This Surprising $2 Billion Annual Investment Is Driving Above-Average Growth

Source: Department for Business, Innovation, and Skills via Flickr .

Growing a business from the ground up is difficult. According to estimates from Bloomberg, 80% of all small businesses fail within the first 18 months. In other words, many of the businesses you're a patron of today are likely among a rare class of survivors.

But, broaden that scale out further beyond just a single small business and into the economics of a city or a state, and try to imagine how hard it is for these economic engines to continue growing. Cities and states need to walk a fine line of encouraging businesses to set up shop in their state in order to attract jobs, while also giving tourists a reason to visit and boost the city or state-level economy.

A smart use of $2 billion

However, the dynamics of the aforementioned dual-growth approach doesn't just involve setting rules and regulations. Sure, a low tax rate is probably going to attract some businesses, but it's not necessarily going to have any effect on travel or tourism. In order to effect this change and really fuel economic growth, cities and states have been becoming more reliant on "destination promotion" to supercharge their growth.

Source: Flickr user Insane Gal.

What's "destination promotion?" To answer that question, and to get a tangible idea of how destination promotion is affecting states and cities, I turned to a recently released study conducted by Oxford Economics on behalf of the Destination & Travel Foundation .

Put simply, destination promotion is handled by destination marketing organizations which represent specific locations, like a city or state, and focus on finding ways to promote and brand a location in order to drum up tourist and business-related visits and boost the long-term economic development of the city or state.

Destination & Travel Foundation's commissioned report examined 237 cities over a period of 23 years and focused on the effect visitors play in the local economy. Based on Oxford Economics' figures, states and cities spent nearly $2 billion last year on destination marketing.

More so than just their financial impact from tourism, the study analyzed other aspects of a city's draw, such as how bringing in visitors could affect economic growth. The results, as you may have guessed, were pretty riveting.

The undeniable power of destination marketing

One of the most interesting findings is that destination promotion increased economic growth in a number of areas of the economy far beyond the average.

Source: Flickr user Vincent Desjardins.

For example, Oxford's data showed that a 10% improvement in the visitor economy translated into a 1.5% rise in broader employment, at least over the short term. Back-testing also showed that destinations with substantial "visitor-related industries" have tended to grow faster over the past decade than cities that aren't as visitor oriented.

Destination marketing has also been a boon for specific industries, such as hospitality and tourism, where employment has grown by 9.8% since 1998, while other studied sectors as a whole have seen employment fall by 0.8%. An additional study on airline traffic to 91 metros suggests that a 10% increase in passengers to a select city results in a 1% boost in employment in service-related industries.

In short, a strategic focus on destination marketing can boost city economies far beyond a tourist-based dollar amount.

"But, how do cities market themselves?" you ask. Let's take a closer look.

Four additional channels of destination promotion

The study also specifically points out four additional channels destination marketing organizations use to put some pep into their city's or states' economic growth prospects, beyond just tourism, of course.

These channels are:

  • Building new transportation networks
  • Raising the destination profile
  • Targeted economic development via trade shows and conventions
  • Raising the quality of life

As you might imagine, supportive infrastructure boosts the travel and tourism industry, helps improve visitor accessibility, and, as we saw from Oxford's collected data, can lead to an improvement in broad-market employment. This starts with building a city's brand and encouraging airlines to expand their routes. Put simply, more people equal more potential!

Secondly, by raising their destination profiles, cities help build brand awareness and define a sense of community, which has the effect of attracting businesses and employees. It's also identified as a main driver of skilled worker talent, which is critical to economic development. The Phoenix Community and Economic Development Department, for example, is working to position itself as "America's Greatest Meeting Destination," which would focus on its close proximity to airports, its rapidly improving business environment, and of course, its perfect vacation climate.

Phoenix skyline. Source: Flickr user Liebe5.

Trade shows and conventions build off the second point and bring decision-makers to cities, which have the potential to further deepen community connections and drive economic development. As noted by Oxford's data, close to 80% of respondents on a scale of 1 to 5 (five being the highest) selected "4" or "5" with regard to how impactful trade shows and conventions were for improving industry insight. In sum, these are a great way to attract high-growth industries to a city.

Finally, the visitor economy tends to boost consumer spending at, or increase investment in, attractions or businesses that may otherwise not be around without an active visitor industry. These include restaurants, which may otherwise not have been profitable without the increased visitor profile, or museums, which occasionally rely on investments in order to stay afloat. Combined, these business and attractions can boost perception of a city and improve residents' quality of life.

Collectively, the study notes, the more an economic development administration coordinates with its destination marketing organization, the more cohesive the plan will be to successfully hit on all of the above channels.

Everything comes down to innovation and branding

Ultimately, Destination & Travel Foundation's study demonstrates one key point that Americans and investors would be wise to pay attention to: Success comes to businesses and cities/states that continue to strive to innovate and properly brand themselves.

Branding is essential in today's society to keeping consumers loyal. Whether it's a local restaurant, a hotel operator, or a big city attempting to attract visitors and new businesses, the branded image needs to be consistent across the board with consumers, it has to emotionally engage them, and it has to be innovative enough to keep up with consumers' changing purchasing habits and interests.

It also implies that businesses seeking to improve their own bottom lines may do so in cities that have successfully branded themselves.

Miami skyline. Source: Flickr user Gabriel Kaplan.

In Destination & Travel Foundation's study, for instance, the visitor economy contributed to nearly 3.5% of Miami's job share as of 2004. Ultimately, job growth between 2004 and 2013 totaled around 15% for Miami. The region is home to plenty of leisure companies like Carnival and Royal Caribbean , which have certainly benefited from an increase in visitor traffic to the region, and which we'd probably expect would thrive.

However, Miami is also a hotbed for technology and skilled workers, with companies like Cisco Systems , Oracle , and Telefonica boasting at least one major headquarters building in Miami. True to form, Miami has done an exceptional job of seamlessly blending in vacation appeal with the perception that it's a breeding ground for businesses, which has certainly attracted skilled technology industry workers to the region.

Of course, just because a city or state understands how to brand itself doesn't mean a company operating in that state will necessarily be successful. In the end, understanding how a city or state goes about attracting visitors and businesses, as well as how successful that city or state has been in the past, can go a long way toward deciphering whether or not a businesses is going to have an easy or tough climb to the top.

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The article This Surprising $2 Billion Annual Investment Is Driving Above-Average Growth originally appeared on

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of Oracle and recommends Cisco Systems. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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