The Rebating Beast is Back! (again)

 Most luxury product designers control their pricing by controlling distribution.  They sell exclusively through their own branded stores or high-end retailers such as Nordstrom and Neiman Marcus.  

In her book “Let Them Eat Cake” author and luxury goods researcher Pam Danziger states, “The business of experiential luxuries remains largely one based on consumers paying full list price.  Travel is the only widely discounted experiential luxury where 64% of buyers got a “deal” - otherwise they expect to pay full price for luxury goods & services.” Unfortunately, this observation can be applied to all segments of travel, not just to luxury purchases.

Retail travel distribution is a highly fragmented channel.  Virtually anyone can put up a website and be a “travel agent”, so the competition for the sale can be intense.

“Rebating” or “Discounting” as we know it, is perhaps the single most polarizing subject in the travel industry.  As evidenced by a recent thread on Facebook, there tends to be two very distinct camps – for and against, each vehemently defending their respective positions.

Some will stand by their principles, claiming to never discount and then there are those who build their entire business strategy around this tactic.  Based on my experience, there is a third, much larger, but far less vocal group.  Those who strategically discount, not all the time, but when it makes sense for their business. 

Having spent some time on the supplier side, I can assure you of two things - they don’t like the public practice of rebating.  It devalues their product, and a few have taken measures to try to protect the integrity of their pricing, however the industry is not following their lead. 

Let’s be real, suppliers have one objective, to put “butts in beds.”  Cruise, tour, and hotel inventory is time-sensitive. Once it’s gone, it’s gone forever.

So, while most suppliers publicly discourage rebating, their largest sellers are typically those who claim the discount model and can quickly move inventory.  If you want proof, all you have to do is look at the inductees to the CLIA Hall of Fame.  In the Retailer category, if you remove the consortia, franchisor, and association winners, most of the agencies that have been recognized fall into the rebate category. 

In most cases, the only negotiable part of the transaction is the commission.  Regardless of how much the consumer pays, the supplier always gets their share.  To somewhat level the playing field, many suppliers will price match their lowest rate in the market, but where a commission discount is given – it’s up to you to decide if the business is worth the effort.

We are in a very competitive retail environment and as we all know, most of our prospects tend to shop around.

Let’s look a typical scenario, one you probably encounter on a regular basis.  You are working on a cruise sale that will net your agency $200 commission.  You discover another agency has quoted the same cabin -only for $75 less.  What to do? 

First thing I would ask myself is “Are the services you provide worth more than $125 bucks?”  Even if you can’t answer the question and assuming you already know your minimum break-even point, my guess is you would probably lose money on this deal even without a discount. 

Now let’s consider the same scenario again - except this time we will add a zero to the numbers. The commission is now $2000 and the competing quote includes a $750 commission rebate.  Now it becomes real money and the question more difficult. 

Do you see this as a $1,250 payday, after all, it is a great commission no matter how you look at it. Or do you stand by your principles and walk away?  Someone will get paid.  Whether it’s you or not, is your choice.  It’s an interesting dilemma.  As a business person, what would you do?

The beauty of a free enterprise system is there are as many different business models as there are travel products to sell. 

Just because you don’t agree with how one does business, does not make it wrong, illegal, or unethical – it just makes it different. Until the industry adopts a true wholesale/retail model (net rates), the subject of rebating will never go away.  In the end, it’s the customer who decides what’s important to them.

I am not advocating either way, this is a business decision each of you must make.  What I suggest is, before taking a hard stand on either side of the fence, consider what is best for you and your business.

BTW - If you are a member of Costco, Sam’s Club, or BJs and purchase among other things; gas, groceries, and tires, you are supporting the practice.  Unlike travel rebates, which affect your directly, these don't.  But it does affect your local gas station, market, and tire store… Something to think about.

Please leave your thoughts in the comments below.

Dan Chappelle is a professional business advisor, sales consultant, author, and speaker. His personal development and consulting firm helps develop sales oriented business leaders and entrepreneurs, His best-selling book, Get Your S.H.I.P. Together: The Wealthy Travel Agent Guide to Sales, is available on Amazon.com.

For information on Dan’s Sales Acceleration programs, visit: www.DanChappelle.com

©2018 Dan Chappelle / CCI Inc.