Distribution is an area that requires tour operators to create a strategy to increase and optimise their sales to grow profits. There are a range of choices to make, such as whether to work with an online travel agency and how to allocate tickets. It is an area that appears complicated but by choosing the right booking system or channel manager, you will bring many of the issues under your control.
That is because it is the software provider’s job to understand these issues and provide the tools you need to distribute your products. Your point of contact at the reservation system will be able to answer the questions you have and provide advice on the choices you need to make. Booking software providers can be focused on certain segments of tour operators, such as hop-on hop-off, boat tours and free tours, meaning that if you choose one that is specialised it should already have the connections you need.
Your aim with your distribution strategy is to diversify your sales channels so that you are not reliant on one and to increase your sales overall. As you connect more channels, you increase the chances that your target customers can find you in your source markets and while they are in-destination. If you rely on in-season walk-ups, for example, accessing other streams of revenue and source markets will help stabilise this seasonality.
What is distribution?
Distribution generally refers to all sales of your products made by a third party. It specifically refers to the process through which they receive the products to put on sale. The reseller must have access to your products to put them on sale to their customers. Before the tour industry came online and started relying on reservation systems, this required a fully-staffed back office to be chatting away on the phone with partners all day long.
Now distribution is much easier and cheaper. It can all be carried out over the Internet through booking systems and channel managers, such as Palisis and TourCMS. These will provide a connection to the resellers, such as online travel agencies (OTAs), agents, hotels and other partners that you have decided to work with. This connection is called an API.
Information will be transferred between the reseller, channel manager and your booking system. This includes pricing information, ticket allocations and live availability. For certain OTAs, it will still be necessary to log into an extranet to update certain information, such as pictures and tour descriptions.
Bookings will be automatically registered in your reservation technology and your manifests updated. Once a ticket allocation for a particular reseller is sold out (If your reservations system can restrict spaces sold by resellers), they will not be able to sell any more until this is increased. When a tour has sold out, live availability will make sure that no more tickets are sold for that trip.
Many reservation systems will now provide an API connection to the main OTAs. In most cases, this will be all that is required for a small operator, unless you want to push for faster growth. A channel manager will help you to reach more. These will provide a wider range of connections to smaller and more specialised resellers and often have a marketplace where you may find new partners who want to sell your tickets. If they are a tour operator, you may also be able to sell their tickets to increase your incremental revenue.
Distribution also includes areas that you have control over. Both sales through your website and salespeople are included and should be considered when you are putting together your strategy.
Net and commissionable rates
Rates are the most complicated part of creating a distribution strategy. Some resellers, such as the main OTAs, will offer everyone the same rates, other resellers will only negotiate, and some will negotiate with large businesses and offer small- and medium-sized operators the same terms. You want to have decided on what rates are acceptable before you start making connections. This will help you decide on what resellers to work with or not. There are two types of rates. These are net rates and commissionable rates.
Net rates are wholesale rates and will be marked up by the reseller to their retail price. If this is what has been agreed, you will receive the net rate as payment and the reseller will keep the markup. If your tour retails for €100 and the net rate is 25 per cent, you will receive €75 and the reseller will keep €25. These are generally used when the reseller handles the payment with the customer.
Commissionable rates are also known as rack rates and start with the retail price of your activity. You will pay a commission to the distribution partner for the guest who takes your tour. Usually, you will have taken care of the payments with the customer. If a travel agent or local hotel uses a booking widget or redirects someone to your website with a tracking code, you will receive the payment in full and pay the commission after the time of travel. If your tour retails for €100 and the commissionable rate is 25 per cent, you will receive €100 and pay the reseller €25.
OTAs
For most experience providers, connecting to online travel agencies, such as GetYourGuide, Viator and Klook, is their main reason for wanting online distribution. These are the main players in what has grown to be a huge market. For example, GetYourGuide is now worth $2 billion and has sold 80 million tickets since it was founded in 2009. OTAs are more useful for smaller and recently started tour and experience operators than they are for those with an established brand and a strong sales network. If you are an experience operator working within a certain market, there will be specialised OTAs to sell your products.
OTAs will take care of all the marketing for you. Their goal is to sell as much as they possibly can and have marketing budgets that will swamp yours many times over. They will be able to reach customers and markets you cannot without a huge amount of work. However, this can also work against you. There is a chance that you will see ads running for your products, or similar, on search engines that are directly competing with your website for clicks, for example, and they can ask for more commission to increase your visibility. Some operators think of an OTA commission as a marketing cost, while others loathe it.
