The Owned Inventory Merchant Model is an inventory acquisition model and a contracting strategy used by travel wholesalers to acquire hotel room inventory. In a nutshell the wholesaler pre-pays or guarantees cash upfront for inventory, better pricing and more favorable terms and conditions.
Tour and activity providers can leverage the same strategy to their advantage by flipping the conversation with wholesalers and distributors that want to distribute your tour and activity on a free-sell basis, meaning they want to sell your inventory first then pay for it after they sell it by requesting that the wholesaler and distributor pay for your inventory first then sell it after.
I’ve been consulting with travel startups for the last three years mainly OTA’s and tour operators and I’ve been amazed by the myth surrounding the idea of acquiring inventory by pre-buying it. When I talk to OTA startups about the idea they just cringe. I get this crazy look, like why in the heck would I want to do that when I can just get the inventory via an XML feed from a 3rd party or the hotel direct without having to pay for it upfront.
I am sure you see the advantages for your tour and activity business in receiving money upfront for your inventory but how can you convince a wholesaler, distributor or any travel business that approaches you about distributing and selling your inventory to pay up first.
Here is a quick how to that you can implement next time the phone rings or an email comes in from a distributor requesting to resell and or distribute your inventory on the free-sell model.
- Ask the wholesaler/distributor their monthly gross revenues. If they won’t share with you then tell them you’ll sign an NDA if needed and to do business with your company you require details about their business to make a sound business decision. If the wholesaler or distributor is small or is a startup that is fine, you just want to know what they are ringing, so you can make an offer to the wholesaler/distributor that makes sense for both parties. It has to be a win-win deal.
- Ask how many tour and activity providers they are representing.
- Determine an amount of inventory that you would sell at a discount if you got money upfront.
- Let’s say they are doing $2,000,000 a month and have 250 tour and activity providers, so on average $8,000 a month per activity provider.
- Give the wholesaler/distributor a discount on your inventory if they pay $1,000 a month pre-pay the 1st of every month. Balance due net 30 days or balance due when their client completes your trip, tour or itinerary.
- Tell the wholesaler/distributor that you are interested in working with their company over the long-term, that you start the relationship with a low risk investment upfront for a small amount of inventory, then you build up going forward. Try to be flexible but make them commit to some form of a monthly investment.
That’s it. It’s just that simple.
The Owned Inventory Merchant Model is the strongest inventory distribution model in the travel business that is used in a limited fashion. The Owned Inventory Merchant Model strengthens the relationship between both the tour and activity provider and the wholesaler and distributor because cash is being committed upfront.
If you want to build a long-term business start implementing the Owned Inventory Merchant Model into your inventory distribution strategy. You want to strengthen your partner relationships and there is no better way to strengthen not only yours but your wholesale and distribution partners business as well.
The free-sell model is the weaker of the two inventory distribution models and mainly only reduces the risk for the wholesaler/distributor. Your inventory also just gets lumped into a system with everyone else including your competitors. Free-sell doesn’t play to your advantage.
You can work out the rest of the details through negotiating. The Owned Inventory Merchant Model puts your company in a more secure and solid foundation as you can now take back more control of your inventory. You can still resell and distribute using the free sell method but now you can account for a portion of pre-bought inventory ahead of time.
Trust me. Once implemented and you get started with one new wholesale/distribution relationship using the Owned Inventory Merchant Model, this new model will help provide you with a core strategic advantage.