7 minute read
Channel management strategy
Find out how experience providers should approach their distribution strategy when working with multiple channels. That is, what should you sell, how much, at what price, and through which channels.
There are key considerations that underpin the backbone of a structured channel distribution strategy for businesses, including:
1 Which products you should offer through third parties and which you should not. 2 How many of your products you should offer. 3 How you should price across different channels.
WHICH PRODUCTS YOU SHOULD OFFER
According to an Arival survey of 1,200 operators in 2021, approximately half of all experience providers who work with resellers make all their products available through them, but that also means that half do not.
Listing all your products may be the right approach, depending on your objectives. Many operators with effective direct marketing choose to limit their reseller offers to products that they need more help selling. Take a strategic approach to working with resellers to generate the highest possible sales and highest potential revenue for your business.
Distribution is about growth. Consider offering products for which you would like to attract more bookings.
KEY CONSIDERATIONS FOR CHOOSING PRODUCTS
Which areas need help? Most visitor experience providers have products that are more popular than others, or days and times when you are busier. Distribution channels can help with areas where you could benefit from more sales.
For example, if you have regularly scheduled tours at 10am, 2pm and 6pm and your 10am departure doesn’t get as many bookings as the later tours, you may want to offer that departure via resellers.
A visitor attraction may be popular on Saturday afternoons but could use a reseller to help get more visitors during off-peak hours, such as weekday mornings. Many attractions work with local group tour operators to offer school visits and other groups at deeply discounted rates during lowvolume periods.
FIT THE RIGHT PRODUCT TO THE RIGHT RESELLER
Different resellers serve different audiences or have different product strategies. If you are working with a tour operator sending groups from Germany, requiring a German-speaking guide, and your guide is available only for specific departures, you need to align your product availability with the needs of that tour operator.
Research and listen to each distribution partner to assess which would be the best products for that channel or partner.
RESELLERS WANT IT ALL… ESPECIALLY THE POPULAR STUFF
Most online travel agencies request access to all your tours and ticket options. They especially want access to your popular tours and time slots. This is when to negotiate – for example, experience providers may provide limited access to the most popular tours and tickets in return for more favourable rates for other tours with less demand.
HOW MUCH INVENTORY TO MAKE AVAILABLE?
Once you decide which tours and tickets to make available through resellers, it’s time to consider “allocation” i.e., how many seats or tickets to allow each reseller to sell for each tour departure or time slot.
The same considerations around which products you offer apply to inventory allocation. If you know you can sell a certain volume of inventory directly and at a higher margin, you should only make the additional capacity available to resellers.
The key to getting this right is in your own data. Understanding how your tours have performed historically is key to forecasting booking volumes. This is where having an online booking system is critical. Your booking system should provide you with regular reports (or, even better, a real-time booking performance dashboard), and the ability to analyse booking volume by channel over time. This is key to optimising your channel mix and revenue performance. In short, you should make available through resellers only the inventory you are not sure you can sell directly or at greater profit. At the same time, consider that adding more distribution partners and more inventory can help you grow your business.
ESSENTIAL PRICING CONSIDERATIONS
Pricing is arguably the number one element underpinning an effective channel strategy. Never allow your product to be sold at a lower price than what you sell it for directly. The only way to safeguard this is to ensure that your reseller partners are contractually obligated to maintain the same retail price across all channels. Many resellers require access to the lowest available rate as part of their core terms and conditions.
If you already have reseller partners offering below-market pricing, make sure that as those reseller contracts expire or renew, this clause is added. Once you lose control of this, you have NO real control of your distribution, and it takes time to get back. As a business principle, unequal terms and conditions, especially pricing, across your distribution channels can antagonise your partners and create potential conflict.
As a start point, ensure that you have pricing parity across all channels. Online consumers are smart and any change in pricing in one specific channel will influence volume of sale to or away from that specific channel. Avoid anything that allows a reseller to divert sales away from your own direct sales channel, as this is strategically the one giving you a significantly higher margin and the ability to engage with your customers pre and post trip.
If your reseller partners are resistant to maintaining price parity or want more control over pricing, you can provide them with a different version of your offering that is distinct enough from the original to avoid direct price comparisons. Ensure you are prepared to handle the guests that book similar (but slightly different) versions of the same offering ending up on the same departure. Mixing guests from different channels on the same trip can lead to customer service issues.
OPAQUE PRICING CHANNELS
Opaque pricing channels are sometimes referred to as channels with opaque pricing, where the actual retail price of the product is not clearly visible to the customer. The most common form of this is in packaging, where a tour operator may include your tour or ticket in a larger package that includes a hotel stay and transportation.
KNOW YOUR COST PER CHANNEL
When it comes to channel management, knowing your cost per channel is as important as pricing. The end goal of an effective channel management strategy is optimising your yield per channel, for example, getting the highest possible return. To do this, you must understand the cost per booking per channel.
Reseller channels are generally straightforward. Tracking the bookings and commissions makes measuring the cost easy. You should consider operational costs including staff time and resources to set up the channels, manage partners, attend conferences or other marketing efforts to reach resellers. Much harder to assess is the true cost of direct marketing. Many travel businesses simply look at the cost of advertising, such as the cost per click for a keyword ad on Google or other websites, and compare that to the 20% or 30% commission for a reseller and assume that the direct channel is always more profitable.
However, you should consider the full cost of direct bookings. This includes the operational costs incurred (staff, website development and maintenance, customer support, etc.) and any direct marketing spend. Remember that distribution provides you with the potential to reach new markets, such as international markets, which might be cost-prohibitive for you to reach on your own. A common term used to describe the costs associated with direct sales is “Cost of Acquisition” (CoA). In this case, how much does it cost to attract and convert a direct paying customer? The actual CoA will vary on the sales channel. For example, a customer acquisition for an advertisement on TV is different to the CoA on Google Ads. See the next page for an example of how to calculate the CoA for paid online advertising:
COST OF ACQUISITION
What’s your cost of acquisition if you market your products yourself? Check out this example
AD BUDGET COST PER CLICK TOTAL CLICKS CONVERSIONS COST PER CONVERSION (SALE)
€2,000 €1 2,000 100 (5%) €20
In this example, if your average basket value is €150, your net revenues after ad costs are €130, resulting in an equivalent commission value of 13.3%. Although this is a simplistic example, you can see that changing variables such as the cost per click and conversion rate can have a significant impact on your cost of acquisition.
Keep in mind that reseller partners are about helping you reach visitors that are more expensive for you to reach directly. Visitors coming from distant markets, who speak different languages, may require much greater investment in marketing to reach, whereas the right reseller partners are well positioned to help you get your products in front of these new markets.
