SAN JOSE CAPITAL OF SILICON VALLEY

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1 CITY CJTY OF j2k SAN JOSE CAPITAL OF SILICON VALLEY TO: HONORABLE MAYOR AND CITY COUNCIL COUNCIL AGENDA: 11/01/16 ITEM: Memorandum FROM: Kim Walesh SUBJECT: DESTINATION MARKETING AGREEMENT WITH TEAM SAN JOSE DATE: October 11,2016 Approved^. HO Date /p/n/fa RECOMMENDATION Adopt a resolution authorizing the City Manager to negotiate and execute a two-year Agreement with Team San Jose for international air service and destination marketing services in an amount not to exceed $850,000. OUTCOME Approval of this action, granting authority to negotiate and execute a two-year agreement with Team San Jose, will help market the City of San Jose as a destination in specific markets that are already aligned with Norman Y. Mineta San Jose International Airport flights. BACKGROUND As part of the Mayor's June Budget Message for FY , the Mayor's Office approved Manager's Budget Addendum No. 6, which earmarked $850,000 for the City, with Team San Jose as a partner to provide international air service destination marketing services. The proposed agreement would be a highly-targeted, initial effort for San Jose to develop brand awareness as the internationally important destination that it is, thus earning a larger share of the global travel market and benefiting from the resulting economic impact. Staff is seeking Council approval to negotiate and execute an agreement with Team San Jose to provide such services, as the amount of the proposed agreement exceeds City Manager contracting authority.

2 Page 2 ANALYSIS Market Context Norman Y. Mineta San Jose International Airport (SJC) is experiencing unprecedented growth in long-haul flights to international destinations. Successful, sustained international flights will generate significant local economic impact and spur additional air service and passenger growth at the Airport. To succeed, it is critical that travelers from overseas recognize San Jose as a travel destination and book flights to SJC. Flights cannot succeed with local San Jose-based travelers alone. Because San Jose is not a well-known city for international travel, extra promotional efforts by the City (in addition to planned promotional efforts by the foreign airlines) can make a critical difference in the new flights meeting their passenger booking performance measures. The City, with partner Team San Jose, will launch a two-year International Air Service Destination Marketing Program that will promote San Jose in key foreign markets that have international air service ties to SJC to help ensure the success of these flights with inbound passengers. The goal is to generate international bookings to SJC by residents of foreign countries. From this initial two-year highly targeted effort, San Jose can learn how to build brand awareness as the internationally important destination that it is, thus earning a larger share of the global travel market and benefiting from the resulting economic impact. While this is a 'first' for San Jose, most large cities in America and many medium-sized cities, promote themselves internationally as a destination for travelers. Travel is the #1 United States (U.S.) service export industry and is fast-growing. In the most recent year, 75 million international visitors spent $221 billion in the U.S. This is an ideal time for San Jose to launch an international destination marketing program because of the growing market for foreign travel and the opportunity to leverage the strong investments being made by the Visit California (state tourism agency) and Brand USA (national tourism agency). These tourism partners are investing in global promotion at record levels. In 2016, Visit California received a record $106 million from the State of California, opening the door to a new level of success and visibility promoting California as a destination globally. In addition, Brand USA is investing record levels of public ($100 million) and private ($300 million) support to market the U.S. as a foreign travel destination. But, to leverage the capacity of Visit California and Brand USA, the City must invest in building a basic level of San Jose promotional capability. The budget of $850,000 will be invested over two years and focus on two markets: China (for Beijing and Shanghai flights) and Germany (for flights from and through Frankfurt).

