PLAYING ROULETTE ….WITH YOUR BUSINESS!
As we now start to see a glimmer of light, at the end of the long Covid19 tunnel, what’s your opinion on travel companies dumping their rates? Here’s my take on it…. at the moment!
Mixed Message
If a hotel, airline or tour operator price themselves lower than the competition, they are likely to send a different message out to those who are listening. Depending on the audience, the intended discounted offering will potentially be construed differently. To a consumer seeking value, reducing prices is saying that your product is a bargain when compared versus the competition. However, to a high-end consumer, who is seeking a product or service that makes them feel part of an ‘exclusive club’, then it’s as good as saying that your product or services are of inferior quality. One possible way to get around this is to combine pricing with other added values / extras to make the offering more appealing. For example, it may be better to price higher and include a room upgrade or similar. Surely, it’s makes more sense to improve the ‘perceived value for money’ offering by telling the consumer how much your products and brand are worth?
Eliminating Competition
Some travel companies, particularly larger operations, will price low with the aim of eliminating the competition and then raise increase prices when the competition has gone. Of course, this ‘tactic’ can have legal consequences, if viewed as a breaking the law. The modern way tends to be more subtle, by promoting a ‘loss leader’ price to attract customers in the hope of upselling to other more profitable products. Let’s be honest, there’s not much that can be done about this, unless it is on a large scale and disruptive to the market. If this happens, then it’s time to talk to the culprit and put a stop to this activity!
Cash Flow
It’s vital that there is some form of cash flow for any business to survive but at what cost? No sales = no income. No income = no business. Therefore, some businesses may consider to discount prices to get the inventory moving. In some cases, it may even make sense to sell it at a loss. It could be argued that with better cash flow, a business will be able to survive the post Covid19 pandemic and then plan ahead for the future. It’s a tough decision to make and some will take a different view on what’s best.
My View
It’s vital to ensure survival but the concern is…at what cost? If a business dumps it’s rates, then it won’t be easy to raise them back to the expected norm. Going forward, it’s likely that the partner or end user will have an expectation that rates can stay low or go down further. I know myself (as an ex purchasing manager) that the goal during the contracting cycle is to aim for lower or the same. However, in times of adversity, the goal is for heavy discounting at all costs. Some would argue that that this is a ‘win-win’ solution to both parties concerned but ultimately the product provider comes off worse. Lower rates = lower quality clients = lower revenue = potential problems = loss of market share. Yes, it’s easy for me to say ‘do this’ or ‘do that’ from the outside. Discounting is okay but in moderation. I would recomend my clients to offer added value and try to improve the customer experience. Ultimately, the product offering must not be reduced to an unsustainable level that will have a negative impact on the offering, market and destination. For me, we prefer to not take the short-term gain to the detriment of the long-term aim. Easier said…..than done!
Written by Jonathan Wilkins from Select Representation. Select Representation is a sales & marketing representation company, headquartered in the UK. The perfect option for hotels and destination management companies (DMC’s), wishing to expand their business from the UK, Ireland, Belgium, Netherlands, Norway, Denmark, Finland, Sweden and Iceland. One of the founder member of Global Travel Representation Alliance.