Tourism Pricing and Distribution 101
When it comes to what you need to know about tourism pricing and distribution when it comes to your tourism business, there are three important things to know, particularly when it comes to pricing because profit is not something that is added on at the end, it is something to plan for in the beginning.
Extending from the topic of working with online travel agents and being prepared to pay out commissions for the privilege of working in this space, in tourism pricing and distribution there are three tourism industry-specific things to know and understand when developing experiences.
1. Distribution Systems
Distribution systems are a complex, global network of independent businesses that play a specific role to process three key components of Australian tourism experiences:
- Develop the experiences
- Promote the experience
- Purchase and make experiences easily bookable
New technology and consumer behaviours have significantly changed the traditional distribution channels and online book-ability remains a key criterion for all travel and tourism experiences.
2. The role of Booking Agents
Whilst a significant proportion of your customers will find you by themselves, (online or through your own promotional activities), it’s important to know about the role of the different booking agents and that they exist as a powerful way to extend the reach of your product.
3. Commission Rates
To operate within an international or domestic distribution network you must allow for a percentage of the total cost to be distributed to the booking agents who booked and confirmed your product. Selling your product through the travel distribution system means factoring in commissions.
What you must know about your pricing and commissions include:
- Each level receives a different rate of commission
- Your product MUST allow for these levels of payment
- The commission is paid only once the sale has been made
- Be prepared to pay up to 30% per booking
In summary, pricing and commissions negotiated with your third parties is a private affair and must be kept confidential. Important to always factor in your costs and profit margins and always know that your net rates are only marked up by tour third party agents and must never exceed your usual gross/retail rate sold publicly to the consumer.
ACTION: To give you a clear indication if you are commission ready create a spreadsheet of what your nett rates will look like when commissionable at every level of distribution at 10%, 15%, 20%, 25% and 30%. From here you can create a pricing strategy to be well set up to work in this way and distribute your product.