3 Page 3 Strategy Tourism is by definition, a global industry. However, the way it is perceived and the way it is structured varies considerably around the world. In order to promote San Jose in markets outside the U.S., we need to adapt the deployment of our strategies to suit the way the people of a particular country think, consider, compare, purchase and consume international travel. To do this, Team San Jose is partnering with the nation's leading tourism marketing agencies and organizations. Team San Jose identified partners who would bring value, funding and increased visibility to our investment. We will work with Brand USA and Visit California, as well as both Monterey and Santa Cruz Counties. Our neighboring counties will add their own dollars and thus, extend our reach. Team San Jose has met with and confirmed that these partners will work with the City to execute strategies that work best for our chosen markets and lead to growth and return on investment. The first international designated marketing areas will be China, both Beijing and Shanghai to support Hainan and Air China flights, and Germany. Our Germany efforts will support Lufthansa and the Germany market. Scope of Work The budget of $850,000 will be invested by Team San Jose over two years and will focus on two main markets: China (Beijing and Shanghai) and Germany (Frankfurt) to support new international flight service. Funds are anticipated to be spent on the following program elements: San Jose Marketing/PR Offices in China and Germany. Team San Jose will secure the service of representatives working on San Jose's behalf in China and Germany who understand California/San Jose and their particular foreign traveler market. Team San Jose will secure the best in-market representation with proven experience in public relations, travel trade, and digital/social marketing. This will be done through Brand USA and Visit California when possible. Activities include: Local advertising and social media - Local, multi-channel advertising and social media planning, strategy and buying management. Travel Trade Relations - Marketing to the travel trade to reach consumers in key international markets, including marketing to key travel agents and tour operators and education to increase sales. Media Relations PR and Influencer Strategies - Earned media programs that boost and complement consumer marketing campaigns and trade initiatives while expanding the reach of direct-to-consumer storytelling through editorial placement. Public relations efforts will focus on securing placements across broadcast, digital, and print media

4 Page 4 channels that engage influencers to reinforce San Jose's position as an important California and global destination. Promotional Events (Trade Fairs, Workshops, Sales Blitz, Agent Training) - International sales missions that include seminars, workshops, one-on-one meetings, and VIP receptions with key partners to ensure that the City has maximum opportunity to interact with tour operator decision makers, destination marketing managers, and influential trade and consumer media. Consumer Activations - Familiarization Tours with key tourism operators (FAMs) working with host tour operators and travel agents from our key international markets to showcase and educate clients on our City and regional tourism products. In-Country Multi-Channels Integrated Media Programs. This includes digital, print, social media, outdoor billboard, radio and TV media buys to support in-market efforts including leveraging reach of Visit California and Brand USA for placement of key San Jose messaging where and when it is needed to drive bookings. Airline Co Op Ad programs. Team San Jose will leverage existing relationships that both Brand USA and Visit California have with international airline partners to craft trade and consumer promotional campaigns. This could include special fare deals, sweepstakes, co-promotional media and broadcast campaigns, and co-hosted Sales Missions. The following budget allocation is anticipated; however, individual component amounts may vary to accommodate changes within the marketplaces and partnerships, while remaining within the total allocation. FY FY China In-Market Representation $225,000 $225,000 with Brand USA's China Market Entry Program Air/Paid/Social Media $48,000 $48,000 Programs and Partnerships Germany* In-Market Representation $75,000 $75,000 Air/Paid/Social Media $77,000 $77,000 Programs and Partnerships Total $425,000 $425,000 *Germany as a market, is less expensive for representation and while both Visit CA and Brand USA offer partnerships, they do not underwrite representation as they do in China. The budgets above are only estimates and may be adjusted once the actual agreements are negotiated.

5 Page 5 Deliverables, Key Initiatives and Performance Indicators Team San Jose will track the following indicators to monitor return on public investment: Year 1 - Deliverables and Benchmarking Baseline audit through third-party in-market partner, which will include: market audit regarding how consumers book travel, how groups book travel, how travelers get their information on a destination, San Jose pick-up and awareness on social media channels, San Jose pick-up and awareness on digital media channels, and the role travel agents play and their awareness of San Jose as a destination. Learning market best business practices for the travel trade market and media including policies on FAMS, pay-to-plays, stipends, etc. (ie, it is customary to pay the media to attend a lunch in Shanghai) through in-market partners, Visit California and Brand USA. Develop in-market public relations and marketing assets including a media library and tool kit, media list development, and media releases. Development of social media account and launch including design, localization of posts to language with content screening, and social media strategy including account management and campaign. Travel agent/tour operator destination awareness and training as well as tour package planning support for travel trade. Year 2 - Strategy Adjustment and Benchmarking 3% increase over year 1 in digital and social reach and engagement. 5% increase over year 1 in circulation numbers of editorial placements. 5% increase over year 1 in number of tour operators/travel agents and sales forces trained. Additional measurements may be added based on campaigns and airline marketing partnerships. Unique Service Rationale The proposed agreement with Team San Jose would present an "unusual or unique situation exists that make the application of the requirements for competitive procurement of a services agreement contrary to the public interest" within the meaning of San Jose Municipal Code Section As noted above, given the City's long-term agreement with Team San Jose to serve as the Convention and Visitors Bureau (CVB) for San Jose and its expertise in marketing San Jose as a leisure and business destination, Team San Jose's existing role as CVB presents a unique service situation. Accordingly, the City Manager's Office, as the procurement authority, will prepare and file a written determination of the basis for the unique service procurement (consistent with this memorandum) and the selection of Team San Jose on this basis, which will be included in the Office's files.

6 October 11,2016 Page 6 EVALUATION AND FOLLOW-UP This agreement, including its baseline audit, will be reviewed after year one, with ongoing strategy adjustment and benchmarking in year two. POLICY ALTERNATIVES Alternative #1: Direct staff to issue a Request for Proposals for the international destination marketing services. Pros: This alternative could result in additional options for these marketing services. Cons: The current arrangement for Team San Jose to serve as the City's CVB will enable the City to leverage the existing Team San Jose resources, networks and expertise. PUBLIC OUTREACH This item was reviewed by the Council as part of the City's Proposed Operating Budget for FY , with extensive public outreach and hearings. This memorandum will be posted on the City's Council Agenda website for the November 1, 2016 Council Meeting. COORDINATION This memorandum has been coordinated Team San Jose, City Manager's Budget Office and the City Attorney's Office. COMMISSION RECOMMENDATION/INPUT No Commission action was taken related to this item. FISCAL/POLICY ALIGNMENT Approval of this destination marketing agreement aligns with the City's Economic Strategy, "#9 Keep Developing a Competitive, World Class Airport, and Attract New Air Service. "

7 Page 7 COST SUMMARY/IMPLICATIONS The services will cost the City $850,000 and will leverage resources of state and national tourism agencies. The Adopted Budget included $425,000 for International Air Service Destination Marketing Program. Additionally, $425,000 was placed in the Airport Attraction Program Reserve. Budget actions are anticipated to be brought forward as part of the budget process, to liquidate the reserve and re-appropriate the funds to the International Air Service Destination Marketing Program appropriation, in order to fund the second year of this agreement. BUDGET REFERENCE The table below identifies the fund and appropriations proposed to fund the contract recommended as part of this memorandum. Fund # Appn # Appn. Name Total Appn Amt. for Contract Adopted Operating Budget Page* International Air $425,000 $425,000 N/A Service Destination Marketing Program Airport Attraction Program Reserve Total Current Funding Available $850,000 $850,000 Last Budget Action (Date, Ord. No.) 6/21/2016 Ord. No $425,000 $425,000 N/A 6/21/2016 Ord. No *The Operating Budget was adopted by the City Council on June 21, The amounts shown here are a result of the Manager's Budget Addendum #6 (Destination Marketing Program to Support International Air Service), which was included in the Adopted Budget.

8 Page 8 CEOA Not a Project, File No. PP10-066(e), Agreements/Contracts (New or Amended), Services that involve no physical changes to the environment. /s/ KIM WALESH Deputy City Manager Director of Economic Development For questions, please contact Kerry Adams Flapner, Director of Cultural Affairs, at (408)