Perspective – September 2011
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Heated preferred policy debate
AS readers of our August issue will have seen, a preferred product pronouncement of a major travel groups has (once again) erupted in heated debate.
Franchised groups charging suppliers large sums of money for preferred status in their outlets. Unlike Flight Centre which owns its outlets, the franchised chains can not mandate policy to their members.
They cannot stop their agents from striking their own separate deals for additional overrides from non-preferreds. Nor, even if they wanted to, can they prevent the sale of non-preferred product when, in the judgement of the independent agent, it is the one best suited to a client’s needs.
So they have devised a series of sophisticated management techniques to induce their agents to toe the preferred product line.
They have linked the bonus payments of their senior managers to KPIs (key performance indicators) that include the percentage of total sales achieved by preferred products.
Those senior managers have in turn devised bonus schemes which tie agents’ earnings to preferred product support.
Additionally, franchise group executives take every opportunity to preach the preferred product gospel to their members. They usually advance basically sound arguments – such as that preferred suppliers are not just paying additional overrides in return for support, they are also providing marketing funds that help drive customers through agents’ doors and delivering training support, familiarisation preferences and conference sponsorships.
To sell another supplier’s product simply because that supplier has offered an individual commission incentive undermines this structure, the executives argue. It has ever been thus. But sometimes an executive can go a little over the top as he expounds the virtues of preferred product selling.
Such an occasion (in my view) occurred at last month’s Travelscene American Express National Consultants Conference when the chain’s head of product Damian Borg told the assembled agents: “For every $1 you sell for a non-preferred anything from two to five per cent is used by that supplier to directly market to your customers”.
As it happens Landsborough’s and Bunnik’s companies market products that provide distinctive points of difference from those of rivals who are paying the chains for preference selling. That should mean they will still gain sales when their products are better suited to clients’ needs.
I believe that is probably what usually happens, but both can provide instances where chains’ bonus schemes have caused them to lose sales even though, they say, their products were more suitable.
If this is indeed the case it impacts on travel agents’ basic raison d’etre that they are advocates for consumers. It should be addressed.
On the other hand, it must be asked how widespread this problem is. At Travelscene American Express only 55 per cent of sales are preferred products. That seems to leave a lot of scope for non-preferreds.