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Compensation: commissions, mark-ups, and a net environment

Last week I was asked to preview a consumer focused travel guide that is being published by National Geographic next year. One of the chapters was centered on travel agents and travel advisors. The “agent” definition is all inclusive—real people and online; the term “advisor” is reserved for real people with specialties and expertise—make sense to me!

Part of the chapter suggested that consumers that are working with an online agency should compare the pricing on several sites because it is suspected that companies can (and do) influence pricing based on past Internet behavior. For example, if you are browsing online at the Dollar Store and your neighbor is browsing at Neiman Marcus; and you both go to the same travel site, your neighbor’s price for the same trip as yours might be more expensive based on the assumption made from a Neiman Marcus cookie left on your computer.  In the retail world, this is just pricing a product to what the market will bear.

Last week, I had a conversation with another agent and we were discussing consolidators and how effective use of consolidators can really make a huge difference in the bottom line. Look for a consolidator price…compare it to a published fare and mark it up accordingly. Of course the mark up might be more significant on the client that is spending $24,000 on a 3 week European FIT, than the one that is headed to Bournemouth to see Van Morrison play a concert.  Again, this is just pricing your product to what the market will bear.

Also last week, I was part of an online discussion about a client who shopped a fairly expensive trip and thought he had the best price. When, in fact, his “best” price was horrible—it was nearly $3,000 more than the agent could find. She surely felt that she had made a mistake. But alas, it was the same trip and there was nothing different between the two. So, she took her trip and marked it up significantly for the client. The client was thrilled to save an additional $1000 and the agent was thrilled to make an additional $1000 on the transaction.

Some may suggest that this is opportunistic. To a degree, they are right. But it is also, in simple terms, just business.  I have been saying that the industry will move to a net pricing model for years (I actually thought it would have happened by now) and I still believe it is moving that way. In a net pricing model, we will all have to figure out our own individual markets and mark up the pricing accordingly.  For my business, I rarely depend on commission and prefer to work off a net rate. I can add value to the transaction, control my income, and insulate my pricing from competitors. I am acutely aware what my market will bear and test it often by floating trips that I feel are out of my market. And when one shows signs of being in my market, I readjust accordingly.

How do you handle these situations? Do you prefer a commission only type compensation? Or do you look forward to a net environment?

  4 thoughts on “Compensation: commissions, mark-ups, and a net environment

  1. David Biltek says:

    John, I am not sure I agree with your position that we will move entirely to a net environment…i t hink our situation is akin to that of auctioneers where , at least in art and antique auctions, there is a buyers premium as well as a seller premium…so the auctioneer receives money for services rendered from both buyer and seller….we are much the same, receiving payment from the customer for value added advice and services and from the bvendor for value added services such as a clean, well documented booking, payments applied, rules explained etc….so ong as vendors need us for some distribution work they will have to provide some forms of payment for those services….it may change in the future to such things as a “racking fee” or marketing fee, but they will have to pay something for the services we provide.

  2. John Frenaye says:

    It will be interesting. I know that there has been tremendous pressure on the cruise lines to eliminate commissions. The airlines successfully did it. Personally, I think the industry is somewhat weak and just accepts what they are given–and I disagree with that. If you are opposed to somethign, take a stand!

  3. Maryann says:

    I shudder to think what net pricing will bring with it. If we complain about cruise rebating now, imagine how low they will go with nets.

  4. Ajay Prakash says:

    You said it right, John – “The industry is somewhat weak and just accepts what they are given.” How else does one explain the listlessness of agents in the US when commission cuts were first introduced by Delta? The airlines got away with eliminating commissions in the States and then gradually cascaded this action across the world.
    But the concept still sounds bizarre to me – No other industry works on the premise of “Beggar Thy Dealer.

    IATA and the airlines colluded to remove the 9% agency commission clause from the Passenger Sales Agency Agreement, citing compulsions of competition law; then it was just a matter of time. But, by that reasoning, every manufacturer of everything – from cars, to TVs, to toilet paper – would be in violation of competition law since each one of them gives their dealers commission as a percentage of price.

    We’re still fighting against zero commission in India and close to 3500 agents across the country voluntarily observed a ‘zero ticketing’ day on 7th May. Airline sales dropped by over 40% on that day! More action is planned. Let’s see how this ends.

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