to vie for consumer and customer attention. We address this funding issue under section I of this report as well as in other relevant sections. *This and other comparative and competitive information in this report provided from the latest "CVB Organizational & Financial Profile" of the Destination Marketing Association International (DMAI). The study, which includes comparative data on 222 Convention and Visitor Bureaus, was produced in the Fall of 2005 and updated in April, 2006. 91 History of High CVB Staff Turnover In the Newport Beach CVB's eighteen year existence, it has experienced extensive senior management turnover with a total of five Presidents, including the current CEO, Gary Sherwin, who joined the agency last year. A review of past personnel positions and staff rosters indicates there has also been a history of high staff turnover at the bureau; today there are no employees who were employed during the previous administration. Effective New Leadership in Place In contrast to former bureau executives at the CVB, Sherwin has a track record of significant achievement and a career of progressively upward mobility within the Destination Marketing Organization Industry, at the CVBs of Los Angeles, Fort Worth and Palm Springs. He has also staffed management positions at the Newport Beach CVB with professionally well qualified, seasoned employees. As examples, the Vice President of Marketing came to the bureau following senior management positions with ABC Television and the Disney Corporation. The Vice President of Sales brings a strong conference sales management background from his prior assignments with the Hyatt Corporation. A significant highlight to be noted in this report is that during the President's brief one year tenure, the CVB has made major advances and accomplishments as compared to the previous administration, laying a foundation for a new management and marketing program through implementation of a number of Destination Marketing Industry best business practices previously missing at the bureau. Highlights include i Created a new, efficiently targeted marketing department that oversights the function of development, e- marketing and related research. This management initiative is supported by outsourced agencies for research, advertising, e- marketing and other tactical work. i Developed the CVB's first comprehensive marketing plan, an ambitious and focused plan. Prior to this plan, the CVB's emphasis was principally confined to advertising and sales trade shows. This Marketing Plan will soon be supported with a benchmarked, expanded new program of productive staff work (conference sales, conversion of new visitors through advertising, other performance deliverables for PR, membership development, etc). A. Revamped and expanded the sales department, opened the new sales office in San Francisco and added two sales managers to target new, lucrative markets for the City —and plans to open a new office in Los Angeles before year's end. This approach of employing staff for these sales functions, rather than the use of contract personnel —which the previous administration did in San Francisco- -is a significant improvement. 0 i Requested two independent audits to validate and enhance success — which were produced by PKF consulting to confirm past sales performance and recommend new internal booking and sales management procedures of the bureau. The resulting new Standard Operating Procedure Manual developed by the bureau is one of the most comprehensive compiled by CVBs for this purpose. 4 Developed the CVBs first, comprehensive, research -based brand development program designed to positively position the community and all its attributes with both the meeting and leisure tourism markets. (It should be noted that Gary Sherwin was the co- author of the new industry textbook, "Destination BrandScience ", which has become the model for industry destination branding throughout the world). i Launched the CVB's first web marketing program and electronic strategy to reach and covert more customers for Newport Beach. 4 Is now preparing the bureau's first stakeholder assessment survey for community business partners to determine the value and program priorities of the CVB in relationship to their needs i Began development of the cVB's first comprehensive, seasonal Visitor Profile Study for the community to further guide the development of future marketing efforts Next, we include the four core sections of this Assessment that address: • City Funding • CVB Performance based Marketing • Reporting and Accountability • CVB Policies, procedures and other relevant management issues 10 Section I: City Investment in CVB Tourism Marketing Since 2004, the City of Newport Beach has allocated to the CVB 180/0 of the total collected annual Transient Occupancy Tax (TOT) paid by lodging guests as the City's annual investment in the promotion and marketing of tourism to Newport Beach. The CVB also receives an additional $70,000 in member dues annually from about 200 local front -line tourism business partners. In 2007, The Newport Beach Transient Occupancy Tax collection rate of 10 per cent produced about $13,443,000, according to City records. And the CVBs dedicated allocation of 18% amounted to $2,607,000. Throughout the industry, according to the DMAI Bureau Profile found on its website: www.IACVB.org, the majority of CVBs (87 %) receive public funding from hotel occupancy tax revenue, followed by state /province non -tax funding (26% of CVBs) and city (non -tax) funding (180k). However, compared to the Newport Beach CVBs 18 % allocation of transient tax, on a comparative basis throughout the industry the study shows that CVB recipients of allocated transient tax currently receive 55.25% on average - -or more than half of their community's TOT. And when Newport Beach is compared to other CVBs of similar budgets in the $2m -$4.99 million range category, that percentage remains at 55.0%. Community room tax (TOT) collections and use for the average CVB From the '05 CVB Organizational & Financial Profile of the Destination Marketing Association International. CVB Funding 55.2% Other non - visitor related purposes 40.0 Conv. Ctr operations, construction or debt service 37.1% Arenas and sport facilities 31.4% Other visitor related purposes 22.7% DMAI Note: The figures in the above chart will not add to 100 %. The figures reported are the average for those CVBs that reported Room Tax collected for the uses listed. For example, for only those CVBs that reported a percentage of the Room Tax that was dedicated to CVB funding, on average 55.2% of the room tax is dedicated to CVB funding. 11 Of further note, the average amount of TOT in communities where CVBs receive it is an estimated 5.75% compared to Newport Beach's 10 %. Therefore, at the rate of $175 for a hotel room x 5.75%, the average community TOT collected would be $10.06. At the average 55% community contribution made to the CVB, it would receive about $5.83. In comparison, the Newport Beach CVB would receive only $3.15 (based on generation of $17.50 from its 10% City TOT on the same $175 room, with 18% of it going to the CVB). Again, Newport Beach's allocation of TOT to the CVB, when compared to investment of other cities in their CVBs, puts Newport Beach in a challenging and unfavorable competitive posture against other cities in its attempts to further attract new visitor business to the community —along with the resulting visitor dollars and the new tax revenues they bring with them. Additional government support to CVBs As mentioned earlier, While TOT is by far the leading source of CVB funding for an estimated 87% of bureaus, it is not the only source of government funding to CVBs , with 26% receiving state /province non -tax funding and 18% receiving city non -tax funding support. For example, in Los Angeles, where the City provides about 42.6% of the CVB's annual budget through TOT, it also provides an additional 42% of the CVB budget in other public funding. These two sources comprise 84.6 %, or $16,725,000 of the CVBs total $19,770,000 budget. Next, we provide a review of many diverse and leading communities, their relative weight of dedicated TOT- -the investment of public funding provided to their CVBs to annually market and attract visitors and visitor dollars. 