There are two main methods for selling tickets through an OTA. These are to allow them to sell all of your inventory, called free sell, or to limit the number of tickets that they can sell through a ticket allocation. A business that is just starting should place its whole inventory on the OTAs, while those that are established should exert more control. This is because a tour operator that has been operating for longer will know how many seats it will sell through its main channels, and will use the OTA to fill up the rest of its seats.
It is also because an OTA will take a commission on each sale. This can be anything up to 30% of the total sale price, which is a serious dent in your profit margin. Some will insist on rate, or price, parity. This means that you must provide them with the same price as you sell direct to your customers. There are also issues with the lack of customer information received from OTAs, which can hamper preparations for the experience, customer service and marketing.
B2B distribution
Business-to-business (B2B) distribution can be an excellent way of increasing your sales. In this case, you provide your products to a company that will use its connections to move your inventory to other travel businesses. These travel businesses will then sell directly to consumers.
Larger hotel chains, agents, and destination management companies (DMCs) may work with their own system or B2B resellers to book activities for their guests. These include Flight Centre, which connects to the TourCMS API, and HotelBeds, which is a B2B distributor for hotels that sell activities, transfers and more through Beyond the Bed. Attraction World Group, which says they sell more tours and activities than attraction tickets, works with DMCs, travel agents, airlines and rail companies.
Connecting to a B2B distributor is simple through a channel manager. These will have the main B2B distributors for tours and activities connected already. What you will need to check is the contracting and commission paid. HotelBeds, for example, negotiates each and every contract with an operator separately, while others will use a blanket set of terms and conditions.
City passes
City passes can be found in large destinations. A traveller will purchase one that covers a certain number of days and will include entrance or discounts for attractions, tours and activities. Arival research showed that in 2019 30 million visits were made using a pass. They give operators the ability to find new customers both in the source markets and in-destination. Generally, they are aimed at attractions and museums, but they can also be very useful for high-volume tours, such as hop-on hop-off and walking tours.
GoCity, CityPass, and Sightseeing Pass are the most famous. Attraction World Group also has their Open Pass. Many cities have also developed their own, such as the New York Pass and London Pass, which use GoCity as their technology provider. As passes are brands in their own right, they will have more quality control checks than you will find with an OTA. They are also more likely to work with big-ticket activities. Because of this, terms are more likely to be negotiated.
Agents, hotels and destination management companies
Another way to connect with agents, hotels, DMCs and other independent resellers is through a marketplace, usually provided by a channel manager such as TourCMS. These allow you to connect directly with those that you are interested in. The reseller will receive access to your product inventory through an online portal.
This portal connects to your reservation system in the same way as an OTA and performs very similar functions, just on a smaller scale. Some channel managers will provide a contracting solution that both you and the reseller must accept, while others will let you negotiate and agree on your contracts. This can also be carried out with agents, hotels and other resellers whom you have existing relationships with but are not yet on a marketplace.
Direct online sales
Your website is likely to be the most profitable area of distribution. There will be costs involved in designing it, setting it up, keeping it running and marketing. However, you will have no commission to pay. Marketing and having an attractive design that converts are often the stumbling blocks when it comes to running a successful website.
You will want to make sure that you have traffic coming through both search engines and social media. This will require writing blogs to drive visitors to your site through both channels while you also work on growing your social media reach. If it makes sense to advertise on social and search, do so. Once customers are on your site and are inspired by all your excellent content, the site must make it as easy for them to purchase as possible.
It should be possible to reach sales pages from your inspirational content in one click and, from that point, there should be as few stumbling blocks as possible. Your goal is for the customer to keep your site open until the purchase is complete and not start another search. Try to remove every possible barrier and collect all the information required on a single page, including waivers. However, remember that a conversion rate of 4% is excellent in the travel industry and there is only so much you can optimise before you begin wasting your time.
Direct offline sales
Never forget that offline sales are also part of a distribution strategy. These are every sale that one of your staff members makes in person and over the phone or email. Many operators who have been in the game for a while should have this under control. But there are always ways to improve efficiency using connected handheld or desktop point-of-sale (POS) devices and self-service kiosks. These can be used in retail locations and for on-street sales.
The POS will connect to your booking system in real-time so that any tickets sold will updated automatically across every location, ensuring that you don’t oversell. This also allows for instant analysis of certain factors, such as by location. Handheld devices will include a GPS device that reports its location. If you see a sudden spike in sales it is easy to despatch a new salesperson to that area to capitalise.
Another factor they help with is queue and staff management. Self-service kiosks enable you to devote staff to other areas, while efficient POS devices with live products help you queue bust. They reduce fraud by tracking every payment received and ticket printed. And they help with incentives. At the start of each shift, the salesperson logs on and all sales are tracked to their unique report. This can be set up to show how close the salesperson is to their target on the device while they are logged in.