May 28, The ROI of the PA Dutch Convention & Visitors Bureau Promotional Activities

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May 28, 2014 The ROI of the PA Dutch Convention & Visitors Bureau Promotional Activities

Contents 1. Executive Summary... 3 2. Vital Role of Destination Promotion... 4 2.1 Tourism as a fragmented sector... 5 2.2 Efficiencies of scale and stable, sustained operations... 6 2.3 Essence of the tourism product... 7 2.4 Competitive market... 7 2.5 Global market opportunity... 8 2.6 Perishability of the tourism product and seasonality of demand...10 3. Key Performance Indicator Analysis... 11 4. Market Share Analysis... 15 4.1 Visitor spending...16 4.2 Tourism employment...18 4.3 Room revenue based on bed tax receipts...19 4.4 Hotel performance as measured by STR...21 5. Case Study Review... 24 5.1 Destination marketing ROI matrix...24 5.2 Case studies in which destination marketing spending was reduced...28 5.3 Brand USA and the effectiveness of destination marketing...29 6. Economic Impact Analysis... 32 6.1 Economic impact of travel and tourism in Lancaster County...32 6.2 Economic impact of PDCVB...36 7. About Tourism Economics... 39 2

1. Executive Summary Destination marketing is a proven driver of economic development and is particularly important due to the unique characteristics of the tourism sector. To document the important role of Pennsylvania Dutch Convention and Visitors Bureau (PDCVB) promotional activities, Tourism Economics has conducted a multi-layered analysis. The analysis begins with an explanation of the vital role that destination promotion plays in Lancaster County. Given the characteristics of the tourism sector, including its fragmented structure and prevalence of small businesses, individual businesses lack the economic incentives and financial wherewithal to independently conduct true destination marketing. As a destination marketing organization (DMO), the PDCVB communicates a coordinated, sustained message to potential travelers that conveys important aspects of Lancaster County as a destination. These activities help Lancaster County stay relevant and visible in the eyes of potential travelers, to maintain relationships with tour operators, and keep a current online presence that is useful to households whether they are in the Mid-Atlantic region, or across the globe. Tourism Economics analysis of key performance indicators shows an organization that continues to succeed at not only creating brand awareness through advertising, but also driving interest among potential visitors that results in interaction with the PDCVB as a source of information on the destination. To assess changes in Lancaster County s tourism market share over recent years, Tourism Economics conducted a market share analysis across four measures of tourism activity. The results show that Lancaster County has grown its market share as measured by visitor spending and accommodations revenue as tracked by room rental taxes, and maintained its share of employment. The analysis also shows that Lancaster County hotels have posted stronger occupancy and RevPAR gains than comparable regions. In dollar terms, market share improvements between 2007 and 2012 translated into $51.5 million of additional visitor spending and $7.9 million of additional room rental revenue. The analysis concludes with two final sections. The first is a case study review that documents the importance of destination marketing based on typical ranges of estimated marketing returns that are realized by DMOs, and by considering case study examples in which marketing funding reductions have resulted in substantial declines in visitation. The second is an analysis of the economic impacts of tourism in Lancaster County updated on a preliminary basis for 2013, and the estimated PDCVB contribution to these impacts. In total, $1.9 billion of direct visitor spending in Lancaster County by 7.9 million visitors helps support almost 23,700 tourism economy jobs and generate $184.7 million of state and local taxes. Of this, the PDCVB contribution represents approximately $120.9 million of visitor spending, supporting almost 1,600 jobs and $10.2 million of state and local taxes. 3

2. Vital Role of Destination Promotion The case for destination marketing is broad and compelling. Indeed, across the US, there are more than 500 destination marketing organizations (DMOs) with a combined budget of $1.5 billion in the 2011/12 fiscal year. This chapter briefly outlines the rationale for destination marketing and the particular importance of the Pennsylvania Dutch Convention and Visitors Bureau (PDCVB) in fostering the economic value for Lancaster County of the tourism sector. In summary, destination marketing is vital because: The tourism sector is fragmented across various industries and is made up of smaller companies. Individual businesses lack the capacity to conduct certain types of marketing effectively, and certain benefits accrue across the economy rather to just an individual business. Scale supports marketing efficiencies, leveraging the impact of each marketing dollar. DMOs provide a stable base for coordinated marketing over time. The destination and overall experience of an area is a fundamental motivator of tourism. As a result, the message to a potential traveler extends beyond the offerings of a single business. Competing destinations are actively marketing and a failure to engage with travel markets results in lost market share. The global market opportunity is vast, presenting attractive growth prospects for domestic destinations that can present a coordinated message to potential visitors. Destination marketing helps address challenges presented by the perishability of tourism products and the seasonality of demand. Lastly, as discussed in case studies in Section 2, destination marketing has been proven to be historically effective, producing returns in excess of investments and greater than many other sectors. 4

