Insights on Travel from Costa Rica Expeditions’ Founder Michael Kaye and his Expert Friends.

Pricing in a Climate of Discounting Explained

Cheryl Snyder posted this characteristically to the point question to last week’s post.

“Could you clarify some terms? What is disintermediation? How about Inbounds? Outbounds? and DMC’s?
 Thanks”

And Jennifer Fletcher echoed Cheryl with this also characteristically  to the point comment:

Just like Cheryl, I need some terminology translation into English.
“ Disintermediation ” sounds like one of those new invented words that plague us lately – “Keep it simple” is my motto!”

Apologies.  I should have realized that our insider jargon needs explaining.  I’m the first one to pounce on other people when they do it.

So here goes: (Please let me know if this is more “inside baseball”  than you want to read about and I’ll stay away from this topic in the future.)  Believe it or not, what follows is an oversimplification.

Outbound tour operators are companies that are based in the place where the travelers live and market tours to destinations where the travelers go. Kurt’s company, Wildlands Adventures is an Outbound Tour Operator.

Inbound tour operators are companies that are based in the place where the travelers go and operate and market tours in the place where they are based. Costa Rica Expeditions is an inbound tour operator.

DMC stands for “Destination Management Company.” Destination Management Companies are exactly the same as inbound tour operators except that they have a fancy name that lends itself to a TLA (Three Letter Acronym.)  Possibly Destination Management Companies feel that that they can charge more money than inbound tour operators.

When I first started Costa Rica Expeditions Destination Management Companies had not yet been invented.  When I first heard DMC it sounded like one of those new slightly embarrassing deceases that are being promoted on TV so I decided to stick with being an inbound tour operator.  So far it seems to be working out all right.

Actually when I first started inbound and outbound tour operators were just being invented.  For the most part leisure travelers bought their vacations from a retail travel agent who was based in the town where they lived, the retail travel agent bought from a wholesale tour operator that was based in the country where the travelers lived and the wholesale tour operator bought from a ground handler that was based in the place where the travelers go.

Then some of the wholesalers figured out that they could go around the travel agents  and sell directly to the ultimate consumer. Since they were now retailing they could not call themselves wholesalers any more so they started calling themselves Tour Operators. Retail travel agents could not keep being retailers if the wholesalers were disappearing so they started calling themselves travel consultants.    The ground handlers realized that the tour operators were much more marketing and sales operations than tour operations and we were the ones that actually operated the tours so we started calling ourselves inbound  tour operators. And that was the beginning of disintermediation.

The old model in which the ground handler sold the EUP (End User Product) to the wholesaler who marked it up and sold it to the travel agent who marked it up and sold it to the Traveler (End User) was pure intermediation.  Each one of the players except the traveler was an intermediary.

Taken together all the intermediaries are known as a distribution channel.  To justify its existence each intermediary in a distribution channel has to be perceived to add value by and for the both the entity that is before it in the channel and after it in the channel. When an intermediary is not perceived to be adding value it is said to have been disintermediated, which is marketing jargon for bypassed.

Except for the jargon, as Jennifer pointed out, this is actually not anything new.  In plain English the way we used to say it was, “Eliminate the middleman.”  What is new is information technology (like the technology that I am using in this blog) that puts “Eliminate the middleman,” on steroids.

In the old model the value that each intermediary in the channel provided was knowledge and access that the other entities did not have. That knowledge and access is increasingly available to everybody.

One of the great travel pioneers once told me, “Where there is mystery, there is margin.”  That is still true, but there is a lot less mystery out there than there use to be.  Take a look at this article: http://www.travelweekly.com/article_ektid222274.aspx,  in today’s issue of Travel Weekly in which uber vacation planner, Richard Turen, writes about a traveler using his iphone in the Serengeti to check on the information the guide is giving him.  Turen ends the article by saying that he takes, “pleasure in the fact that by the time our profession is totally dependent on the “hands-on-tech traveler,” we will be at a stage of our lives when we can watch all of this transpire from the comfort of our media room and fondly recall a time when we knew more than our clients did.”

Add to this,  wishful thinking on the part of many travel suppliers who try to charge more than the public is willing to pay, the high perishability of travel services (There is no way to fiddle with the “sell-by date of a hotel room.) and a economy meltdown that has made travelers a lot more price conscious than they used to be; and it means that a lot of travel operators feel obligated to lower prices and or discount.  This naturally is a cause for concern in the industry.  Kurt’s outline that I published in last weeks post is his suggestion for a framework for figuring out how to deal with the situation. I asked for his permission to share it with you because I thought it would be enlightening for travelers and people in the travel business to share viewpoints.

One thing that I found enlightening was Jennifer’s comment to last week’s post.  For those of you who did not see it, here it is in its entirety.  Let us know what you think.

Just like Cheryl, I need some terminology translation into English.

“Disintermediation ” sounds like one of those new invented words that plague us lately – “Keep it simple”is my motto!

It’s interesting to see some behind the scenes discussion.

Discounts are all very well,but you tend to get what you pay for .There’s no free lunch – at least, very rarely.

While you can’t spend money you don’t have,& buying lavish vacations by maxing out your credit cards is sheer folly, I’d rather pay a bit extra to have comfortable & reliable service.

I have a friend who, by his own admission, is “cheap & proud of it”.Definitely not a needy person, he takes great pride in getting the least expensive

deals.Somehow one can’t help but notice that all his travel anecdotes contain references to “what a good sport” his wife is.I suspect her version of things would be quite different from his!

I definitely do think that singles should get a better break in prices.Some people like travelling alone or just ARE alone & should not be penalized for it by paying higher rates.

Offering a better rate for early booking sounds reasonable.I’m not so sure that late-bookers should be given as good a rate as those who plan in advance.

I think perhaps students could be given a good rate – especially “niche ” students : ecology, biology, art history,etc.,etc.But then, they probably do.

Lower rates for tourists prepared to teach some English to locals,as you are planning, Michael, is a great idea that benefits everyone.

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2 Comments and 0 Replies

  • At October 06, 2010
    6:08:54 am
    Shannon Borrego said:

    Michael,
    Thanks for explaining the terms used in last week’s post. Like Cheryl and Jennifer I was a bit confused by the various terms. I agree with Cheryl’s comments that it is better to pay a little bit more and get reliable, high-quality service than to go with the discount and risk situations in which one needs to be a good sport. I’m also wondering whether or not some companies try to make the mistake of being all things to all people. I think a company should identify a target group and market to them–or, even craft a couple of different sorts of trips targeting, say, students in one, and an older, higher-income group in another. Someone pointed out to me the other day, and I think it’s true, that the biggest group of travelers these days fall into the age range of 55+. These are people who want a certain level of comfort, a definite balance between sightseeing and down time, and one-on-one interaction with guides and locals. This is also a group which is comfortable, to some degree, with shopping on the internet, but still relies on old-fashioned brochures, etc. to a degree. Targeting specific demographics might help in defining marketing techniques and goals.

    • At October 05, 2010
      7:47:04 pm
      Jennifer Fletcher said:

      The article by Richard Turen is thoughtful & interesting. And very funny – check out the giraffes!