In her book “Let Them Eat Cake”, author and luxury goods researcher Pam Danziger states, “The business of experiential luxuries remains largely one based on consumers paying full list price. Luxury travel is the only widely discounted experiential luxury where 64% of buyers got a “deal” – otherwise they expect to pay full price for luxury goods & services.”
Unfortunately, this observation can be applied to all segments of travel, not just to luxury purchases. I am a realist, and if 64% of customers claim to receive a discount or a deal on their travel, the subject that needs to be addressed objectively by the trade channel.
“Rebating” or “Discounting” as it is also known, is possibly the single most polarizing subject in the travel industry. There tend to be two very distinct camps and they vehemently defend their respective positions. Many will stand by their principles and claim to never discount, and then there are those who build their business strategy around this tactic. Based on my experience, there is a third group, much larger but far less vocal. Those who discount strategically; not all the time, but when it makes sense for their business.
Having spent some time on the supplier side fence, I can assure you of one thing – suppliers don’t like the public practice of discounting or rebating. It devalues their product, and a few have taken measures to try to protect the integrity of their pricing. But in the end their objective is to fill ships, motor coaches, and hotel rooms.
It is also important to remember the supplier always gets paid their net price. In most cases, the only negotiable piece is the commission. To level the playing field, most suppliers will price match their lowest rate in the market, but where a commission discount is given – it’s up to you to decide if the business is worth it.
We are in a very competitive retail environment and as we all know, most of our prospects tend to shop around.
Let’s take a typical situation, one you probably see on a regular basis. You are working with a prospect on a cruise sale that will net your agency $200 commission. You find out another agency has quoted the same cabin -but for $75 less. What to do? First thing I would ask is “Are the services you provide worth more than $125 bucks?” This is your call, but assuming you know your minimum break-even point with transaction costs, my guess is you would probably lose money on this deal even without a discount.
Now let’s look at the same scenario again – except this time we will add a zero to the numbers. The commission is now $2000 and the competing quote includes a $750 commission rebate. Now its becomes real money and the question more difficult. Do you see this as a $1250 paycheck or do you stand by your principles and let $1250 commission walk away? Assuming the customer completes the purchase, someone will get paid. As a business person, what would you do?
The beauty of the free enterprise system is there are as many different business models as there are agencies. Just because you don’t agree with how one does business, does not make it wrong or unethical – it just makes it different.
I am not advocating either way, this is a business decision each of you must make. What I suggest is, before taking a stand on either side of the fence, consider what is best for you and your business. Let me know your thoughts.
Dan Chappelle is President of WealthyTravelAgent.com where he develops sales leaders for the travel & tourism industry. He assists sales professionals achieve their full potential by expanding their vision, shifting their mindset, and transforming their businesses to produce tangible results. An internationally known travel industry expert, sales executive, and speaker, Dan has earned an enthusiastic following among travel agents and industry leaders worldwide. He has been featured in numerous trade and consumer publications and is an instructor for the Travel Institutes’ Professional Educators Program, providing insight for travel professionals. You can contact Dan by email at Dan@WealthyTravelAgent.com.