Buying Corporate Hospitality – what is a good price? The World Cup causes pricing chaos

We wrote recently about the economic effect of England's early exit from the World Cup. What no-one really expected was that we would be eliminated before the final group game against Costa Rica. Most of us, pundits and public alike, reckoned we would still be in with some chance of qualification then, even if it required us to beat the mighty Costa Rica 6-0 and hope Italy beat Uruguay 11-3 -  or some such unlikely result!

A deserted bar the night of the England match

A deserted bar the night of the England match

So as we said before, bars had engaged additional staff to be on duty during that match, and no doubt acquired extra stock. They were sorely disappointed on that day when very few people turned up to watch the disappointing 0-0 draw.

But the England performance caused even greater problems for the corporate hospitality providers. A sales director I was talking to last week told me that has was getting lots of marketing approaches pre World Cup for hospitality packages around the England games. A typical one would be held at a luxury or interesting venue, with a four-course gourmet meal, big-screen TVs for the match of course, unlimited good quality drinks (champagne included), and, just to round it off, a couple of ex-England footballers to give their comments on the game and add a bit of glamour (?) to the event.

The list price for that? Something in the £1000 - £1500 a head range. That sounds an awful lot, but if you're a top investment bank then maybe it's just small change to keep your top clients happy.

But by the day before the Costa Rica game, my friend was getting increasingly desperate emails and calls from those hospitality firms. And by the Tuesday, what do you think was the best rate he was being offered?

£50 a head.

Which demonstrates a couple of points. Firstly, the marginal cost of providing goods and services we buy can be very different from the market price! So even at £50, presumably the providers covered the true marginal cost of their offering (basically, the drink). Everything else, the venue, the footballers, even the food in all likelihood, may well have been in effect fixed costs. So the buyer in that situation, with a desperate seller, can focus on those true marginal costs of providing whatever it is that is being bought.

That's worth remembering when you're negotiating. It's also an indication of how timing can be everything in negotiation. Imagine you had been offered the £1,000 package and negotiated that down to £750. You might think that was a great piece of work and feel pretty pleased with yourself. Then later, you hear someone else got it for £50 ...!

Secondly, looking at it from the other side, maintaining flexibility and considering risk transfer and sharing in your contracts is key, particularly when demand is uncertain. How did the event providers handle the issue of risk sharing in terms of the commitments they made down through their supply networks? A clever organiser might have negotiated so that the costs such as the hire of the venue, or the food costs, were linked to the ultimate income, rather than agreeing a fixed fee. Let's hope so, otherwise we may find a few events providers going bust after this World Cup.

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