Thursday, December 17, 2009

Rebates and Discounts - Are Travel Agents That Do It Unethical...or Worse? How About A Reality Check!

Today I read an article where a number of travel agents were polled about rebating, or discounting, cruises.  It was, to be sure, a rather emotional and bitter article with travel agents claiming such things as the practice being equivalent to "the world's oldest profession" and nothing other than a way to "steal" another agent's clients.  The righteous tone of these travel agents left me feeling pretty sorry for their clients...and the industry.

Wake Up Call No. 1:  The cruise industry is the only industry I am aware of that somehow skirts consumer protection laws by advertising discounted prices off of brochure fares that never, ever, result in a sale.  If you were purchasing a dress and it was claimed to be "on sale" the discount is required to be based upon a regular price that was actually offered and (jurisdiction dependent) sold.  In the cruise industry today there is actually the reverse process going:  Prices have been "discounted" by 50-65% from whatever made up price the cruise lines concoct and then they claim the prices will go up.  (Gee, I thought the concept was the discount would be reduced?!)

I spend far too much time educating my clients that they can't be drawn into the marketing fallacy.  They need to look not at the claimed discount, but the price per day.  Why?  Because an artificially high brochure rate allows for a 50% "discount" that is actually a rate higher than last year's 30% "discount" for a similar cruise.  By looking at the price per day, inclusive of gratuities, drinks, specialty dining, etc., an educated consumer can make a fair comparison and then decide where they find the value and the cruise the meets their desires.

So certain cruise lines (and travel agents) engaged in the foregoing claim that travel agent discounting of their concocted prices is improper???? Huh?  I am absolutely stymied by this!

Wake Up Call No. 2 - In most industries the prohibiting of discounting is called "Price Fixing" and is illegal.  This is true around the world.  For example, the Australian Competition and Consumer Commission defines it as follows, "Agreements between competing businesses to fix prices are illegal under the Trade Practices Act. Price fixing agreements do not have to be in writing: they can be a 'wink and a nod', made over a drink in the local pub, at an association meeting or at a social occasion.  The important point is not how the agreement was made or even how effective it is, but that competitors are working out their prices collectively and not individually. It is illegal for a business to enter into or give effect to such agreements."

Now, there are some nuances that may well result in the legal conclusion that what certain cruise lines call a "no rebating" policy is not price fixing, and I am not writing this to either protest or defend those cruise lines policies.  I am merely pointing out that anti-competitive practices are not focused on protecting the consumer, but rather protecting the weakest links in the industry.

The math is pretty simple:  The cruise line sells a cruise and provides the travel agent with a commission.  The cruise line, with discounting or rebating, still receives the same net amount from the consumer.  It is the travel agent that accepts a net lower commission because a portion of the commission is passed on to the client in the form of a discount or rebate.

So what legitimate purpose is there in fixing the price of a cruise?  It must be to protect the travel agent's profits...which to me is anti-competitive.

Wake Up Call No. 3 - Every travel agency has a different business model.  Some agencies focus on volume, others on glitz, others on discounting, etc.  And whether in a fancy office or home-based, a member of Virtuoso or Ensemble or Signature or not, affiliated with AAA or American Express or Thomas Cook o not, etc., each agency's cost of doing business is different...substantially different.  Equally different are the methods of covering those costs and generating profits.  Hence, there is no "right" way to operate a travel agency from a profit generating standpoint (other than with the requisite honesty).

Wake Up Call No. 4 - Perspective:  The other day one of my son's teachers wrote me a pretty nasty email claiming she was, by her position alone, entitled to demand my respect for her.  Huh?  I would have thought that not only should the teacher seek to earn my respect, but that as the parent of one of her students, I would have been entitled to at least a modicum of respect since it is my child that she is charged with nurturing. 

Similarly, I constantly hear travel agents demand respect because of the knowledge and service they provide their clients and the industry.  My response:  Get over yourselves!  I say this for two reasons: 

(1) When travel agents forget that they must earn respect every day with everything they do, they  become a bit to self-important.  Travel agents are in the service business.  That means we serve our clients; they do not bow down to us.  My demanding respect because I am one of the top selling travel agents for Seabourn Cruise Line would be offensive.  I say to every potential client, "Thank you for the opportunity to earn your business."  And I mean it.  (And, by the way, I generally do...because I do try to earn the business.)When I receive comments like "You have taught me more in 15 minutes than my old travel agent taught us in the last 10 years!" I have earned my client's respect.  When I receive a voicemail from a longtime and well traveled client enthusiastically thanking me for getting him a complimentary upgrade to a particular suite that logic would shunned, I have earned my client's respect.  It is a source of "Pride"; not "Ego".  Ego leads to errors and sloppiness...because the effort is in wallowing in, not earning, that respect.

(2) When a travel agent claims entitlement to a higher or extra fee, RUN.  Claiming entitlement to a higher or extra fee because a travel agent supposedly knows more may be a way to feed his/her ego, but the reality is that every travel agent SHOULD be able to provide great service.  The sorry fact is that most do not.  So, to my mind, (a) the failing travel agent hasn't earned the commission and may well lose the business, (b) the one that provides the service earns and keeps the business; and, (c) the one the exceeds the client's expectations earns loyalty (thereby reducing marketing costs and, by receiving referrals, receives pre-pr oven additional business.) 

So what does all this have to do with rebating and "the world's oldest profession" and "stealing"?  It is pretty simple:  Knowledgeable clients expect good service and experience.  But they also expect value. 

While there are some clients that use me solely because of my knowledge and integrity, the fact is that the vast majority use me because they see VALUE...they get something(s) from me that they don't get from other travel agents.  It may be more personalized service, or more information, or better pricing, or all three. 

Does that make me a prostitute? A thief?  If you think so, please use the travel agent that want to charge you an extra fee just to book with him/her. Or, if you think that there is honor in paying that demanding travel agent more money out of some sense of integrity, please do.  The last time I looked the educated consumer expects excellent service and pricing...and those are the clients I am seeking to attract, earn their business and then their loyalty.

If a travel agent chooses not to, or cannot, compete please don't get into name calling.  The fact is that by doing so you dishonor a profession that already has enough issues with problematic travel agents.  And, personally, I think you are insulting the traveling public.