12 Comparing CVB Funding Showing total amount and percentage of transient occupancy tax for CVBs, total TOT collected, total CVB budgets (including all public/private funding) city CVB % & $ amt. of TOT reed. Total TOT Collected Total public /private CVB funding Newport Beach 18% $2,600,000 $13,443,000 $2.670,000 Los Angeles 7% 8,260,000 118,000,000 19.770,000 San Francisco 5% 6,897,250 157,945,000 13,536,000 San Diego n/a est.8,800,000 n/a n/a Anaheim n/a 4,386,959 n/a 7,960,000 San Jose 25% 1,591,000 15,912,000 5,117,000 Alabama Gulf Coast 100% 4,059,867 4,059,067 4,269,000 Bucks County PA 67% 1,405,162 2,097,257 2,695,000 Charleston SC 30% 1,737,000 5,790,000 6,184,000 Corpus Christi, TX 38% 3,344,000 8,800,000 2,709,000 Colorado Springs 66.7% 2,274,529 3,410,089 2,891,000 Ft. Lauderdale 30% 9,921,528 33,071,762 n/a FL Space Coast 75% 5,453,352 7.271,136 7,641,000 Kissimmee(Orlando 51.8% 12,957,086 24,994,375 20,000,000 area) Louisville KY 69% 8,686,735 12,588,023 13,788,000 Memphis 48% 7,524,000 15,675,000 7,492,000 Naples,Marco Is.FL 100% 10,500,000 10,500,000 10,515,000 Newport RI 47% 978,564 2,082,053 2,577,000 PA Dutch PA 38% 1,900,000 5,000,000 4,696,000 Palm Beach FL 39.8% 8,961,516 22,516,374 12,640,000 Phoenix/Scottsdale 40% 7,200,000 18,030,000 12,753,000 Quebec City 100% 3,878,000 3,878,000 12,630,000 Tampa Bay FL 39.6% 7,910,496 19,976,000 9,488,000 Tucson 45% 3,333,000 7,400,000 6,025,000 Comparative Chart Sources: Fall 2005 DMAI Study of CVBs, supplemented with direct contact of additional CVBs; (In some cases, CVBs supplied inadvertently mixed fiscal and annual year totals). Quebec City collections in U.S. dollars. CVBs not participating in the initial DMAI survey included Newport Beads, San Diego, Anaheim (some info provided) and Long Beach. At the consultant's request, the Newport Beach CVB requested updated information from these bureaus but in each case there was no response. Newport Beach information provided by City Finance. As referenced earlier in this report, the complete DMAI Study will be made available to City Finance for follow -up analysis. 13 Next, we explore this question: Why is the Newport Beach CVB funded at such a modest percentage of TOT and total dollar amount, compared to so many of its competitors? There may be a whole host of answers, including the following observations. Some may believe that tourism is like spontaneous combustion that just happens, or espouse an "if you build it they will come" belief. This perception is sometimes noted in more upscale, high demographic communities that enjoy pleasing lifestyle amenities, such as Hilton Head Island, South Carolina and Santa Barbara. Perhaps this observation is also shared here by those who may take for granted the ability of the community to actually attract and motivate more visitor business without the need for destination CVB marketing. The reality is far different, with hundreds of competing communities aggressively working daily through their CVBs to produce increased marketing efforts. And each tactical marketing initiative from each competing destination "moves the needle" over time, in producing share of mind and resulting interest in visitation there, instead of Newport Beach, for meetings and leisure travel. Another answer for this minimal marketing budget support may be that some individuals in positions of authority may only be familiar with the tactical programs of the bureau (advertising, promotions and publicity) and not with the emerging market -driven and customer focused Newport Beach CVB programs that should produce quantifiable return on investment results for the community. Finally, some unfamiliar with the culture of the Destination Marketing Industry may even question the CVB's ability as an organization to produce higher volumes of visitor business for the City; indeed, the explanation of the CVB's ability to generate specific quantifiable travel business for the community was certainly lacking in past marketing plans of the Newport Beach CVB. Therefore, there is an ongoing, long term requirement for the Newport Beach Bureau to consistently clarify and report on a wide range of productive economic returns from its efforts as we next outline under section II. 14 Section II: CVB Performance -based Marketing Perhaps the most important questions asked today by community stakeholders of CVBs, including boards, elected officials, the media and others, are centered around: what does the CVB deliver? What do we get for the money and what is the return on investment? In a broad based way, today's CVB is at the forefront of enhancing visitor support of quality of life issues and resulting amenities for residents as well — restaurants, retailers, attractions, arts and entertainment, cultural, historic and sports venues -- some of which could not exist without the business generated by visitors. In addition, by working to increase the effectiveness of the hospitality industry, the CVB helps create local jobs at various income levels, and materially lowers local taxes. The answer to what CVBs deliver should also be: the increased economic impact of visitors to the destination that would have gone elsewhere except for the sales and marketing efforts of the CVB. Therefore, explicit in the mission statement of most CVBs is the responsibility for tracking and producing quantifiable business for their communities. This is not a simple task -- and industry methodologies are being tested and are emerging on an ongoing basis. The Newport Beach CVB now produces goal based results in the area of conference sales, media publicity, e- marketing, leveraged ad support and new member recruitment. Its past year's results are attached to the current annual Marketing Plan and updated at least quarterly. However, we recommend further development of performance based quantifiable measurements and future goals for the marketing areas of: • Advertising • Web Development • Media Publicity • Visitor Center • Member and Partnership Development and Funding The Bureau is now in the process of revising this important tracking program by applying new research standards and third party evaluations of results. As it refines its approaches, it plans to benchmark major measurement deliverables and then use them to establish annual goals for the future. This matrix would be provided in the next marketing plan of the CVB and in forthcoming reports for the City and its principal constituents. 15 Recommended Future CVB Performance Deliverables In our judgment, the most important current and future productivity measurements for the Newport Beach Conference and Visitors Bureau are shown below - -and they should be tracked in monthly and year to date reports, also comparing against previous years, once the data has been benchmarked following year one. 1. CONFERENCE SALES -- Conference bookings and projected room nights produced along with the economic impact from this resulting visitor spending. Current measurements and goals: The CVB now sets goals for conferences booked and room nights generated. It is now evaluating new measurement methodologies for accurately determining the economic impacts of conference bookings and delegate spending there, and may decide to produce its own methodology based on third party inputs from such firms as PKF. However, the DMAI is now developing new expenditure averages for CVBs based on a number of criteria using the resources of D.K. Shifflett Research and Nadler and Associates. This study is due out later this fall and we suggest that the Newport Beach CVB also consider it for their potential future use. 2. ADVERTISING- -New leisure visitors generated via advertising impressions through inquiry conversion studies, and resulting economic impact. Current measurements and goals: tracked are value added additional advertising and "advertorial" coverage produced by the staff, along with additional publishing revenue garnered. For background, leisure travel advertising is usually designed to: produce new destination brand awareness, stimulate immediate visitor response and /or customer call - to- action for further visitor information through direct mail requests, email, couponing, a 1 -800 call center or transference of the consumer to the website for information, reservations, etc. There are no available records to conclude that this information was previously tracked by the CVB's former marketing staff. Last fiscal year's ad campaign approach and materials were determined by the current staff to be ineffective in both content and marketability, so only "placeholder" ads were produced last year to maintain Newport Beach's presence in necessary markets such as the State of California's Travel Guide. Instead, the CVB appropriately concentrated on the important Destination Brand Development Program as the genesis of new communications programs including advertising. Staff is now preparing to complete its planning for the launch of its new $700,000 advertising program in the next few weeks and we recommend that the entire campaign employ a conversion analysis program. To implement such a conversion program 1. A consumer call to action for visitor information must be included in the ad or provided by the publication. 2. Inquiries are tabulated and three to five months after their processing, a projectable sample of them are used for the follow -up survey that is conducted 16 by phone, email or regular mail. The objective of the survey is to determine the percentage of those consumers who, after receiving the travel information, were sufficiently motivated to come to Newport Beach. Economic data is collected on party size, trip nights, estimated expenditures, etc. 3. The data is then projected to the universe of all inquirers to estimate the effective ROI of the ad program. The staff is also now exploring alternative web based ad programs that have proven quite effective for industry conversion and ROI. We have offered internet based recommendations to them in this regard that are discussed in the Value Statement section of this report. 3. WEBSITE DEVELOPMENT (pending future development opportunities) -- New leisure visitors generated through inquiry conversion studies and resulting economic impact. Current tracking and goals include: unique visitors on the web and "key word" rankings that help increase visitors to the website. The Internet has now become, by far, the preferred conduit for the dissemination of travel information to consumers worldwide. We recommend development of a Customer Relationship Management Program on the website that encourages new visitor interface and requests for additional travel information of specific interest to each consumer. In this program, the consumer provides his email address which allows future tracking and conversions opportunity for the CVB. As demonstrated by some CVB web marketing programs, that conversion rate, over time, can be extremely high —in excess of 50%- -and can be an effective producer of new visitors in large volumes. Current CVB models include Bloomington, Minnesota, Atlanta and Memphis. If it is later determined feasible to produce a large enough CRM program in the range of 20,000 consumer participants, it could easily yield about 10,000 new visitor parties for the community annually. It may take a year or two to develop this effort and we recommend continued exploration. 4. MEDIA PUBLICITY -- Positive media publicity impressions produced of credible travel stories to influence travel decisions and resulting $ value in comparable advertising space costs. Current tracking and goals include: The dollar volume of editorial space received and the number of media assisted by staff. Further recommended for tracking is the attendant circulation of these articles (expressed in readership). This should begin as soon as practical. We also recommend an expansion of this important initiative under the Strategic Planning recommendations found in Section IV. 17 S. VISITOR WELCOME CENTER IMPACTS (pending development of new center)- - Visitor center customers who extended their length of stay based on counseling services provided, along with the additional economic impact from new room nights and resulting extended stays. The bureau is currently working on development of a new Visitor Welcome Center for the community in Fashion Island. This should be a marked improvement over the difficult to find current visitor center and administrative offices location, which was established by the previous administration. For background, successful counseling programs in other community visitor centers have a measurable impact on increasing the visitor length of stay that leads to new overnight hotel stays, serves to enhance the value of the visitor experience, encourages repeat visitation and produces new retail and restaurant revenue, etc. Properly administered, that dynamic should occur here, and it would not be unreasonable to assume that up to 10 -20% of visitors counseled could be motivated to extend their stays on average of at least one night. The methodology for measuring the economic impacts of this program can be developed following the implementation of a new visitor center model that will traditionally meet consumer needs. Currently, this program does not exist at the administration offices, where visitor information disbursal is an ancillary responsibility of the front desk. 6. MEMBER SUPPORT — Stakeholder Support, including dues, and additional non - dues revenue provided by business partners for expanded marketing initiatives. Current tracking includes: new recruitment of partners, annual renewal numbers and attendant dues. We recommend expansion to include new opportunities for quantifying: 1. Future stakeholder participation interest in CVB marketing efforts, 2. specific funding programs /new revenue such as pay -to -play opportunities and 3. In -kind services provided. The results of the upcoming member Assessment Survey should provide guidance in increasing member and member support. Below, we suggest consideration of menu- based member programming, sometimes referred to as "pay to play." These initiatives are designed to provide additional services to members who agree to provide additional financial remuneration for their partnership participation. Today some of the most popular menu based CVB programs include: • Web site advertising /Links • Coop advertising • Promotional Participation • Event Hosting • Publication Sales • Visitor Information Center(s) sales • Service Fees • Conference Registration • Corporate Sponsorships • Donated (non-cash) Products and services Other Donated Services as received by other bureaus may include: • Travel and entertainment • Sales/marketing /promotion • Bookkeeping /accounting • Car(s) • Computer services • Equipment • Postage • Printing • Rent • Volunteer staff We also suggest tracking this information as part of the ongoing marketing report as well as including it as a supplemental section to the annual budget. Value added /in -kind programs - -In addition, monitoring the receipt of funds and services provided to the bureau by its various constituents and programs can also be an effective way of determining the total marketing weight of the CVB's efforts. The bureau is already working to stretch its current resources. For example, The CVB has created value -added ad programs through negotiations with publications that have provided it with an estimated $400,000 last year in additional advertising or "advertorial" exposure. The CVB should now monitor and report all additional resources collected, including grants, publications' advertising, room night accommodations provided for client familiarization tours, other hosting and volunteer services, member participation in trade shows, etc. This in -kind category should be added to the member revenue produced to reflect the CVB's total marketing effort and established as an expanded goal for future efforts. 