Reho Travel CEO, Karsten Horne, has been researching and building a new pricing model for travel management Company’s (TMCs). For the model to work and get everyone back on their feet though, Karsten will need the majority of the industry on board, which is why he’s putting it out there to you…
Let’s for a moment forget about the effects of COVID-19 on the corporate travel industry and wind the clock back 12 months.
Was it all rosy, this time last year? – I don’t think so.
TMC’s were still reeling from the impact of the new Qantas (NDC) Channel which promised to “modernise the way agencies book fares and deliver personalised experiences to customers”.
How’s that looking 12 months on?
I know for our business alone it wiped $100k off the bottom line with nothing to show for it, and certainly no customers raving about the experience.
I saw that move as a warning shot across the bows of our industry that the days of relying on earning a living from suppliers was coming to an end, although the ship has been leaking for over a decade.
Commissions and overrides have slowed to a trickle, service fees are being squeezed whilst in the past few years, while the cost of servicing an account has increased tenfold.
Nowadays you won’t get a look in unless you have an SSI portal, a duty of care dashboard, automated approval process, BI reporting, 24/7 service, a swarm of robotics and a team of experienced account managers.
A recent Helloworld Business Travel survey revealed that of the 14 key services provided by a TMC, our clients ranked Travel Consultancy services at number eight.
Alarmingly it is the only service we actually charge for; all the others are supplied free.
Not only that, but the other thirteen services are usually rendered by our most expensive and experienced team members.
That same survey highlighted that the majority of our clients are willing to explore an alternative charging model.
It got me thinking that we need to change things up and quickly before it is too late.
The first step I believe is to take our hard hats off, invest in a nice hairdo and start referring to ourselves as a profession, rather than an industry.
The second important step is to split our service offering into Travel Management and Booking Services and to charge for them both.
I believe the best way to do this is to create a subscription pricing model for travel management (Retainer Model).
My research has revealed that outside of the actual booking service most TMC’s provide around 30-40 services in four key areas.
- Account Management
- Duty of Care
- Business Intelligence (Reporting)
- Supplier Negotiations.
A simple model with a Basic, Standard and Premium offer would ensure that clients are only paying for the services they require, and your team are made accountable and measured on the services they are delivering.
I am not recommending a change or even a reduction to our standard transaction fee model for booking services, for the retainer model to work, they need to sit alongside each other.
You may ask, “How can I start charging for services that my clients have never paid for?”
The first step is to be open about our profession, where we earn (and don’t earn) our money and most importantly – continuously educate our clients on the value we add.
The accounting profession is a great example of presenting your investment journey to you. It’s usually very complicated and extends well past your expiry date into your next generation.
How many of us have left a meeting with our accountants, comfortable that they are doing what they do best and glad they have us sorted because we now appreciate the complexities of their role?
Then the invoice arrives in the mail and we are happy to pay it because they have clearly demonstrated the value they add to our business.
We need to have a discovery meeting with each potential client plotting their journey, not just with a pen and notepad, but up on the big screen, showing every complicated step and all the crossroads and potential pitfalls that you will navigate them through.
Last year I climbed Mt Ararat in Turkey. From a distance, it looks pretty straight forward. You just climb up it right? I mean it’s pretty obvious where the top is.
Ever tried strapping crampons on your feet at 5000m, in the pitch black, in a howling blizzard at minus 20 degrees though?
Well, imagine doing that without an expert. Believe me, delivering Travel Management services can be more arduous than climbing a mountain.
One of the challenges in implementing a subscription service is justifying a monthly charge. That is until you look closely at all your individual services and plot them on a timeline.
By focusing on moving the business model from a transactional one to a relational one you have a constant ‘touchpoint’ with the client with the opportunity to learn more about them and find ways to enhance the relationship both as a revenue opportunity and/or as an increased rapport opportunity.
Most of the services we provide go unnoticed and occur year-round but a good many can be locked in at set times of the year. Eg. Annual review, hotel negotiations, budget review etc.
Subscription model ideas have been circling around the TMC world for a while now. There is a lot of talk and I’m pleased to hear that a few are now testing the waters.
BTA recently commissioned leading industry consultants Nina & Pinta to create a white paper exploring TMC pricing models and concluded that “The biggest challenge will be selling in the benefits to customers over the more traditional transaction or management fee models, and deciding how the subscription is applied – to the corporation or to the end-user (the traveller)”
Going beyond the subscription model and venturing into a retainer concept is JTB Business Travel in the USA who recently announced it’s “Open Choice” program. Under the initiative, JTB provides support for bookings made through any channel, including online travel agencies or directly with suppliers.
Melbourne based TripApprove has developed technology that allows you to plan, approve, expense, track and report every travel movement made by internal and external travellers within an organisation.
Threat or Opportunity?
Under the current model, these developments are a massive threat. However, for a TMC that has split its service, it represents a tremendous opportunity. Imagine a future where a TMC doesn’t make bookings or a BSC (Booking Specialist Company) doesn’t manage an account.
A small BSC could partner with a TMC and save massively on the costs of account management. Or as is a growing trend, a company may choose to make its own bookings, however, it can’t do its own Travel Management. Then there’s scope for a small TMC or BSC to secure “approved leakage” with no need to provide account management services.
I’m not suggesting that everyone run out and transform their business models overnight as most of our clients are still struggling to consolidate data from a single source.
However, when they are presented with technology that allows them to integrate data from multiple sources, manage their budgets and track their traveller movements then we better be ready.
When the rains come, Noah is not going to make space for us, we need to work together now to reimagine and consolidate our profession at a higher altitude to avoid being engulfed by the rising tide.
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