2.1 Tourism as a fragmented sector The tourism sector faces two natural disadvantages that impact destination marketing. The first is that tourism is not represented by a single industry, the second is that many tourism sector businesses are small establishments. As a result, relying on individual businesses to conduct independent destination marketing would leave a destination short of its potential. Collaborative destination marketing effectively deals with this challenge by representing a fragmented tourism industry as a single product to a common customer. Destination marketing represents all of these disparate businesses to origin markets in a way that no single business or industry segment could. The following provides a more thorough discussion of these points. - Tourism spending is spread across multiple industries. As with the national view of the distribution of tourism spending presented in an accompanying graph, visitors are customers to Lancaster County businesses across numerous industries, including hotels, restaurants, shops, rental car companies, taxi services, museums, and theaters. As a result, a visitor benefits multiple segments of the Lancaster County economy. Shopping 13% Air transport 16% - Tourism-related businesses tend to be smaller than in other sectors. Similar to national norms, the tourism sector in Lancaster County is comprised of small and medium sized businesses, and many businesses have fewer than 50 employees. Of the 110 lodging establishments in the County listed by STR at year-end 2013, the average room count was 63 rooms per property and the largest hotel had a roughly 5% share of total room supply in the County. At the level of an individual destination, this implies that very few of these organizations would have the resources needed for concerted investments in destination marketing. - Coordinated destination marketing addresses the challenges posed by the tourism industry structure. As a result of the industry structure, independent marketing of the destination by individual businesses can be far less compelling than coordinated destination marketing. Because a visitor s spending is spread across businesses, any single business may not capture sufficient share of a visitor s spending to justify marketing to attract visitors to a destination. For example, an individual hotel could market the attractiveness of a destination, but it would only benefit from those Distribution of tourism spending in the US 2012, Share of total spending Recreation and Ent. 10% Food & beverage 16% Other transport 25% Source: BEA Travel & Tourism Satellite Account Lodging 20% 5

additional visitors who not only choose the destination, but also choose that particular hotel; and the hotel would only benefit directly from the visitor s spending at the hotel and not other businesses in the area. In other words, at the level of an individual business, the returns on independent marketing to attract visitors to a destination can be less compelling. However, when viewed at the level of the destination, there is a more direct connection. The destination captures a substantial dollar amount per visitor, and in aggregate there are compelling returns on effective destination marketing. The fragmented nature of the sector, and the prominence of small businesses in the Lancaster County tourism industry, implies that no one business entity would have the resources to adequately fund the promotion activities conducted by PDCVB in a way that would generate meaningful returns in the form of increased visitation. Hence, collaborative destination marketing by PDCVB plays a vital role, and yields results that benefit the Lancaster County economy, including its businesses and other stakeholders. 2.2 Efficiencies of scale and stable, sustained operations Effective destination marketing requires significant and consistent funding with the aim of gaining a sufficient share of voice to be heard and make an impact. While the cost of media purchases is expensive, per unit advertising costs go down as the volume of purchases goes up. Further, scale produces efficiencies that reduce overhead and maximize the share of funding that goes to actual marketing and advertising. As a result, the larger scale of collaborative destination marketing is more effective than what individual businesses could accomplish. Simply put, the whole of destination marketing is greater than the sum of individual parts. One of the benefits of coordinated marketing facilitated by a DMO such as PDCVB is the ability to have a stable organization and funding base to support destination marketing. For example, this allows a DMO to build the infrastructure, brand awareness, and relationships that yield results over time. As a result, PDCVB is at the point at which it is effectively using annual funds to leverage a brand, infrastructure and relationships that have been built up over time. For example, in terms of marketing, because a base level of awareness of the destination has already been established with some target customers, additional annual marketing spend can be more effective at activating and reinforcing key messages. Infrastructure, such as the website, and the processes around maintaining and updating material such as the Lancaster County Getaway Guide, as well as current staff of the organization, represent key resources, allowing PDCVB to accomplish more with its marketing budget than it could without such resources. Also, PDCVB supports market research, such as visitor profile studies, that help individual businesses better target market opportunities, but which would likely not be economical for individual businesses to support independently. Lastly, PDCVB 6

leverages established relationships with local tourism-sector businesses and marketing service providers that enable it to better promote Lancaster County as a destination. 2.3 Essence of the tourism product The fundamental motivation driving a visit to Lancaster County is not a single business it is the destination and the overall experience the area has to offer. This experience is comprised of a visitor s interaction with and patronage of numerous businesses and local experiences: hotels and other accommodations; restaurants; shopping and galleries; conferences; performances and other events; family activities; sports and other recreation; and cultural sites and attractions. In many cases, the choice of a hotel, for example, is not the primary decision for potential visitors choosing between Lancaster County and another destination. Instead, for many visitors the destination is the primary decision and as a result, destination marketing is an essential driver of demand for tourism-related goods. Marketing efforts that focus on only one segment of the tourism market, such as communicating the offering of a specific hotel or other business, do not also adequately address the core motivation for potential visitors. The activities of PDCVB recognize that fact. By banding together, the members of the County s tourism industry are able to represent the destination collectively, and in doing so drive demand for all segments of the tourism industry. Stand-alone marketing efforts would almost certainly be less effective than a collective destination marketing campaign. As an example, packages that are offered by partnerships of local businesses, or in conjunction with events held throughout the year, are also part of the vital role of destination marketing. Coordination and marketing of such packages may be more effective when the package offers the potential visitor the option of several hotels or dining choices as a part of the package. 2.4 Competitive market To lack destination promotion is to lose market share. This is partly evident by the sheer number of DMOs in the US and the amount invested annually. One oft-cited example of what happens when destination promotion is defunded comes from Colorado. Prior to 1993, Colorado had a $12 million marketing budget, funded by a 0.2% tax on travel-related goods and services. Voters struck down the tax, effectively eliminating the marketing and promotion budget. The effect of the abrupt stop to marketing was significant and swift: Colorado lost 30% of its market share of US tourism within two years and more than $1.4 billion annually in visitor spending. When a new Colorado Tourism office opened and the budget was expanded, spending recovered. 7

