Friday, 6 December 2013

Quality not Quantity

By Campbell Will, Intern, Motu Economic and Public Policy Research

Tourism is New Zealand’s second largest export sector; it contributes approximately 12% of GDP and 5.7% of employment (excluding indirect employment). However, a recent report by the Ministry of Business, Innovation and Employment shows that although the number of tourists visiting New Zealand is increasing, they are coming for fewer days and spending less money per visit. A key finding is that the number of tourists from Australia has been increasing over the past decade such that they now make up 45% of all visitors to New Zealand. Importantly, Australians spend less money during their time in New Zealand than tourists from any other country.

The report identified that tourists from the UK on average spend the most and stay for the longest. Also, visitors from all countries stay fewer nights and spend less than they did in 2003. There are some issues with the data and facts as presented in the report. For example, there are potential inaccuracies in the data from people filling in forms inaccurately. Furthermore, Australian tourists are identified as spending less than tourists from the UK per visit, despite Australian tourists spending more on a per day basis. This report offers some insight into where advertising should be made to encourage tourists to come to New Zealand. However, there are a few key things to consider before any decisions are made.

Information on what tourists are spending their money on is particularly relevant for targeting advertising. Advertising that targets tourists interested in an activity such as skiing may be more effective when aimed at Australians rather than tourists from the northern hemisphere, as Australians have a significantly shorter distance to travel. Advertising is potentially unlikely to change the behaviour of tourists from the northern hemisphere as they have many options for skiing that are closer and therefore more affordable than New Zealand. Thus, the marginal returns to advertising in different countries will influence where we advertise. For example, if a dollar of advertising in the UK increases tourism income by $2 but it would increase tourism income by $3 if that dollar of advertising was spent in Australia, then the optimal choice would be to advertise in Australia.

Furthermore, depending on whether tourists are filling empty hotel rooms or buying meat that would have otherwise been exported, the marginal impact of tourists’ expenditure on the economy will vary. Consideration also needs to be made as to what we want from our tourists as there is more to gain than just financial returns. A larger number of tourists visiting New Zealand increases our reputation across the globe and can strengthen relationships between countries. Building our international relationships can have flow on effects in other areas such as business, trade, immigration etc. Therefore, the average tourists’ expenditure may not accurately represent their contribution to our society.

For these reasons it is important that we collect more information on tourists’ expenditure and the effectiveness of advertising before hastily increasing advertising expenditure in potentially the wrong areas.

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