19 CVB Economic Impacts and ROI: Developing A Recommended Newport Beach Value Statement By incorporating the principal performance areas just listed, the CVB can develop in the future a Value Statement that clarifies total return on investment from these programs. A summary analysis follows using our current estimates of potential performance. Conference Bookings Impact based on Room Night Generation— Last year, the CVB conference sales goal was to book 9,442 room nights. However, the sales staff exceeded that goal by producing an estimated 10,397 room nights. While management is now researching the best methodologies to quantify delegate expenditures per room night in order to appropriately estimate the value of this new business, for the sake of our estimate we used an average daily rate of $175; delegate spending would conservatively approximate twice that amount to $350. And when multiplied by the 10,397 room nights that would have produced an economic return to Newport Beach of an estimated $3,638,000. Visitor Information Center Impact — After the first year's operation of the proposed new visitor center, a third party analysis of its positive economic impacts could be provided by a local tourism academic source such as the Cal State Center for Travel and Tourism. If just 10% of a potential 60,000 annual visitors to the center were converted to an additional overnight stay that was made as a result of counseling by the staff, the total increased economic impact from this program of 6,000 new room nights could approximate $2.1 million dollars (again based on a potential average daily expenditure of $350.00). New Leisure Visitors Generated via advertising impressions- and the internet through inquiry conversion studies, and resulting economic impact— Today, through advanced internet technology, it is feasible to seek and harvest targeted new customers for Newport Beach that can actually produce guaranteed incremental visitors to the area. One such program from EBrains of the Metro DC area has been proven in more than 26 states and 80 destinations to generate leads that are then converted to new customers through ongoing marketing communications programs and finally increase their lifetime value through repeat visits. The CVB is now considering a $100,000 placement, but for the purpose of this analysis, we have estimated the value of a $200,000 ad program, which would be capable of guaranteeing highly qualified electronically fulfilled leads/inquirers at a cost of $2.50 20 each. Such an effort would produce a minimum of 12,000 inquirers guaranteed to convert to actual visits to Newport Beach. This is estimated to deliver about 12,000 visitor parties and about 33,600 room nights for an estimated economic impact exceeding $12 million dollars--a 60 to 1 return on investment from an initial $200,000 program purchase. The final economic impact spending would be confirmed through an independent third party conversion analysis. With regard to the Internet, customer inquiry and conversion can often be measured as well through customer relationship management programs that may have merit for the CVB. For example, with a registered user base of 20,000 participants developed over time, it could potentially convert about 10,000 visitor parties annually and deliver substantial new measurable dollar revenue for the community based on length of stay. Positive Media Publicity Impressions Produced of credible travel stories about Newport Beach that can build the brand and positively influence travel decisions and resulting dollar value in comparable advertising space costs. With today's discriminating consumer placing a higher value and credibility on third - party produced editorial coverage vs. advertising, this is a high valued program for Newport Beach. Last year, according to a third -party analysis of media clippings, the total media coverage delivered from PR.staff work with writers was estimated to be valued at $1,900,000 based on equivalent advertising lineage space and rates had editorial coverage been purchased. This was a significant increase over the annual goal of $1.5 million. Our recommendation for the future is to set goals for both readership and media hosted while continuing to also measure the program's coverage through dollar cost benefits. 21 Proposed Value Statement for Newport Beach All of the aforementioned production estimates help further answer the question: What is the true value of the work of the CVB in fulfillment of its mission? While it only covers the "tip of the iceberg" in marketing value for the community, and doesn't address the important work of destination branding, business partnership and alliance development, etc., it does clarify quantifiable dollar performance accountability for the community through a simple statement that captures major annual return on investment for all stakeholders. By adding up the estimated impacts outlined earlier, such a new Value Statement could include: Conference sales: $3,638,000 Visitor Center: $2,100,000 Advertising: $12,000,000 Media publicity: $1,900,000 The resulting value statement for Newport Beach may read this way in the future: "Last year, operating with a $2.67 million dollar marketing budget, the Newport Beach Conference and Visitors Bureau produced an estimated $17,738,000 in new visitor dollars to the City from (number) leisure visitors and conference delegates. In addition, staff- generated media publicity valued at more than $1.9 million dollars reached (number) potential visitors (expressed in circulation /readership) who are now considering Newport Beach for future visits. Thus, on behalf of the City of Newport Beach and its 200 business members, the CVB delivered nearly a 7- to- 1 return on investment of marketing dollars expended." Following the development of marketing program components recommended in this report, we believe the actual economic impact will be significantly higher. 22 Section III: Reporting and Accountability City and CVB Contract We have reviewed the current City contract agreement with the Newport Beach CVB and believe it clearly defines the delivery requirements for the bureau through development of an annual marketing plan, attendant goals and final results to be achieved. For background, throughout the industry, 59% of CVBs have a contract with their primary funding source. This is certainly appropriate and necessary for communities who are serious about economic development through destination tourism marketing. About half of these contracts (54 %) are annual —which we believe is definitely not an appropriate business model for reasons to follow. The remainder of government /CVB contracts are for multi -year terms. The Newport Beach Contract not only provides for annual reviews of CVB performance results and market planning; the contract term of five years also gives the CVB an adequate window for long term strategic planning and the necessary third party support contracts for marketing suppliers including advertising, research, collateral development, e- marketing, etc. A five year term also signals an appropriate confidence level by the city in the work of the CVB and its staff and contributes to healthy agency morale. To maintain this continuity and the relationship it forges, we do suggest one of two alternatives: 1) that after two or three successful years of the five- year contract period, that the contract be modified with an "evergreen clause" that can again extend the contract for what would become a new five year provision, or 2) following the first three years, a provision would allow for negotiation of a new five -year contract period from the date of signing. The existing contract should also be enhanced to specifically call for an annual report of major bureau activity and productivity, along with quarterly management memos that outline the current and ongoing progress of the annual Marketing Plan that is now a requirement of the contract. 