In Major Events sponsorship, it is common for companies to make “payment” in the form of products and services in return for the use of event marketing rights and benefits. In Technology sponsorships, this Value-in-Kind (VIK) may represent more than 50% of the total technology budget of the event.
Making VIK work for both sponsors and event organisers requires a careful balancing of value so that both parties get what they need from the deal.
The exchange of products and services in return for marketing rights is a form of barter. Sponsors give something they have (their products and services) and the event organisers give the sponsors something in return (marketing rights and benefits). The Value-in-Kind could be something as simple (yet critical) as coffee or as complex as timing & scoring systems.
Event organisers want to obtain the products and services they need to run the event free of charge (or with minimal cost) as budget relief. Increasingly, innovation capability is becoming an essential need as organisers look to make their event unique and compelling. Event organisers also need the help of sponsors to promote the event both locally and globally, attracting more awareness and digital engagement, in the hope that this will drive increased attendance and ticket sales.
Primarily sponsors want their association with the event to raise their profile, which in turn will generate more business. This may be focused on a specific product or service within the portfolio, or more broadly across the entire company brand. Sometimes sponsors want their business case to work within the direct perimeter and timescale of the event, but this tends to be an unrealistic expectation as the intangible benefits of brand awareness and reputation can be incredibly challenging to justify.
Unfortunately, barter has never been an effective form of payment, as it restricts the ability of both parties to act freely in the market and extract the greatest value.
Challenge #1 – Assessing Value
Event organisers need to assess the value of the proposed products and services, and the sponsors need to assess the value of the offered marketing rights. In the competitive market, products and services are subject to discounts and negotiation, while for event sponsorship this is less often the case. They may be offered at list price (or higher), as this will result in a higher corresponding value of the marketing rights. It is even harder for potential sponsors to value the event marketing rights and benefits. The result is a lot of time and effort on both sides to value the deal. This is equivalent to two RFPs being run in parallel, one for products & services and the other for marketing rights, where the values must eventually be equal.
Challenge #2 – A small marketplace
The pool of major events and sponsors is small. Events need to find companies and organisations that want to associate their brand with the event. Companies need to find events that want the products and services that they offer. <br /><br /> This coincidence of wants is the primary reason we use cash in daily life instead of barter.
Challenge #3 – Timing problem
Our research shows that greater than 80% of the Digital Impact of a Major Event is realized within the period from one week prior, to one week after the event. That makes sense because for the rest of the year other events are competing for the limelight. But many of the costs that VIK covers are incurred in the preparation of the event, so sponsors are providing products and services many months or even years before they get paid in marketing rights.
Despite the challenges described above, Value-in-Kind is the driving force which delivers value to both major event organisers and sponsors.
It is much easier to find companies that want to provide their products and services for free (or greatly discounted) than companies who would pay cash for marketing rights. “Crufts uses our dogfood” is a story the sponsor can tell their customers and their employees.
From a valuation perspective, $100 worth of sponsor product or service may cost the company only a fraction of this to deliver. Win-Win.
From a delivery perspective, when companies propose their own products and services for an event, they put their brand on the line. They go beyond standard Service Level Agreements and contract terms to ensure that their brand is not negatively impacted and hence contribute to making the event a success.
Finally, VIK enables both organisers and sponsors to deliver the X-Factor: unique products, services, and experiences that can be jointly promoted.
VIK can be misused, and there are 3 questions which help to determine its usefulness:
Is it needed?
It seems obvious that there is no point getting free stuff if you don’t need it, but this scenario is far too common in the VIK world. Most often it’s because the event organiser doesn’t yet know exactly what they need, and the potential sponsor pushes what they have, whether it’s needed or not. Not only does it result in unrealized value, but it also creates an overhead to manage. One way around this is for event organisers to know what they want before engaging a sponsor. Seems simple enough, but never underestimate the power of sales.
Is it the right product or service?
Not all products and services are equal. This applies to all categories. With the wrong solution to your problem, you will be in the situation with either dissatisfied end users or the need to spend cash in the market to procure the right solution.
Is it market price?
If products and services are provided for free, it shouldn’t matter whether they are market price or not, as long as it doesn’t result in any out-of-pocket expenses. But inevitably changes occur where more, less or different products are needed. Uncompetitive prices can be very painful when changes occur and can lead to problems with auditors and procurement organisations
VIK is a necessary part of Major Events. In Milan Expo 2015 for example, sponsorship represented around 30% of revenue, with VIK representing almost 80% of those sponsorships. Other events, with less ticketing revenue depend even more on sponsorship.
In the area of Technology and Digital Services, the delivery component is both complex and essential. Major Events provide technology sponsors with an amazing platform to tell their story to the world and to convince customers of their capabilities.
To make it all work there are a few key recommendations:
