PART 3 OF 3 – WHOLESALER AND TOUR OPERATOR CONTRACTING
NB: This is an article by Pontus Berner, Co-Founder and Managing Partner at berner+becker revenue management.
We hope you have had a successful start in 2017 and that you will see prosperous revenue increases this year as a result of your set strategies and learnings from the past. Even though the year just started, it is soon time for the yearly contracting season of your wholesaler (WS) and tour operator (TO) business for 2018! Hence, in this article, which is the last one in a series of 3 addressing how to take control of your inventory, we will share our best practises for successful wholesaler and tour operator contracting.
The RFP process
Just as for corporate contracting, you only have one chance per year to get your prices and allotment allocations right for your WSs and TOs. As this means quoting prices for business in the far future, usually now for Q2 2018 to and including Q1 in 2019, it makes the decision even harder and more important. So, take time for thorough analysis and make detailed displacement calculations for each account.
If you operate in a market with high amount of leisure tourism you will be more dependent on this business and should therefore pay extra attention. If you however operate in a more business driven destination, the bookings trends are shifting much more to OTAs and you can apply a more restrictive contacting approach to the WSs and TOs (Skift, 2016). Furthermore, as a hotel in need of volume you should focus on setting your prices and strategies accordingly, whereas if you are running high occupancies, you should be very careful as this type of business usually sits with the absolute lowest average daily rate (ADR) within your segmentatison mix!
Our advice for FIT contracts
Do your displacement analysis and establish a conversion ratio
Do this for each of your account and analyse the past rolling 12 months. First, summarise the amount of rooms given as allotment per season and day of week (DOW). Use production numbers to check how much of their allotment actually converts for the different weekdays within each season. Perhaps you will find that you have contracted much more rooms than they use. So, use this data to conclude how you can change allotment allocation, hopefully freeing up some of your inventory. This data works as a perfect negotiation tool with your account manager as well. As for the displacement, you might find a lot of days when an account is displacing more revenue than they bring you. This is to be expected as this business sits at such a low ADR level, so it is important to find out if they bring you enough business in low demand times to weigh up for the loss and in the end bring you a positive impact seen over the whole year. Here you can also apply the incremental revenue impact ratio which is explained in our other article, corporate accounts contracting.
Investigate your rate parity and rather go dynamic
If you don’t have a parity report, get it! This is the only way you can get a good overview of your rate parity issues. If you have contracted WS business, the chance is big that they press a button in their system allowing for their rate to be publicly distributed to online sites like Amoma, Hotelopia etc. which are known to publish prices that undercut the official prices that the hotels are distributing. This makes it almost impossible to win bookings to your own website and also negatively impacts your ranking on the more important big OTAs like Booking.com or Expedia. Moreover, even if you find out which WS partner is distributing these low rates and ask them to stop, they usually put them back online one week later again, making you run in a spinning wheel, never arriving at parity. Our recommendation is that if you have a WS partner than constantly breaks your agreement, change the contract to dynamic rates. Basically, you are giving them your BAR and maybe other public rates which they sell on a commission base, removing the possibility of undercutting. The additional benefit from having dynamic pricing is also that you will, just as with your normal public prices, be more flexible and be able to adjust the price level to fit the current market demand.
If fixed rates – check catalogue prices of your competitors
If you don’t have any rate parity issues and you have a healthy relationship to your partners, then good for you and keep their business if your displacements show you still need them! When quoting your rates for the coming season make sure to get a hold of the printed catalogues showing you your competitors pricing in the market. Position yourself accordingly.
Apply close outs / fair rates
For all contracts with fixed rates and/or allotments, make sure you apply applicable close out periods for fairs and special high demand periods. If the partner doesn’t accept complete close outs, apply fair rates and limit the amount of allotments.
Ensure you give a long enough release time and prefer free-sale over allotment
Also, for both the special events as well as the rest the year, make sure you pay attention to the release times you give in your contracts. The key here is that you need to make your inventory as flexible as possible to allow yourself enough time to resell your rooms if they are not booked by the WS or TO partner. Use lead time data reports that will show you how far in advance they usually book. If the average is let’s say 20 days, then why keep a 3-day release? Show this data to your account manager to argue your cause. To further take control of your inventory, we recommend to contract free-sale over allotment as much as possible, giving you full control of both amount of bookings and lead times.
For leisure groups
Do your displacement calculations and apply the above mentioned advices for those ones as well. If you have a big hotel you might even work with leisure group allotments or pre-blocked series, and for those it is also important to carefully check their conversion and adjust amount of rooms given as well as release times. Be aware that only one low-priced leisure group on a high demand sell-out day might displace so much revenue that you need many groups in low demand periods to recover the loss. Therefore be extra careful before committing your inventory to leisure groups and make sure your calculations support your decision. The more groups you quote “ad-hoc” and the less allotments you give, the better control of your inventory you will have.
Summarize it all in a wish & walk sheet
To allow a smooth process for your sales colleagues, make sure to summarize all the account’s new prices and strategies in a wish & walk sheet. This should include name of the account, detailed production history, conversion, and of course future allotment and prices per season and DOW. Furthermore, you should include overall allotment targets and prices for new accounts. Let’s say that your strategy is to reduce allotments in high demand and increase them in low demand, the wish & walk sheet should reflect that information and your sales team can go out and hunt for the type of business you need!
We wish you a successful contracting season and remember that the revenue outlook for most destinations is very positive for the upcoming years, so make sure this is reflected in your contracted rates and conditions!
Skift (2016) The Future of Tours and Activities Marketing