Another example has played out on a national level, as the US competes to attract visitors from other countries. Similar to the regional destination level, the absence of destination marketing at the national level can lead to a lack of competitiveness and declines in market share. Global competition for such international travelers is steep, with tourism offices around the world devoting significant resources to destination marketing. Oxford Economics, the parent company of Tourism Economics, estimates that $4.3 billion was spent on national level tourism promotion in 2012; primarily by European ($1.7 billion) and Asia Pacific destinations ($1.2 billion). Although the United States remains a top destination among worldwide travelers, during a 15 year period, beginning in 1996 and 1997 (depending on the market), the United States lost market share to destinations with consistently funded destination marketing programs (see accompanying graphs). Tourism Economics works with national tourism offices around the world and regularly observes the positive effects of tourism campaigns sponsored by these organizations. Implicitly, these activities result in lost market share among destinations that are not investing in destination promotion. And this is one of the reasons that the United States has lost global market share. US Share of Long Haul Outbound Travel % out-of-region travel by source 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: Tourism Economics Europe Asia South America US Share of North American Outbound % out-of-region travel by source 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: Tourism Economics Canada Mexico 2.5 Global market opportunity The sheer size of the global travel market also makes a compelling case for destination marketing. Since 1990, growth in international travel has averaged 4% per annum and has expanded a cumulative 62% since 2000. In 2013, international tourist arrivals reached 1.1 billion. Many of these travelers have limited, or no, initial familiarity with the offerings of Lancaster County as a destination. By working with tour group leads, and providing resources such as its website, PDCVB helps promote Lancaster County to visitors from these growing markets in ways that extend beyond the capabilities of many small or medium-sized tourism businesses. 8

This rate of global travel growth is expected to persist as the global middle class continues to expand (see accompanying graphs). By 2020, the global market for international travel is expected to reach 1.5 billion annual tourist arrivals. International tourist arrivals by region Millions 1,600 1,400 1,200 1,000 Mideast & Africa Americas New "Middle-Class" Households 2013-23 millions China India 9 mn 75 mn 800 Asia Pacific Indonesia 7 mn 600 400 Europe Malaysia 2 mn 200 0 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 Source: Tourism Economics Thailand 1 mn 0 5 10 15 20 Source: Oxford Economics The growth of the US tourism industry, in all of its parts, depends largely on its success in attracting international visitors. International markets represent the highest growth area of business for the tourism sector in the United States. In 2007, international visitor spending on US trips represented 16% of all travel spending in the United States. In 2013, this is estimated to have reached 20% and is expected to continue to rise based on Oxford Economics latest econometric forecasts. US visitor spending by type 2007=100 250 International visitor spending Share of total visitor spending (including domestic and international) 23% 200 150 100 International travel spending Domestic travel spending 22% 21% 20% 19% 18% 17% 16% 50 2007 2009 2011 2013 2015 2017 2019 Source: U.S. Travel Association, BEA, Tourism Economics 15% 2007 2009 2011 2013 2015 2017 2019 Source: U.S. Travel Association, BEA, Tourism Economics 9

2.6 Perishability of the tourism product and seasonality of demand In manufacturing, inventory can be stored or redistributed to markets where demand is stronger, and seasonal fluctuations in demand can be managed effectively. This same degree of flexibility doesn t exist for many tourism-dependent businesses, the product of which is perishable, fixed in one market, and typically under more heavy demand during some seasons and days of the week than others. For example, in the lodging sector, the product sold is a room night, which cannot be held over to another day. If a room goes unoccupied, the potential room night sale and associated revenue are lost. The hotel product depends heavily on infrastructure, which cannot be picked up and moved to another location. Also, the upfront investment of capital required in lodging, and the fixed nature of many operating costs, results in a situation in which successful ongoing operations are frequently heavily dependent on demand reaching a break even level of operations. Restaurant and retail products are less perishable in a direct sense, however management of inventory and staffing for these industries is also challenging, particularly for the types of small businesses that make up Lancaster County s tourism industry. In situations in which demand is concentrated in peak periods, staffing can be challenging for employers and employees alike due to season duration. Effective destination marketing helps address these challenges. By broadening potential visitors understanding of a destination s offering, destination marketing is frequently designed to boost demand during shoulder periods. This helps businesses make use of resources that would otherwise be idle, extends the duration of seasonal employment, and supports a better base for year-round jobs. This incremental activity supported by destination marketing can be critically important to successful and profitable operations in the tourism sector. The end result is a level of market demand that benefits local businesses, employees and other stakeholders and expands the tax base. 10

3. Key Performance Indicator Analysis As a window to recent PDCVB promotional activities, Tourism Economics analyzed information provided by PDCVB and selected a set of key performance indicators. These measures track advertising exposure, as well as interactions with the PDCVB, such as through the website and room bookings. To document the advertising activities of PDCVB, Tourism Economics relied on an analysis presented by Harmelin Media and marketing budget information provided by PDCVB. 1 Key aspects of PDCVB s 2013 advertising are summarized as follows: - Marketing activities were focused on reaching specific target markets. For example, a condensed list of geographic markets was used, and media mix was selected to reach women ages 25-54 with families, and couples/empty nesters ages 45-64 in particular. Also, digital marketing was introduced to extend PDCVB s reach to targets with active, evolving lifestyles. - Television advertising was targeted to Harrisburg/Lancaster/Lebanon/York (HLLY), Philadelphia and New York (Long Island and Northern NJ). The advertising delivered 1,933 target rating points (TRPs). 2 - The digital campaign was targeted to the same markets as the television marketing, plus Washington DC. The display and online video campaigns combined generated over 27,000 clicks and over 3.3 million completed video views (81.4% video completion rate, above industry benchmarks) on nearly 12 million impressions. Search engine marketing resulted in 1.8 million impressions through the end of October 2013, with a click-throughrate of 5.1%. - Out of home advertising, including billboards, generated 42.6 million gross impressions. Such advertising is designed to influence the trip planning process of a potential visitor. In many cases, these households take an intermediate step in the trip planning process to learn more about Lancaster County by interacting with the PDCVB in some way. To document such interactions, and to provide a view to various other marketing conducted by PDCVB beyond the advertising described 1 Harmelin Media (2013, November) PA Dutch Convention & Visitors Bureau 2013 Media Recap & Post Analysis. 2 TRPs is a measure of the number of ad impressions delivered to the target group population. For example, if 50% of a target population sees an ad spot four times a week for 10 weeks, that is equivalent to 2,000 TRPs (50 x 4 x 10). 11

above, Tourism Economics selected a set of PDCVB metrics for further consideration, and noted the following observations. - Potential visitors are interacting with PDCVB through a variety of means. These activities include online means, extending from the website, which received 2.3 million visits and generated over 33,000 sign-ups for email communications, to Facebook, where the PDCVB recorded over 26,000 measures of engagement such as likes and shares. Offline interactions were also substantial, with over 106,000 visitors recorded at the two visitor centers combined, and distribution of over 755,000 copies of the Getaway Guide - While some activities decreased in 2013, many of the key measures increased. Some of these shifts appear consistent with a transition to online mediums. For example, while distributions of the Getaway Guide and visits to the visitors centers decreased, online and other types of offline activities increased, such as website visits, public relations stories, and room nights booked. Overall, the metrics support the picture of a DMO that continues to succeed at not only creating brand awareness through advertising, but also driving interest among potential visitors that results in interaction with the PDCVB as a source of information on the destination. 12

PDCVB Online Activity Metric 2012 2013 Change Website Visits 2,165,661 2,333,793 8% Page views 10,768,992 10,538,248-2% Unique visitors 1,473,609 1,636,698 11% Website Visits From Top Feeder Markets Philadelphia 390,252 380,903-2% New York 386,381 367,263-5% Harrisburg/Lancaster/ Lebanon/York (HLLY) 343,240 360,618 5% Washington D.C. 155,774 150,923-3% Baltimore 83,950 85,530 2% Website Conversion Rate Email sign-ups 38,393 33,159-14% Clicks to member websites 1,155,126 1,282,140 11% Reservation inquiries 214,175 143,351-33% Getaway Guide requests 47,124 40,776-13% Consumer e-marketing Number of emails opened 499,688 749,111 50% Advertiser click thru 9,541 9,867 3% Total click thru 182,121 182,401 0.2% Site visits 141,108 128,636-9% Facebook Engagement (likes, shares, comments) 13,253 26,199 98% Website visits 8,631 29,734 245% Source: PDCVB 13

PDCVB Offline Activity Metric 2012 2013 Change Getaway Guide Distribution Total 793,558 755,279-5% Visitor Center Traffic Greenfield Visitors Center 106,977 79,550-26% Downtown Visitors Center 31,445 26,978-14% Total 138,422 106,528-23% PR Activity Number of stories 1,038 1,738 67% Audience impressions (in billions) 1.1 2.0 82% Ad value (in millions) $8.5 $12.2 44% Reservation Center Leisure room nights 3,186 1,617-49% Sports & convention room nights 11,645 23,130 99% Sales Activity Lead room nights 146,839 120,137-18% Room nights booked 45,974 52,240 14% Source: PDCVB 14

4. Market Share Analysis Recent years have witnessed substantial shifts in travel activity across the country, initially as travelers responded to the national recession that extended from December 2007 to June 2009 by pulling back on trips and spending, and more recently as travel activity has resumed. To understand the recent performance of the tourism sector in Lancaster County, and to understand how Lancaster County s market share has weathered these changes, it is useful to consider several sets of comparable markets in the region. It is also useful to consider several sets of indicators to help form a holistic understanding of relative performance trends. The overall message from the discussion that follows is that Lancaster County has improved its tourism market share slightly in recent years, and is emerging from the recession well-positioned to further grow tourism as a key industry in the local economy. The following key points are noted: - In terms of visitor spending, Lancaster County tourism has grown at a slightly faster pace than the state (in this case, the state total adjusted to remove Philadelphia and Pittsburgh). Overall, this indicates that Lancaster County is improving its market share and attractiveness in the eyes of visitors. With national and regional economies that are gradually recovering from the recession, and visitor spending volumes that are expanding, Lancaster County is a competitive destination that is positioned to continue to retain and grow its market share. - In terms of tourism employment, Lancaster County tourism has expanded, exceeding the pace of growth in some comparable regions, but has grown at a slower pace than the adjusted state total. Given the favorable indications on the other market share measures, there is potential for Lancaster County tourism employment to continue to grow in future years. - In terms of accommodations revenue as tracked by room rental taxes, which provides a broad measure of hotel, motel, and B&B performance, Lancaster County accommodations establishments have out-performed peers in comparable regions. - In terms of lodging performance as tracked STR, a firm that aggregates hotel and motel performance data, Lancaster County hotels have outperformed peers in comparable regions as measured by strong occupancy and RevPAR gains. The following provides a more detailed discussion of the market share analysis across four measures of tourism activity: visitor spending, tourism employment, estimated room revenue based on bed tax receipts, and hotel performance as measured by STR. 15

4.1 Visitor spending As part of its annual analysis for the Commonwealth of Pennsylvania, Tourism Economics estimates visitor spending in each county. 3 These estimates show a total of $1.8 billion of tourism sector spending by visitors to Lancaster County during 2012, an increase of 26.5% from the level of $1.4 billion in 2005 (reflects rounding). 4 These estimates are based on visitor spending surveys and industry data. Tourism Economics analyzed visitor spending in Lancaster County in relation to the following areas: - Dutch Country Roads region, of which Lancaster County is one of nine counties (Adams, Berks, Cumberland, Dauphin, Franklin, Lancaster, Lebanon, Perry, and York counties); - Valleys of the Susquehanna, a five-county region (Columbia, Montour, Northumberland, Snyder, and Union counties); - The Alleghenies, an eight-county region (Bedford, Blair, Cambria, Centre, Fulton, Huntingdon, Juniata, and Mifflin counties); and, - The state, adjusted to exclude the counties that are part of the Philadelphia and Pittsburgh metropolitan statistical areas (for Philadelphia this includes five Pennsylvanian counties, and for Pittsburgh this includes seven). The Lehigh Valley region was excluded from the comparisons, as the opening of a casino in Bethlehem, PA in 2009 impacts the visitor spending growth in a way that is not comparable with Lancaster County. To support comparability across the regions, Tourism Economics indexed the spending levels such that spending in each region was equal to 100 in 2005. In the accompanying graph, the index value of 126.5 for Lancaster County shows that the 26.5% increase since 2005 trails only the Valleys of the Susquehanna region, and slightly outpaces the Dutch Country Roads and The Alleghenies regions and the state. 3 Tourism Economics (2013, December). The Economic Impact of Travel and Tourism in Pennsylvania, Tourism Satellite Account Calendar Year 2012. 4 The economic analysis section of this report includes a preliminary estimate of 2013 visitor spending in Lancaster County for the purpose of estimating economic impacts of travel and tourism during 2013. For the purpose of the market share analysis, discussion is limited to the period through 2012, as that is the period with comparable information across regions. 16

Visitor Spending Index (2005=100) 130 125 120 115 110 105 100 95 2005 2006 2007 2008 2009 2010 2011 2012 Valleys of the Susquehanna (128.1) Lancaster County (126.5) State (excluding Phila. and Pitt.) (126) Dutch Country Roads (126.1) The Alleghenies (124.6) Source: Tourism Economics To take a closer look at the more recent performance in Lancaster County, Tourism Economics calculated the change in market share from 2007 to 2012. As shown in the adjacent table, Lancaster County improved from a 7.9% share of state visitor spending in 2007 (excluding Philadelphia and Pittsburgh) to a 8.2% share in 2012, representing a market share increase of 20 basis points (reflects rounding). As shown in the accompanying table, a comparison of actual 2012 visitor spending in Lancaster County to the hypothetical level of spending that would have occurred without an increase in market share (i.e. remaining at 7.9%), shows that the market share increase resulted in a gain of $51.5 million of additional visitor spending, equivalent to a 2.9% increase of visitor spending relative to the hypothetical alternative. 17

Tourism Spending Market Share Change ('07 to '12) Tourism spending analysis Lancaster County market share (ratio to State excluding Philadelphia and Pittsburgh) 7.9% 2007 8.2% 2012 20 Market share increase (in basis points, reflects rounding) $1,817.5 Lancaster County tourism spending in 2012 (in millions) $1,766.0 Hypothetical Lancaster County tourism spending in 2012 if market share had remained at 2007 level (in millions) $51.5 Gain attributable to improved market share (in millions) 2.9% Percentage increase attributable to improved market share Source: Tourism Economics 4.2 Tourism employment Tourism Economics analysis for the Commonwealth also includes estimates of tourism sector employment in Lancaster County, such as is supported by visitor spending on lodging, retail, food and beverage, and other services. As a supplemental measure of market share trends, an accompanying graph shows tourism employment in Lancaster County as compared to selected comparable regions. On the basis of employment, Lancaster County s tourism sector has expanded each year, with the exception of 2009 (due to the national recession). As a result, tourism employment in 2012 in Lancaster County was 7.9% higher than in 2005. However, growth in Lancaster County has been somewhat slower than at the state level. Despite this slower growth, there is still potential for Lancaster County to continue to grow tourism sector employment in future years, especially because other measures of market share and performance appear favorable. 18

Tourism Employment Index (2005=100) 115 110 105 100 95 2005 2006 2007 2008 2009 2010 2011 2012 State (excluding Phila. and Pitt.) (111.6) Valleys of the Susquehanna (110.4) Lancaster County (107.9) Dutch Country Roads (104.2) The Alleghenies (102.1) Source: Tourism Economics 4.3 Room revenue based on bed tax receipts Lancaster County collects an excise tax of 1.1% on room rental revenue at all hotels, motels and bed and breakfasts. Additionally, Lancaster County collects an additional 3.9% room rental tax on hotels, motels and bed and breakfasts that have greater than ten rooms. Information on the 1.1% excise tax can be used to estimate total room revenue of accommodation establishments in Lancaster County, and trends in these estimates are comparable across regions. Since bed tax receipt information is available for Lancaster County for 2013, but was not yet obtainable for the other regions, Tourism Economics has used hotel performance data from STR to estimate 2013 performance for the comparable regions. 19

Room Revenue Based on Bed Tax Index (2007=100) 150 140 130 120 110 100 90 2007 2008 2009 2010 2011 2012 2013 Lancaster County (138.7) Dutch Country Roads (138.1) State without Philadelphia and Pittsburgh (130.7) The Alleghenies (114.6) Valleys of the Susquehanna (112.9) Sources: Tourism Economics; state and local sources Based on this analysis, room revenue in Lancaster County has expanded more quickly than the adjusted state total, as well as the estimates for two of the three comparable regions. Lancaster County growth has been similar to the Dutch Country Roads region overall, increasing 38.7% between 2007 and 2012, as compared to a gain of 38.1% for Dutch Country Roads overall. Based on estimated performance for 2013, Dutch Country Roads room revenue appears to have grown slightly faster than that of Lancaster County, with both continuing to outperform the comparable regions. To take a closer look at the more recent performance in Lancaster County, Tourism Economics calculated the change in room revenue market share from 2007 to 2012 based on the bed tax estimates. As shown in the adjacent table, Lancaster County improved from a 9.3% share of state room revenue in 2007 (excluding Philadelphia and Pittsburgh) to a 9.9% share in 2012, a market share increase of 60 basis points. As shown in the accompanying table, a comparison of estimated 2012 room revenue in Lancaster County to the hypothetical level of room revenue that would have occurred without an increase in market share (i.e. remaining at 9.3%), shows that the market share increase resulted in a gain of $7.9 million of additional room revenue, equivalent to a 6.2% increase of room revenue relative to the hypothetical alternative. 20

Lodging analysis Lancaster County market share (ratio to State excluding Philadelphia and Pittsburgh) 9.3% 2007 9.9% 2012 Lodging Market Share Change ('07 to '12) 60 Market share increase (in basis points, reflects rounding) $136.8 Lancaster County room revenue in 2012 (in millions) $128.8 Hypothetical Lancaster County room revenue in 2012 if market share had remained at 2007 level (in millions) $7.9 Gain attributable to improved market share (in millions) 6.2% Percentage increase attributable to improved market share Source: Tourism Economics, state and local tax records 4.4 Hotel performance as measured by STR The hotel performance statistics aggregated from individual hotel properties by STR, formerly Smith Travel Research, provides a timely measure of hotel performance. Based on this information, we observe that lodging supply as measured by the STR census of lodging properties has expanded more slowly in Lancaster County than in comparable regions, but that performance levels of existing hotels have shown stronger than average improvement. Occupancy levels at Lancaster County hotels have improved substantially from 2008 levels, surpassing the gains achieved by the Dutch Country Roads region more broadly and the adjusted state total (see accompanying graph). 21

Lodging Occupancy Relative to Comparable Regions Index (2008=100) 110 100 90 80 2008 2009 2010 2011 2012 2013 Lancaster County (108.5) State (excluding Phila. and Pitt.) (98.5) Dutch Country Roads (97) Sources: STR, Tourism Economics Room rates at Lancaster County hotels have traced a similar pattern of gains as comparable regions, but given strong occupancy gains, revenue per available room (RevPAR) gains have outperformed. RevPAR at Lancaster County hotels reached $55.36 in 2013 (occupancy of 57.3% with average daily rate of $96.65), which is 13.3% higher than in 2008. In comparison, as shown in the accompanying graph, adjusted state total RevPAR has increased 4.6% since 2008, and Dutch Country Roads RevPAR increased only 1.8%. 22

Lodging RevPAR Relative to Comparable Regions Index (2008=100) 120 110 100 90 80 2008 2009 2010 2011 2012 2013 Lancaster County (113.3) State (excluding Phila. and Pitt.) (104.6) Dutch Country Roads (101.8) Sources: STR, Tourism Economics 23

5. Case Study Review Given the important role of destination marketing, and the spending that is undertaken every year across the US by local and regional destination marketing groups in carrying out that role, understanding the connection between marketing spend and corresponding destination impacts is an important topic. To that end, Tourism Economics has compiled a repository of case studies of destination promotion effectiveness. To communicate key findings, we have summarized three aspects of this research. First, we present a return-on-investment ( ROI ) matrix that summarizes destination marketing ROI estimates prepared through research in a variety of US destinations. Second, we present several case studies of situations in which destination marketing amounts have been reduced and discuss the resulting effects on visitation and spending. Third, we discuss marketing of the US as a destination for international travelers, and the returns that have been realized in recent years. 5.1 Destination marketing ROI matrix Many DMOs conduct periodic assessments of marketing effectiveness. There are several goals of these studies, including understanding how specific marketing campaigns were perceived by households, how effective the campaigns were in having an impact on households intent to travel to a given destination, and which target markets are showing differing level of responsiveness to marketing. Many of these studies also include a specific analysis of the ROI of marketing spending in the form of a quantitative assessment of the level of incremental visitor spending and tax revenues that are attributable to the destination marketing being analyzed. These studies use a variety of methodologies, and are measuring the impact of a range of different campaigns used by destinations in a variety of situations. For example, a specific study may look at incremental visitors attracted by a state-level marketing campaign conducted by a state that attracts travelers from a range of national markets, while another study may focus on the results of a more targeted regional campaign carried out by a city-level CVB. While the results of a specific study pertain most directly to the situation that was analyzed, and the corresponding assumptions, it is appropriate to consider broader inferences from the research. For the purpose of this report, Tourism Economics analyzed 16 recent studies that included an estimate of the incremental visitor spending attributable to marketing spending. For example, in a fairly typical approach, a study would: - use a survey to analyze the effect of a specific advertising campaign on households travel to a given destination, such as by analyzing the impact on actual travel among those that had observed the advertising or by analyzing the impact on households intentions to travel; 24