23 Forging a Stronger CVB Partnership with the City The City Manager's seat on the CVB Board of Directors in an Ex Officio capacity is certainly a best business practice for enhancing effective communications. We understand that the CVB President maintains a good ongoing relationship with both the City Manager's office and with those on the City Council. We also recommend the following initiatives for strengthening what already appears to be a very productive public/private partnership. The CVB should provide the City Manager's office, and members of the City Council, if requested, with copies of its newly created reports and policies, such as the Travel and Entertainment policy, the Personnel Handbook, contract provisions for vendors and third party consultant studies that would provide evaluative findings of interest to the City in its tourism oversight capacity. We understand that the City Manager, as an ex officio Board member, now receives these reports, including PKF's recent studies and the resulting Standard Operating Procedure Sales Manual produced by the CVB. If someone else should also receive them as a representative of the City, such as the City's Revenue Manager, that should be requested and provided by the CVB as well. ■ The new industry textbook, "Fundamentals of Destination Management and Marketing ", which provides a detailed overview of the culture of the CVB industry, should be made available to all members of City Council. This would further aid in understanding the ongoing work of the Newport Beach CVB. ■ Likewise, "Destination BrandScience ", which details the new destination branding efforts now being initiated for Newport Beach by the CVB, should be provided to them as well. • The quarterly CVB plans and progress memorandum that was mentioned earlier as a contract addendum should also be offered to interested members of the City Council. ■ There may also be some interest by stakeholders in reviewing an ongoing listing of CVB activity reports that summarize current accomplishments compared to past periods. Categories may include sales calls made and sales leads generated, publicity releases disseminated and writers hosted, stakeholder /members added and revenue produced, visitors serviced at visitor center, etc. Some CVBs employ a "members only" section of their webslte to disseminate this information. Others use email or hard copy newsletters, etc. As part of the upcoming member assessment survey, stakeholders should be asked how they wish to receive future information. 24 Section IV: CVB Policies, Procedures, Other Marketing and Management Issues The Independent Financial Audit Prior to the hiring of the current CEO, the Board of Directors of the CVB commissioned an independent financial audit of the organization to assure that internal controls and prudent fiscal management were in place. The audit revealed a number of deficiencies in financial management and provided a detailed list of recommendations for implementation. Under the guidance of the new President, all of the audit's recommendations have now been implemented. We recommend that the auditing firm validate this with a letter to the CVB for transmittal to the City Manager. Recommended Policy Considerations On an ongoing basis, the staff is now revamping a number of management policies and procedures. We recommend the following priorities: • Anew Employee Handbook has just been prepared by the CVB with assistance of legal counsel. We recommend that it be matched against other industry models; such as the excellent Policy and Procedures manual now employed by the Atlantic City Convention and Visitors Authority. Travel and Entertainment Policy -- Regarding staff guidelines for travel and entertainment, new expense reporting forms have been implemented. However, the existing Travel and Entertainment Policy is limited and does not provide adequate guidance parameters for staff. With the CVBs ongoing requirement for hosting travel intermediaries (travel writers, editor and meeting planners) who are so important in producing new business for the community, we suggest this new Policy receive top priority. Excellent examples are available from the Pittsburgh and Baltimore CVBs. We also recommend that the annual financial audit be supplemented to include an independent review of ongoing T&E policies to assure compliance, just as the third party audit of sales performance that the CVB has undertaken with PKF consulting. A new ethics policy is recommended for both Staff and Board, and a copy has been made available for management consideration. 25 Recommended New Mission Statement An organization's well - crafted mission statement should reflect its purpose and core responsibility. It should also be the clear reason for the existence of the Newport Beach CVB — why the bureau is in business after all — and total business planning and developments that follow should subscribe to it as the foundation of purpose. As such, we think the CVB's current placement of its mission statement on business cards is a very good idea to convey its core business to constituents and clients. However, we recommend a more focused mission statement for consideration by the CVB. The current statement now reads: "To gain and retain clients, thereby contributing to the economic fabric of the community, through visitor servicing, solicitation of conferences, tour groups and other related group business; and to engage in visitor promotions which generate overnight stays and increase visitors' spend ". We recommend that it be replaced with a more succinct statement explaining that the Newport Beach Conference and Visitors Bureau: • Is the official marketing agency for city government and community tourism development. • Produces incremental economic impacts or benefits for the community and its tourism business partners • Focuses on meeting and leisure travel development as its name implies Our recommended Mission Statement is: "The Newport Beach Conference and Visitors Bureau is the City's official tourism marketing organization whose mission is to generate additional economic impact for the community through the attraction of visitors." Business Process Statement As we have noted throughout this report, we find the CVB's core business process to be quite professional. We recommend that it be memorialized with the following statement that also serves to support the Mission Statement: "The Newport Beach CVB's Business Process is to consistently deliver a market- driven, customer - focused and brand - oriented program that produces quantifiable success". This Business Process statement should also be noted in the annual marketing plan. 26 Pay for Performance The CVB has put in place a new industry- standard incentive compensation plan for sales personnel as part of the PKF audit report, and is now working on a revised pay -for- performance and evaluation plan, including market- pricing of jobs, for all other employees. It is to be completed early next year. Branding Support for the Industry Because of Bureau President Gary Sherwin's expertise in destination branding, he has been called upon by the international CVB association (DMAI) to assist in their periodic educational training programs for CVB Executives. As a byproduct, he has also been asked by some non - competing CVBs to assist in their own destination branding programs. The Bureau's board has authorized this relationship, which is monitored by the Chairman; in our judgment, this certainly enhances Newport Beach's visibility throughout the industry. Proposed Stakeholder Assessment Survey Bureau management is now planning to produce its first assessment survey of its members later this fall. This is an excellent method for determining business member need, galvanizing CVB interests and potentially expanding financial and manpower resources for the future—and we commend the staff for this initiative. We recommend that its recipients be expanded to include other major stakeholders, including members of the council and appropriate city government officials, along with key local organizations represented on the City's Economic Development Committee. We also suggest that before the CVB fully establishes its survey plans, that it review the internet based survey instrument, questions and program produced by Performance Solutions of Stamford, Connecticut. Provided by Principal Wilfred Brewer, their CVB Assessment provides a best business practice for assisting bureaus in their long range planning, member development and community relations efforts. Costs are in the $3,000 range. 27 Strategic Planning Recommendations We understand that when the CVB develops its Strategic Plan, it will address a number of major long term issues. We suggest that public sector CVB funding receive top priority; it is certainly the major challenge and current impediment to marketing progress for the City and CVB. As the Conference and Visitors Bureau finalizes its performance deliverables, long range program and attendant funding needs, we recommend that it follow our funding step recommendations that appear in the final section of this report. PR Publicity Development Expansion The CVB has an effective program for producing high quality media coverage for the City and its visitor amenities that can build resulting top of mind awareness and change visitor patterns in Newport Beach's favor. Pending additional levels of funding, we urge consideration of an expansion of this program as a top priority. It would successfully bring many more writers to Newport Beach for familiarization who would deliver much more positive coverage and resulting consumer attention and interest in visiting. Additional program costs may be in the $200,000 - $300,000 range. This is becoming a popular and growing program for CVBs because of its relatively low cost as an effective technique for producing positive, top of mind consumer interest. in The CVB Audit Scorecard Check list Next, we evaluated the Newport Beach CVB using our twenty point check -list scorecard that is now being applied by a number of other convention and visitor bureaus as part of their own self- assessment process. We have added parenthetical notes for explanation throughout. Produces and publicly reports the ongoing measurable performance of economic productivity to the community through a comprehensive reporting process (The Newport Beach CVB now has performance measurements and reports their results for conference sales, web usage, publicity and member development. However, earlier in this report, we have noted and recommended a number of new performance initiatives for web development, advertising, visitor center programs and partnership development. Once added and new results are achieved, they should then be benchmarked and added to the next marketing plan). ➢ Hasa formalized Mission Statement and major goals for accomplishing it. (These are part of the current Marketing Plan. However, we have recommended a revised Mission Statement and a new Business Process statement that reflects the core work of the CVB. See section IV). Delivers a comprehensive program of market research to help quantify the value of the visitor industry. (The CVB tracks ongoing market volume and hotel trends through the STR reports of Smith Travel, through the research phase of the destination brand assessment and development program, as well as through other industry sources). Evaluates agency performance and plans marketing efforts through a program of marketing research. Also, manages success by analyzing program results through detailed return on investment analyses, including advertising conversion analysis, lost convention business reports, cancelled business reports, in -kind partnerships received and others. (This evaluative process is ongoing. The CVB will complete its first comprehensive visitor profile study in the next few weeks. We reviewed the first three of four seasonal waves of the study. It will be an excellent resource for market planning. The CVB also plans to further quantify the value of conference delegates through a new economic impact study and is now exploring acceptable methodologies. Currently the CVB also effectively tracks lost conference business, cancelled business. We have also recommended new performance initiatives and ROI criteria, including a new ad conversion study once the advertising program is formalized). Fulfills the leadership role as the community's recognized tourism agency for the community by meeting the ongoing needs of business partners and community stakeholders. (This appears to be 29 the case and will be validated by the member assessment survey planned by the CVB). Has a goal setting process that relies on the benchmarking of past efforts, current market conditions, bureau resources, Integrated team efforts and other required factors. (Yes, it currently sets goals for conference sales, web usage, media publicity support and coverage, and member development efforts. We have also recommended new benchmarking of results in response to our performance based marketing recommendations found throughout Section II). Manages the successful delivery and reliable reporting of agency production results through an ongoing, formal management auditing process that Incorporates independent, third party validation. (Yes, for example, has employed PKF to evaluate results and sales standards. Also tracks and enhances web usage through consultant services, and plans to do the same for ad conversion using an independent analysis.) Has established an ongoing system of written policies, procedures, implementation outlines and manuals that guides the success of the agency. (Yes, the latest of which is the comprehensive new Standard Operating Procedure Sales Manual —an outstanding industry model). ➢ Provides an equitable pay for performance compensation and evaluation program for all employees. (This has been completed for the sales program personnel. A revised third party evaluation and pay program for overall staff is expected to be completed by year's end). Has a comprehensive public affairs plan that communications the Agency's work and therefore enhances it reputation, trust, and public confidence in the work that it performs and the results it delivers. (An informal but apparently effective program is in place, based on a review of the bureau's past results, its ongoing communications programs with members, board minutes and community work of the CEO). ➢ Has a fully coordinated communications plan that addresses customer needs, community relations requirements (mentioned above) a crisis management plan and an internal relations plan to assure a productive workplace. (The CEO informally manages internal relations well in our opinion, as well as community relations and communications efforts as a representative of the City's Economic Development Committee, his adjunct faculty work with Cal State and other ongoing community participation efforts. We recommend a more formalized crisis management plan, but this is not considered a high priority at this time). 30 Endorses ethical behavior and has an ethics policy. (The CVB appears to endorse ethical practices and behavior based on a review of its business practices, policies and procedures. However, the CVB should now implement a formalized code of ethics for sign -off by staff and board. A recommended model policy has been provided by the consultant to the CVB and they are now prepared to implement pending board approval). ➢ Produces an annual Marketing Plan that includes the forecasting of quantifiable goals to be delivered, and the work steps to be taken to produce results. (The current annual marketing plan is quite well developed for the first management year. We have recommended expansion of performance based programs as reviewed under Section II). ➢ Has a Strategic Process or Plan in place for long range planning. (The CVB has publicly announced plans to produce such a long range plan during the fall of this year. We have suggested that the public funding issue be addressed as a top priority.) Has a fully coordinated, community wide brand - marketing program that incorporates unique selling propositions, major motivational messages for customers and a market positioning that separates the destination from the competition. (Yes, and this is a major accomplishment for the CVB. We have recommended that the process, as outlined in the industry book "Destination BrandScience ", co- authored by the CEO, be made available to members of the City Council). ➢ Evaluates leadership and provides an ongoing on- job training program of staff training to assure marketing expertise and enhanced management skills. (This is principally provided through educational sessions made available at various trade shows and association meetings provided by DMAI and attended by principal staff of the CVB . Also, The CEO is now preparing for personal accreditation as a Certified Destination Marketing Executive (CDME) while he continues to instruct for DMAI in the area of Destination Branding. Encourages marketing input from partners and customers, through stakeholder assessment and committees with the goal of producing greater success. (A Stakeholder assessment is now in the planning stages for launch this fall. The CVB also garners advance input from key constituent groups as it develops its annual marketing plan and through regularly scheduled meetings with its principal partners, including city government, hotel constituents, other community associations). Has an effective