7 Growth industries characteristics, part 2: pricing

Travel trade commission structure

Are you one of the lucky guys that are running a tourism business with more demand than what you´re able to supply? I thought not… they´re a rare species. Have faith, there´s help to get if you activate a network of distributors. One of the most effective tools to get others to provide you with lot´s of customers is your pricing strategy.

A packaged tourism product generally contain three core elements: Transportation, accommodation and activities. It´s as simple as that. Or is it? A closer look reveals that these elements might contain a number of components, such as arrival services, transfers & in-country transport, accommodation, food, guiding, activities, experiences, lectures, entrance fees, rental equipment, tipping, baggage handling, service charges, taxes, commissions and administration costs.

It may seem appealing to be able to sell your product exclusively to clients that book direct with you, thus saving on commission, but it can be quite stressful with todays client trend to book later and later. It also leaves you with all the marketing and sales stuff. If you´re cooperating with the travel trade they do it for you, handle all the pre-tour enquiries, administration and provide you with the resulting business, planned and prepared.

When you´re developing a pricing structure for your products it´s s important to understand that there could, and in most cases should, be one or more other entities involved. If you allow them to make a reasonable profit on your tours, they´ll open their customer databases and give you access to an audience you would never have reached by yourself.

Overseas tour operators and clients booking direct often want service providers to provide a range of services rather than having to book and pay 3 or 4 directly service providers in the region they are visiting. If there´s no incoming tour operator or destination management company available, one of the service providers has to be the product owner. This means taking  responsibility for finding, booking and paying for all the services the tour operator or client needs and, consequently, taking this into account when making the quotations and pricing.

One of the most common mistakes tourism entrepreneurs make is to sell their services cheaper to direct sales customers than if they´d booked through an agency or tour operator. Big mistake. You´re out of your distributors´ programmes in the wink of an eye. Instead, your rack price should be the same no matter where the end client makes his reservation.

Commission should always be viewed as a marketing cost and budget for as such. The image above presents briefly the travel trade commission structure and the effect it has on the end price for services booked prior to client travel to the destination. There are of course a number of other requirements to meet if you´d like to be taken seriously by the travel trade. More on that next time.

/ Curt Landin