- project that effect to the broader set of households in the marketing area to estimate the number of incremental visits attributable to the campaign; - apply typical levels of spending per visitor to estimate incremental visitor spending; and, - compare incremental visitor spending to the level of marketing spending to estimate the ROI. Tourism Economics has summarized the estimates of incremental visitor spending per dollar of marketing spend from these studies in the accompanying table. The results range from as low as $12 for an analysis conducted for Syracuse, NY to as high as $200 for an analysis conducted for Colorado. However, for the most part, visitor spending per dollar of marketing spend ranges between $50 and $100, with an average for state studies of $116 and an average of metro and regional studies of $54. In other words, in general, recent marketing campaigns by destination marketing organizations at the metro and regional level in the US have generated approximately $54 of incremental visitor spending for each dollar of destination marketing spending. 25

Marketing ROI Matrix Region States Timing Visitor Spending Per Ad Dollar Colorado 2012 200 Florida 2011 177 Maryland 2012 160 Wyoming 2013 134 Missouri 2013 131 North Dakota 2010 91 Virginia 2006 71 Michigan 2009/10 54 New Mexico 2012 29 Metros and regions Philadelphia, PA 2009/10 100 Branson, MO 2012 79 Kansas City, MO 2013 65 Springfield, MO 2011 61 Finger Lakes Wine Country, NY 2012 44 San Diego, CA 2013 19 Syracuse, NY 2008 12 Average of all studies $89 Median of all studies $75 Average of states $116 Average of metros and regions $54 Sources: Local studies compiled by Tourism Economics As it relates to Lancaster County, it is useful to consider several selected regions covered in the marketing impact research. - Finger Lakes Wine Country consists of four counties. In economic impact analysis for the State of New York, Tourism Economics estimated visitor spending in this region totaled $328.0 million in 2012. 5 Based on marketing 5 Tourism Economics (2013). The Economic Impact of Travel and Tourism in New York, Calendar Year 2012, Finger Lakes Focus. 26

effectiveness analysis conducted by Longwoods International 6, 2012 marketing spending of $873,000 generated $38.4 million of incremental spending, which is equivalent to 11.7% of total visitor spending. - The Kansas City Convention and Visitors Association is supported by bed taxes generated by incorporated Kansas City, Missouri and promotes the Kansas City region. In economic impact analysis, Tourism Economics estimated visitor spending in the five county Kansas City region totaled $2.8 billion. 7 Based on marketing effectiveness conducted by H2R 8, 2013 media spending of $1.1 million generated $71.2 million of incremental visitor spending, which is equivalent to 2.5% of total visitor spending (using 2012 data). - Visit Philadelphia, formerly the Greater Philadelphia Tourism Marketing Corporation, represents a five county region. Tourism Economics estimated visitor spending in the region totaled $8.0 billion in 2010. 9 Based on marketing effectiveness research by Longwoods International 10, 2009/2010 marketing spending of $4.3 million generated $432 million of incremental visitor spending, which is equivalent to 5.4% of total visitor spending. Depending on the economic structure of the local area being analyzed, and the types of visitor spending typically being generated, it is also possible to estimate the ROI in terms of state and local tax dollars generated per $1 of marketing spending. In each of the studies that Tourism Economics analyzed that included such a measure, the ROI was greater than $1, and was typically in the range of $5 of state and local taxes per $1 of destination marketing spending. 6 Longwoods International (2012, December). Finger Lakes Wine Country 2012 Benchmark Study. 7 Tourism Economics, Longwoods International, and Reach Market Planning LLC. (2013, August) Understanding the Visitor to Kansas City. 8 H2R Market Research (2013, October). KCCVA 2013 Advertising Effectiveness Study. 9 Tourism Economics (2013, December). The Economic Impact of Travel and Tourism in Pennsylvania, Tourism Satellite Account Calendar Year 2012. 10 US Travel Association and Longwoods International. (2011, July). The Power of Destination Marketing, Pure Michigan and Philadelphia: With Love Case Studies. 27

5.2 Case studies in which destination marketing spending was reduced Colorado Colorado provides an example of the impact of a dramatic reduction in destination marketing spending. - Prior to 1993 the Colorado Tourism Board (CTB) had a $12 million marketing budget, funded by a 0.2% tax on most tourism spend. - Within two years of the 1993 repeal of funding, Colorado lost 30% of its US visitor market share, which translated into the equivalent of over $1.4 billion annually in lost revenues. By the late 1990s, this had escalated to $2.4 billion a year. - After having moved from 14th to 1st position in the states summer resorts category, Colorado slipped to 17th in 1994. It also shifted back to being more of a regional drive destination opposed to being a national fly-in venue and attracting fewer international visitors. - The subsequent establishment of the Colorado Travel & Tourism Authority, which was an attempt to market the state with private sector funding in cooperation with the CTB, failed miserably. This was attributed to the fact that private sector companies had separate priorities. - The new Colorado Tourism Office opened with a $5 million budget and in 2003, $9 million was approved for tourism promotion. A campaign conducted from October 2003 through December 2004 resulted in 5.3 million incremental visits (or 17% of total visitation to the state). In 2004, this generated $1.4 billion of additional spend and $89.5 million in state and local taxes. - These estimates are equivalent to an implied visitor spending ROI per marketing dollar of $140 (i.e. each dollar change in marketing spending resulted in a change in visitor spending of $140). San Diego A series of events in San Diego recently resulted in a reduction in tourism marketing spending, providing a case study for consideration. Tourism Economics has studied 28