board governance approach to its management responsibilities, problem solving, planning and productivity. (This appears to be the case based on discussions with the current Bureau 31 Chairman, the City Manager, a review of bylaws and board minutes, and the board's decision to produce an independent financial audit leading to enhanced standards for fiscal management.) ➢ Delivers an effective web site that is developed and managed based on an Internet marketing plan. (Yes, this program has been enhanced through search optimization programs designed to produce more visits to the website as well as creative adjustments. It continues to be a work in progress, and we have made other recommendations under section II). ➢ A Final Point. The need for ongoing assessment In our judgment, The Newport Beach CVB has a disciplined, best business practice procedure that employs ongoing third party validation and support for its business planning. Examples include the recent studies by PKF which provided excellent recommendations -- now endorsed.by the board and implemented by the staff -- for sales department policies, procedures and goal setting. We also suggest, for continuous and never - ending improvement, that periodic self assessments should be apart of the CVBs management philosophy. In fact, many associations today formally recognize that need in their written policies and procedures. To this end, it is recommended that The Newport Beach CVB adopt a policy calling for periodic internal performance assessments, usually every three to five years. The objective: to maintain excellence in the carrying out of the agency's mission. This could be noted in the Strategic Plan that is planned for development in the next few months. 32 Profile of the Successful Tourism DMO: Comparing the Newport Beach CVB As a final assessment process, we have provided this profile of successful CVB. In our professional judgment, in order for a tourism destination to achieve optimal success, an important requisite must be an effective, business - standard destination marketing organization in place that regardless of its size and budget effectively operates on behalf of the community. The effective CVB should deliver a successful, umbrella marketing program for its tourism business constituents that assists them in enhancing their profit potential through the production of new visitor business to the destination. How, then, should we interpret success? What is the profile of today's successful DMO, and how does the Newport Beach Conference and Visitors Bureau emulate this model for business excellence? There are basically three major areas or success criteria, which when taken collectively, provide generally recognized standards for evaluating today's successful DMO. Criterion I: The DMO delivers performance of economic development benefits in fulfilling its core mission First, DMO productivity results, or "economic impacts ", are based on the attraction of incremental visitors through various market segments. These results are: ❑ Quantifiable ❑ Forecast whenever feasible in advance as a series of goals ❑ Reportable to business leadership, stakeholders and other community constituents In other words, the DMO forecasts its future successful achievements and provides them in advance to its constituent community. Clearly, the Newport Beach CVB subscribes to this goal setting requirement. It is also further developing a more fully coordinated program based on new benchmarking and enhanced goal setting criteria. i«J Criterion II: The DMO provides marketing, management and operational excellence through its financial oversight, market research and market planning , business execution and evaluation steps. As such, the agency strives to deliver the highest standards of performance in the areas of: • Economic impact results against market segments • Successfully planned, designed and executed marketing initiatives and a business standard marketing plan • Reporting and accountability systems • Long- and short-term planning • Goal- setting, tracking and delivery • Staff and program performance evaluation, professional staff development and employee compensation and recognition • Community partnership and alliance- building to galvanize tourism industry interests, stretch resources and leverage success. This is really the core work of the successful DMO under the direction of the CEO /Executive Director. With completion of the Member Assessment Survey and staff responses to it-- including potential expansion of private support- -the CVB should produce greater results and efficiencies. Then following completion of the Strategic Plan later this year, it should successfully match this criterion. Criterion III: The DMO is the recognized leader in the community for effective tourism development On the surface, this last criterion appears to be extremely subjective. But the DMO's assessment should be impartially evaluated by asking all of its diverse stakeholders to address and evaluate the agency. Without question, today's DMO should be well regarded for its local leadership position. Stakeholders (i.e. hotels, attractions, art and cultural institutions, related businesses and other associations, government, etc.) should look to the CVB as the focal point for destination management and marketing, planning, coordinating community stakeholder efforts, research and long range visioning. In other words, through leadership of the President, the bureau's role is that of the voice of the industry, the inspiration, the visionary, the chief lobbying organization and the chief cheerleading organization. U2 The President/CEO should also closely monitor and manage key marketing issues affecting the destination such as the need for competitive market funding, sustainable tourism issues, infrastructure requirements, visitor amenities and service issues. Again, it appears that the Newport Beach CVB has demonstrated its leadership as an industry and community leader through its President's efforts as a member of the City's Economic Development Committee, through its business partnerships for tourism development with the Newport Beach Chamber of Commerce, the Newport Beach Restaurant Association and the Newport Beach Film festival to name a few. The CVB is also well regarded throughout the global tourism industry through the President's leadership activities with the Destination Marketing Association International. It is also continuing its efforts to evaluate its leadership and response to local business needs with the proposed Member Assessment Survey, Therefore, we believe that through its marketing and operational programming and usage of best business practices, the CVB is well on its way to delivering a destination marketing model that prepares the city for future long term business success. Additional Evaluation of CVB Success In concluding our assessment process, it is important to note that the Newport Beach CVB has announced plans to begin the comprehensive process for Destination Accreditation of the CVB—a program recently developed by the industry's professional association, Destination Marketing Association International. To date, out of more than 1500 DMOs, twenty -seven bureaus have now completed this recently designed accreditation process. Industry performance and operational reporting definitions is a component of this accreditation process. Thus, the Newport Beach CVB will continue to add and enhance its evaluative work for ongoing marketing and management programs. In our judgment, the executive decision to initiate such an assessment process of this scope again validates bureau management's professional commitment to the industry and the city it represents. 