It’s a price war out there. While demand for travel remains low, many suppliers are offering specials and discounted rates to attract those few customers who are still keen and able to travel right now.
But undercutting or excluding your trade partners can do lasting damage to important relationships, and undervaluing your product can also cause reputational harm.
In the last few months, we have seen many examples of special offers made available by suppliers on their websites that are not offered to the trade, or are commissionable only by 10%. While I’m convinced these suppliers do not intend to throw their trade partners under the bus, that is what they are doing.
I get it. Product owners such as hotels or safari lodges want to do everything they can to attract the little bit of business that is going. Everyone is desperate. But a fair slice of that business will still come through the traditional value chain, if you value those relationships. Agents, operators and DMCs also need to do everything possible to generate business. They are getting enquiries, and cannot risk placing their business with operators who undercut them with special offers that are only available to direct clients, or have their commission slashed to 10% on the special.
From an agent’s perspective, lodges that do this will end up losing business from the trade. Let me explain why by giving you two examples of situations that have occurred frequently in the last while.
Case study 1
In the first example, an inbound operator offered a favourite lodge to a customer who was willing and able to travel during December 2020. The customer liked the lodge and, as most clients do, went online to check the lodge’s reviews and look at the lodge’s own website, where they found a much cheaper price – a half-price special offer the operator was not aware of because it had not been made available to the trade.
The supplier quietly put it on their website without even informing or including their trade partners. The customer sent the operator an angry email, accusing it of trying to overcharge them during the pandemic. The operator lost the booking, one of the precious few during this pandemic. The lodge may have won the direct booking, but their half price special was less than the nett rate the operator would have paid them. And the harm done to the relationship by ripping the rug from underneath a loyal trade partner may cost that lodge future business from that operator. No agent or operator can support a supplier that undercuts them.
A short-sighted strategy like this to attract business during these desperate times may well cause this lodge long-term harm, particularly if they rely on the trade for a significant percentage of their business.
Case study 2
The second example is a very common phenomenon right now. Lodges offer deep discounts or special offers that are not commissionable to the trade, or only 10% commissionable. Here is why that is short-sighted.
If a lodge is priced at, say, R10 000 (€553) rack, and their loyal trade partners who have been supporting them for years get 30% commission, the usual nett STO rate to those trade partners is R7 000 (€387). Now, imagine that this lodge decides to offer a discount (as many lodges are doing) by offering 50% off and making the rack rate R5 000 (€276) but only offering 10% commission on the special offer. Now the nett rate to the trade is R4 500 (€248).
The lodge’s revenue went from R7 000 nett to R4 500 nett, a drop of about 35%.
The trade’s revenue went from R3 000 to R500 commission, a drop of about 83%.
This is called throwing your trade partners under the bus at a time that we should be standing shoulder to shoulder and working together to survive this pandemic. This strategy (a deep discount at reduced commission) may seem fine to the supplier, but the trade has very little incentive to promote such a special and continue selling this lodge. Maintaining the agreed commission even for a discounted rate is a much better approach, and ensures that the lodge and its trade partners share the same percentage drop in revenue while the special applies.
In addition, it is worth considering whether dropping prices by half might undervalue the product, and give the appearance that the supplier had been overcharging for their product before the pandemic.
Pay Stay special with commission the best option?
These are desperate times and there is certainly room for special offers. We know that low demand puts downward pressure on prices. This is an established economic principle in a free market. But perhaps a Pay Stay special (fully commissionable) may be more effective than a half-price discount with reduced commission to keep your loyal trade partners on board, preserve price integrity and affirm your product’s value. The trade will remember and appreciate those suppliers who did not slash their commission due to lower volumes this year, and who did not undercut them with direct web specials that are not available to the trade.
Let’s invest in long-term, mutually beneficial relationships. We need each other during this pandemic, and we’re going to be needing each other as we begin to recover from this devastating year.