the situation in San Diego and recently published a report quantifying the impact of reduced marketing. 11 - In recent years, the San Diego Tourism Marketing District (SDTDM) had a budget ranging from $21 million to $27 million. As a result of litigation, funds intended for the SDTDM were held in limbo starting January 1, 2013. SDTDM funding in the second half of fiscal 2013 was reduced to a 61% funding level, and at the point of Tourism Economics analysis, funding for FY 2014 was anticipated to be 16% of what would normally be expected. - As a result, over the course of FY 2013 and FY 2014, there was an expected $30 million reduction in marketing activities relative to the level of spending likely under normal funding conditions. The impact of the reduced funding was reflected in the performance of the San Diego hotel industry, as room demand leveled off in 2013, and occupancy rates and prices levels increased more slowly than in competing markets. The city s performance trailed other regional and national destinations that maintained funding levels and marketing programs. - Tourism Economics analyzed the impacts of reduced marketing through two independent methods and estimated the total amount of losses experienced by San Diego s hotel sector over 2013 and 2014 would sum to over $200 million in room revenues and 1.2 million room nights. In total, the impacts were expected to result in a loss of total visitor spending of $560 million, reduced city tax revenues of $22.3 million, and total reduced business sales in the San Diego economy of $1.3 billion (including indirect and induced impacts). - These estimates are equivalent to a $19 decrease in visitor spending per dollar of marketing spend (i.e. each dollar decrease in marketing spending resulted in an expected reduction in visitor spending of $19). 5.3 Brand USA and the effectiveness of destination marketing In addition to a role at the state and local level, destination marketing also plays an important part in economic development strategy for countries around the world as they seek to increase exports generated by international tourists. For the US, Brand USA was established as the sole organization with the mandate to promote the country globally to increase international visitation and spending in the US. 11 Tourism Economics (2013, November) The Impact of Reduced Funding for the San Diego Tourism Marketing District. 29

Oxford Economics, in coordination with its Tourism Economics subsidiary company, recently conducted a detailed analysis of the return on investment of Brand USA s marketing in its 2013 fiscal year (October 1, 2012-September 30, 2013). 12 Overall, this analysis documented the impact of Brand USA in supporting incremental visits to the US by international travelers, helping draw a more complete picture of the effectiveness of destination marketing and the importance of international travel as a growth market for US destinations. - This analysis was based on an econometric model of how the eight markets in which Brand USA was fully active would have performed without its investments in marketing compared with actual performance. These markets include Canada, Mexico, Japan, South Korea, the United Kingdom, Germany, Brazil and Australia. - The model indicated that Brand USA marketing generated 1.1 million incremental trips to the United States a 2.3% increase over the growth that would have occurred without Brand USA s activities. - These incremental visitors spent $3.4 billion in the US, including both travel and U.S. carrier airfare receipts. The results equate to a marketing ROI equivalent to $47 dollars of incremental visitor spending per dollar of marketing spending based on Brand USA s marketing expenses of $72 million (a ratio of 47:1). The total budget ROI, including overhead ($9.6 million), startup expenses (e.g. new website development), and expenses from partially deployed markets is estimated at 34:1. - A parallel analysis was conducted to validate the model results based on advertising tracking surveys conducted by Ipsos in Brazil and Mexico in 2013. With an average ROI of 49:1, these surveys confirm the range of impact indicated by the econometric analysis. - A secondary validation was conducted based on an analysis of US market share for each of the eight markets where Brand USA s marketing was fully deployed. During fiscal year 2013, US market share of the key origin markets increased 0.5 percentage points over FY 2012 against a competitive set of destinations. - Across the markets, a consistent trend of either an increase in share, or a slowdown in the rate of share losses, is evident. This indicates a strengthening of competitiveness that coincided with Brand USA s marketing investments, providing a confirmation of the returns indicated by the econometric model. 12 Oxford Economics (2014, February) The Return on Investment of Brand USA Marketing, 2013 Fiscal Year Analysis. 30

- The $3.4 billion in additional international visitor spending produced by Brand USA marketing is estimated to have generated the following US economic impacts: o o o o o o $7.4 billion in business sales (output) $3.8 billion in value added (GDP) $2.2 billion in personal income 53,181 jobs created, including 27,895 directly in industries serving visitors $512 million in Federal taxes $460 million in state & local taxes 31

6. Economic Impact Analysis 6.1 Economic impact of travel and tourism in Lancaster County As part of its analysis for the Commonwealth of Pennsylvania, Tourism Economics analyzes the economic impact of travel and tourism in Lancaster County on an annual basis. 13 For the purpose of this analysis, Tourism Economics updated the most recent calculation of 2012 impacts to provide a preliminary assessment of the economic contribution of travel and tourism in Lancaster County in 2013, and analyzed the portion of the impacts that represent the contribution of the ongoing activities of the PDCVB. Key points of background on economic impact analysis of travel and tourism are summarized as follows. Travelers create direct economic value within a discreet group of sectors (e.g. recreation, transportation). This supports a relative proportion of jobs, wages, taxes, and GDP within each sector. Each directly affected sector also purchases goods and services as inputs (e.g. food wholesalers, utilities) into production. These impacts are called indirect impacts. Lastly, the induced impact is generated when employees whose incomes are generated either directly or indirectly by tourism, spend those incomes in the state economy. Specific terms are used in the economic impact analysis. - Traveler: Includes both leisure and business travelers. - Travel and tourism industry: The value of traveler activity within travel characteristic industries. This concept measures only the direct impact of the travel industry from the sales made to travelers. 13 Tourism Economics (2013, December). The Economic Impact of Travel and Tourism in Pennsylvania, Tourism Satellite Account Calendar Year 2012. 32