This is an idea that I recently ran across and wanted to share. Of course it doesn’t have to be limited to cruises, but the cruise product is probably one of the easier fits. The promotion is called a “conditional refund” promotion: think of it as a hole-in-one promotion on steroids. In otherwords, a promotion that can generate actual sales. Let’s face it, hole-in-one promotions are more about getting your name out there, but they don’t typically generate a lot of sales (but if you get one or two cruise bookings from it, you’re doing well).
Conditional refund promotions are fairly straightforward. The example I was given went like this: a jewelry store has a sale in July for a specific week. During that week, anyone that buys a diamond ring (must be a certain size or meet a certain minimum purchase price) qualifies for the promotion. Then if it snows at least six inches on Christmas Day, everyone who qualified during the July sale gets their money refunded back to them (and of course, they keep the item they purchased). Another example was that if before football season the store had a sale, and then a specific football team they chose wins the Super Bowl, all of the qualified customers during the sale get their money refunded back to them.
Of course the store isn’t funding the refunds. Instead it is the insurance company that is underwriting the promotion policy that ponies up the refunds.
In travel terms, this is how it can work: block group space on a specific cruise ship and date. Have a sale during a set time frame (probably no longer than a week). Everyone that books into your group space on that sailing would qualify for the promotion. Of course you have to figure out what the condition is for the refund. For me, it might be if my team wins the NHL Stanley Cup. But you can tie it to who wins the Super Bowl or World Series (as long as your sales week is before that sports season begins). You can also tie it to weather, like if it snows in a particular location on a specific day like Christmas. Or being that we’re talking about cruises here, you can go the hurricane route… if the first named hurricane of the season forms before X date. Just keep in mind, your sales week has to be well before the targeted event/season. So you can’t have your sales week in July 2016 if we’re talking about the 2016 hurricane season (which would start June 1).
Of course there are some considerations that you have to take into account when setting this up. First is when do you want to have the sale, and what will the condition be that will trigger the refunds. The easier it is for the condition to happen, the more expensive the premium will cost you for the insurance policy underwriting all of this (so the Yankees winning the World Series will be a higher premium; whereas the Tennessee Titans winning the Super Bowl might be a much lower likelihood, therefore a lower premium). Second, you have to guess as best as you can how much you’re going to have in sales revenue during your sales week. This is hard to do, and fortunately, they give you some leeway here. If you estimated you’ll have $100,000 in gross revenue (the potential amount to be refunded) they’ll use that in the premium calculations. You pay half of the premium before the sales week, and the balance afterwards based on the actual sales you generated. So if you estimated $100,000 but it turns out to be $150,000 in sales your premium will increase. If it ends up being $75,000 in sales then your premium will decrease.
The most crucial calculation you need to make is figuring out YOUR income from this promotion. You will need to get a quote on the premium you need to pay, and look at the estimated commission you are going to make. At this point it is easy, is your commission income higher than the premium? If the answer is no, it’s not a viable promotion, pure and simple. But if you’ll make more than you’re going to spend, it’s worth considering, and ultimately it depends on whether you feel you’ll make enough to warrant the cost of the premium. This is also where you need to consider your terms and conditions for this promotion. Let’s say this is based on who wins the Super Bowl. Your sale is in July and they have to book and deposit their cruise no later than July 15. Do you want to require that their cruise departs before the Super Bowl takes place? Or just that final payment is before the Super Bowl (and cancellation penalties kick in before Super Bowl Sunday)? Keep in mind, you could have people that will book and deposit but if they don’t get their full cruise refunded they may turn around and cancel. That impacts your commission income, and can make the promotion more costly for you (less income compared to what you paid for the premium).
My recommendation is to at least have bookings within the cancellation penalties period before the target date (i.e. Super Bowl Sunday). Once in penalty, your clients are less likely to cancel and incur the penalties. Another option is to implement your own cancellation penalty, like making deposits non-refundable from day one, or having a cancellation fee that you charge even if they cancel before the final payment date.
And finally, work with your cruise line BDM. Depending on the cost of the promotion, they may agree to help cover a portion of the promotion premium. They may cover up to 50%, or more likely something less, but every bit will help. They may also be able to help with any associated marketing expenses like direct mail postcards, Facebook advertising, etc.
This can be a powerful promotion if done properly and with enough pre-planning put into it. It can be an expensive lesson, though, if done on a whim and not carefully thought out. Ultimately it can be a GREAT marketing tool. How many travel agencies in your area ever offer to refund someone their cruises costs, in essence giving them a “free” cruise? Have some fun with this, make it your own, get your agency name out there, and maybe give away a few free cruises without digging into your own pocket to fund those refunds.
Susan Schaefer is the owner of Ships ‘N’ Trips Travel (www.shipsntripstravel.com) located in Tennessee, and specializes in leisure travel with a focus on group travel and charity fundraisers. Through their division Kick Butt Vacations (www.kickbuttvacations.com), she focuses on travel for 18 to 23-year-olds. Susan can be reached by email at firstname.lastname@example.org or by phone at (888) 221-1209.