Travel Has Much to Learn from E-Commerce – Pricing & Distributed Risk
In the retail supply chain you have manufacturers who make products, distributors/wholesalers who ship and distribute the products, and retailers who sell the products to end consumers. At each level there is a mark-up that affects the overall retail price of the product starting with a known cost price. The retailer, for example, will generally price their products about 40-60% above their cost. Each link in the chain orders product from the link before and stocks the physical inventory in their warehouse or on their shelf. Their motivation is to sell the product as quickly as possible in order to free up cash invested in stock. The retailer is generally the only participant that sells direct to the consumer. Although in some cases, like Apple, the manufacturer may sell direct to the consumer as well. In the end, however, all the retailers sell the same product at about the same price. The choice for the consumer is not whether they want the product but rather from whom they will purchase it.
The travel supply chain also has suppliers who provide the end product, distributors/wholesalers who distribute the product, and retailers who sell the products to the consuming public. One difference is that, unlike manufactured goods, it is too easy in the travel space to make individual products “unique”. This makes it very hard, if not impossible, to sell unique products in bulk. Another difference is that, unlike the retail sector, every level of the supply chain is trying to sell that unique product to the public and they are all competing with each other for the final sale because it level is working with generally small margins.
One reason for this price inconsistency is because, in the travel sector, the supplier holds all the risk. Unlike the retail sector where a distributor has to purchase the goods from the supplier and ship them to the retailer, the travel distributor, or retailer for that matter, doesn’t actually hold any inventory (unless they have purchased a block of seats or rooms). If the distributor doesn’t sell any product, it’s the supplier who is left holding all the inventory. If distributors had to pay for product in advance from suppliers and then retailers had to pay in advance for product from distributors, the risk would be equally divided along the supply chain. The major difference between this model and the existing travel product distribution model is that no one would be interested in buying or selling products that consumers didn’t want. As it stands now, everyone is selling everything to everyone for whatever they can get and that is a recipe for marketplace confusion, not to mention a sales tracking nightmare.
Look at a store like ShopKitson.com, for example. The trendy Hollywood store boasts hundreds of products from t-shirts to books, a seemingly endless array of trendy consumables. What makes the store different from a Wal-mart? Even with the wide set of choices, the products are very specifically chosen by a group of buyers who know exactly what their customers want to buy. Because Kitson has to purchase the products from manufacturers and store them in their warehouse, they are going to make darn sure the products they choose will sell. So what can the travel industry learn from Kitson? Simple, focus on what your customers want and be very good at anticipating what is hot. Be selective in what you sell and know your product. When you do that, you decrease choice, you increase demand, and you no longer focus on price.
The problem with pricing and risk in the travel industry is that it is simply too tempting to sell whatever you can to whoever you can for whatever you can. Until we change this mindset, the customer will always be provided with (what they perceive as) questionable products sold by questionable retailers at questionable prices and customer satisfaction will continue to be the lowest of any sector.
In India also we are facing the same problem,Everybody is selling everything. There is no packaging happening as the agents are mainly into the role of product search. The product search also leads to a few suppliers who are connected to market and hence it leads to over pricing. I think unless we dont define roles which leads to accomodation owners focussed on service, aggregators working on product development and aggregation, agents selling at the retail front…we will struggle
In India also we are facing the same problem,Everybody is selling everything. There is no packaging happening as the agents are mainly into the role of product search. The product search also leads to a few suppliers who are connected to market and hence it leads to over pricing. I think unless we dont define roles which leads to accomodation owners focussed on service, aggregators working on product development and aggregation, agents selling at the retail front…we will struggle
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Interesting post. The pricing models that have resulted in this bearing if risk are mind-boggling.
To be the question goes back to the beginning: who is your ideal customer? What do they want? How are you going to provide it?
Interesting post. The pricing models that have resulted in this bearing if risk are mind-boggling.
To be the question goes back to the beginning: who is your ideal customer? What do they want? How are you going to provide it?
This article can open eyes and ears to those who are concerned. Hope this issue will be resolved.
This article can open eyes and ears to those who are concerned. Hope this issue will be resolved.
Hiii im jack In india person selling everything means what do know give some example's of the product .
http://www.flygreatchina.com need a business plan – risk section
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