35 Recommended Marketing Budget For the Newport Beach CVB With this report now available to City officials and local tourism industry stakeholders, the question should be asked: What should the Newport Beach CVB budget level be in order for it to more effectively compete for a greater share of visitor attention that will produce higher volumes of new business receipts and resulting benefits for the community? Unfortunately, there is no available research model for accurately determining what the optimum market funding amount should be. There are just too many variables involved, not the least of which is the fact that many cities have completely diverse and different strategies for performance success. However, in our judgment, based on the extensive new tourism product of hotels, resorts, restaurants, retail and sports amenities now available to visitors here, the continued emergence of the Newport Beach Bureau as an enhanced operational model of marketing excellence -- and with new standards being developed for producing performance- based ROI results for the city - -we suggest the hollowing. That consideration be given to a budget allocation of between the $4.4 million amount of the average US Bureau (there is certainly nothing average about Newport Beach) and the larger budgets of growing regional competitors that can most adversely affect our market share results. We understand that Huntington Beach, for example, is now preparing to implement a new Business Improvement District funding plan that would deliver an estimated budget in excess of $3 million to the CVB. A short distance away, the Anaheim CVB now competes with a budget of more than $8 million that also includes convention center marketing. Therefore, it seems reasonable to assume that Newport Beach should employ a more aggressive and productive marketing program in the $5 to $6 million range. Here is our recommendation for achieving that level of future competitive funding for the CVB. Funding Options First, we review a number of options for how Newport Beach might best produce an effective level of ongoing funding to mount a major campaign as described above. Options include: Business Improvement Districts - -We understand that San Diego is now finalizing a countywide Business Improvement District in an attempt to stabilize its tourism funding, which has been adversely affected by the City's financial problems. The new BID plan is expected to remove the CVB from receiving future TOT and is anticipated to take their budget from about $8.8 million to about $15 million. Long Beach appears to be also entertaining a BID Plan, due to their own budgetary challenges. These ongoing 36 developments should be monitored by the CVB, but in our opinion, which is explained later, the BID management model is flawed as the first, initial funding model for CVBs as compared to TOT revenues. Voluntary Assessment Programs -- Elsewhere, some communities including Toronto, Newport, Rhode Island and Hilton Head Island, Charleston and Myrtle Beach have recently supplemented their CVB funding with new voluntary assessment programs (In South Carolina, for example participating hotels provide a dollar for each occupied room). Because this is hot a mandatory program, the CVB governance of these new marketing dollars can be difficult, with partner participants wishing to control and manage their contributed funds, rather than traditional board and staff oversight and management. Nor is it consistent with the operations of CVB umbrella consolidated marketing efforts through the TOT that provide a level playing field for all community tourism business entities. Foundation Funding —Some other bureaus have formed 501 C3 entities to receive foundation funding for development efforts, such as convention centers, educational training, computers and other equipment. But this appears to be a short term solution and is not usually available for ongoing core CVB marketing. Additional Member Support-0ther CVBs in the same $2 -4.99 million budget range as Newport Beach receive on average 85.6% of their funding from public sources and 14.4% from private sector funding. Therefore, as. mentioned in the Strategic Planning section, with the Newport Beach CVB receiving just $70,000 in member dues from 200 members, there may be an opportunity for additional funding development, albeit a limited amount in our opinion. The #1 Funding Resource: The Transient Occupancy Tax Clearly, throughout the industry, the transient occupancy tax that is paid by travelers is the primary and preferred funding resource for destination tourism development through the marketing work of CVBs, with about 83% of bureaus reporting to DMAI that they receive it. The rationale for its consistent use by most cities is very appropriate: that as the bureau works to produce more marketing efforts and resulting incremental business for the community— principally through overnight stays —the TOT will likely increase. And the bureau will then proportionately receive additional tax funds through visitor occupancy spending, and then continue its marketing programs that can yield additional visitors and visitor expenditures and tax dollars. For this reason, in our judgment, this is a far better model for CVBs and communities than the BID approach to tourism marketing, foundation funding or voluntary business assessments. We recommend that further utilization of the TOT be considered for an expanded Newport Beach CVB budget as outlined next. kill Increasing the TOT An increase of just two percentage points on the current 10% TOT here would produce about $2.690 million dollars, according to our calculations. This amount, if added to the existing Newport Beach CVB allocation of $2.6 million, would create in our opinion, the truly competitive marketing program effort that we recommend of about $5.4 million dollars. We clearly understand the public referendum requirement here for increased taxation. However, because this is not a fee born by city residents, but rather is a pass -along from out —of- community visitors, we suggest it is an appropriate approach for careful consideration; for armed with additional funding, the bureau could then produce quantifiable higher volumes of visitor dollars to help fuel the local economy of Newport Beach, while providing increased tax revenue from these guests which would further help stabilize local resident taxes now paid for police, fire, education and other social services. It is the preferred model now employed throughout America that should work well for Newport Beach, too. This taxing initiative would avoid concern by visitors who would pay it as a result of their stays here, because the amount increase would keep Newport Beach's total transient tax below the 12.2 percent annual threshold now paid by most travelers across America. (This usually includes a specific transient occupancy tax, along with sales taxes for cities, counties or other combinations). For background, the average check out hotel rate grows to 13.2 % for bureaus in the budget range of the Newport Beach CVB ($2- $4.99m) and further increases to 14.2% in cities where bureaus have budgets of $10 million or more. In our opinion, development steps in this funding process would be: 1. The CVB's development of a comprehensive, quantifiable benchmarking of economic results produced by the return on investment of their ongoing marketing efforts as recommended in this report. 2. Following that step, the funding opportunity for the community should be addressed as part of the bureau's upcoming Strategic Planning Process and with City leaders. We suggest that the CVB then estimate what it could quantifiably produce in new marketing results through this higher level of funding, by applying a Value Statement as outlined earlier. 0 Community leaders often ask: if our CVB's marketing budget were to be increased, isn't there eventually a point of diminishing return of benefits accrued? In our experience, the opposite occurs —and the ROI in visitor receipts and benefits over time should actually be proportionally higher. This is because a byproduct of success should be additional infrastructure of new visitor facilities such as such as accommodations, retail, restaurants, etc. (just as is now occurring in Newport Beach. Also, the branding effort in future years will build marketing communications equity and assist in delivering even greater returns from marketing, as new business partners also work to leverage additional marketing efforts under the Newport Beach "umbrella effort". In Conclusion We see this period as an exciting new chapter of opportunity for the residents and businesses of Newport Beach. With a new, professional CVB working on behalf of the City — and in partnership with industry stakeholders and private business leadership — the future should be exciting and rewarding, indeed. M