Thursday, 10 November 2011
WHY TRAVEL AGENTS SHOULD NOT DISCOUNT
Everyone loves a good bargain and our clients try and get these from us. We in turn get these from our suppliers. And it’s not just an ‘industry thing’ – discounts are everywhere – from happy hours at the pub to Adidas shoes, to the family jeweler. Even the success of online sales (including that of ‘Groupon’) is dominated by one word: Cheaper. Then, is it possible that our industry, the largest in the world, be spared of this?
I have watched the airline commission drama (from a distance of course) for over a decade. Time and again, I have put myself in a spot by arguing with industry veterans, on how the reduction of commission impacts their business, since their “margins” are really not going to be impacted. Most travel agents have built their business on low retention and the only thing lower airline commissions has done for most of them is reduced their capacity to discount. As a supplier (who has no plans to reduce or take away commissions) I have even cheekily remarked, if travel agents retained their earnings, airline may not have cut commission in the first place. But like I said, I am the supplier, how would I know the business, right?
Though, I must say I have also met some smart travel agents who have put some good sense in to my head – by telling me that they are compelled to discount because the market demands it. It’s a buyer’s market. Yes, that is a very good point. If you don’t discount how do you get the business, especially if the guy next door is giving a discount? This is particularly true when the product is homogeneous. I mean, how much more different can a travel agent make an economy seat on Lufthansa look?
As a customer still relying on a travel agent, this April, I booked our flights to Europe with a travel agent. Like most confused vacationers, before my travel began, I changed my routing several times. When I got on the plane, I was not stuck on that non-reclining last row seat that the airline always insists recline. And, we were served dinner before the others, because my travel agent had requested a special meal that is served before the ‘cattle class’ starts eating. I am not telling you about the hotel bookings or the other things he did. Yes, a travel agent can’t change the width and the length of the seat but they can do things to make themselves worthy of earning their bread, little details that the travel agent selling discounted tickets can’t take care of , because they are too busy selling airline tickets like candy.
Of course, if the discount is from the supplier that you are passing on, it is another thing. Or, if you have already built in the cost of the discount in your price, it is even better. Again, if your model is based on low costs, maybe using automation, it’s possible to offer discounts without making your business sick.
However, if the discount you are passing on is none of these, then beware. There is a direct correlation between all your problems and discounting, one of these being staffing. It is not accidental that those who make higher profits can afford star performers – the quality of staff you employ is directly proportionate to the margins you retain.
That also leads us to the question, if the value of the product should influence the discount. Some travel agents I know, feel that it is okay to discount if the product value is high – after all even if you retain 2% of your 10% commission (just like many do with the airline commissions), it’s not so bad. The others feel that the low value (and most of the time also low involvement) sale is the one that can be discounted because the time and effort invested in such a sale is less.
My philosophy, a rather romantic one, is different. I believe that a commission, profit or margin is what any seller (and in this case a travel agent), earns for time, expertise and pain they save suppliers (and customers). A real travel agent works hard. Becoming a travel agent doesn’t require the amount of training and expertise that the making of an astronaut does, but becoming a good travel agent does require constant hard work and up-gradation of skills and knowledge. The reason why suppliers compensate travel agents is because they go out, do the work to find and convince customers, provide pre and post sales service, thereby reducing the load of the suppliers.
Thus, the value of the product is irrelevant in the discussion of discounts. Does a customer buying a Rs.2000 ticket care whether you are earning Rs.100, any more than the customer booking a stay in an Irish Castle? I wonder really, why do travel agents discount? In my opinion, travel agents ought to keep every penny they earn. Yes – it is money “earned” for the work they do. I also think travel agents who discount maybe have questionable self esteem i.e. they simply don’t value their own work, their expertise, their knowledge and their service. Or maybe, they really don’t have any of these and that’s why they discount.
Discounts are ego massages for customers. It makes them feel they got a good deal. But does it really make you sell more? A few months ago, I went a car showroom to check out Toyota’s Innova, and even though it’s not exactly a low value product –they don’t discount. I finally decided to buy one - regrettably I have to admit - at market price. There was no discount, not even a rupee. There is also a Chinese restaurant I patronized very often. After a while, they started giving me a discount on every visit. But, I don’t go there anymore. With time, their quality and service has gone down. It’s probably related to the margins they are retaining.
Which of these two would you rather be dear travel agent?
Mother, amateur athlete, author of fictionalised memoir Wise Enough to be Foolish, traveler, entrepreneur and the founder of India's first outbound adventure firm The Active Holiday Company, like many of us on this planet - I am a little bit of many things and still not satisfied!