pricing in a global market strategies for value, pricing and commission, and navigating currency...

Pricing in a Global MarketStrategies for Value, Pricing and Commission, and

Navigating Currency Risks

Philippe Willi // TrekkSoft Ltd.

Jon Fauver // TrekkSoft Ltd.

#ATWS-hashtag

Agenda

Session 1

Value & margin definitons with examples & controlling

Session 1

Feedback, Q & A

Session 2

Commission, transaction costs and accepting online bookings/payments with examples

Session 2

Feedback, Q & A

Session 3

Currency risks for small & midsize companies & practical solutions

Session 3

Feedback, Q & A

Session 1

Value & Margin Definitons with

Examples & Controlling

Pricing in a Global Market

Definition of Value

Value for the Customer

Price paid for tour, trip or activity

VS customer experience

Tour Operator, Activity Provider

Contribution Margin on a tour, trip or activity

Margin DefinitionSelling Price to Customer

(excl. VAT) all trip/tour related expenses

Contribution Margin 1

salaries & social insurances Contribution Margin 2

all other expenses Contribution Margin 3 /Cashflow/EBITDA*

*EBITDA = Earnings before interest, taxes, deprpeciation, amortization

Concrete ExampleEuropean Tour Operator Company „Philippes European Adventure Experience“

Income Statement

Net Earnings (excl. VAT)

+ Travel Activities Switzerland+ Travel Activities Europe+ Add Ons+ Diverse Earnings- Commission to Sales Points- Commission to Credit Cards= Total Earnings

Trip/Tour Expenses (COGS*)

- Trip/Tour expenses- 3th party expenses- Commissions

= CONTRIBUTION MARGIN 1

*COGS= Cost of Goods Sold

= CONTRIBUTION MARGIN 1

Salaries/ Social Insurance

- Salaries- Social Insurance- Pension Funds- Accident Insurance- Health Insurance- Taxes- Divers Personal Expenses

= CONTRIBUTION MARGIN 2

Concrete Example 2European Tour Operator Company „Philippes European Adventure Experience“

= CONTRIBUTION MARGIN 2

- Rent- Maintenance- Insurances- Car Expenses - Duties - Office Supplies - Accounting Consulting - IT Expenses - Advertising Expenses - Representation Expenses - Interest, Expenses - Taxes

= CONTRIBUTION MARGIN 3 or CASH FLOW

Concrete Example 3European Tour Operator Company „Philippes European Adventure Experience“

Attention!!!There are two ways to look at your income (earnings):

Revenue by trip date sold (accounting by current cashflow)

Revenue by trip departure date

This is one is best for accounting (refunds etc.)

Company Contribution Margin

Trip 1 Trip 2

Trip 3

Trip 4 Trip 5Trip 6

Trip 7 Trip 8

Trip 9+

+

+

+

+

+

Combined trip margins = Company Contribution Margin

Implementation of Contribution Margins

At the trip/tour level (operational) you define Contribution Margin 1 as a goal per trip (for example 25 %)

Implementation of Contribution Margins

At the company level (strategical) you define a target Company Contribution Margin 1. This is the combined result of all the tours/trips of your company.

Implementation of Contribution Margins

On a company level (strategical) you define a target Contribution Margin 3

(for example 8 to 12 %) Contribution Margin 3 = Cashflow = What is

left in your bank account.

Controlling of Margins

Contribution margin 1 Trip/Tour Level

Contribution margin 2 company

Contribution margin 3 (Cashflow) company

FINAL CHECK ON YOUR BANk ACCOUNT (OWNER)

Trip Controlling/Trip Report (all trip/tour related income and expenses are controlled on a excel sheet)

Accounting, Bookkeeping from a speficic period

Accounting, Bookkeeping from a speficic period

OP

ER

AT

ION

AL

ST

RA

TE

GIC

AL

Contribution Margin on a Trip/Tour Level

-Most trips have both variable and fixed costs that result in an increasing contribution margins with an increasing amount of PAX

-Some trips (boats) have jumping contribution margins. This occurs when a trip reaches a maximum number of seats and then has a jump in fixed costs to start a new one.

- It is important to define a corridor of contribution margins which makes sense for your industry, company, or product.

GOAL: Contribution Margin 1

> 25 %

GOAL: Contribution Margin 1

> 65 %

To

ur O

pe

rator

Activity

Pro

vide

r

River Rafting Contribution Margin

Rafting: - 60.56 % to 45.65 %

(fix costs and „jumping“ contribution margins)

Canyoning Contribution Margin

Canyoning: 37.63 % to 63.66 %

Ropes Course Contribution Margin

Ropes Course: - 332.85 % to 47.09% (very high fix costs)

Night Sledding Contribution Margin

Night Sledding: 17.08 % to 38.74 %

Guided Bus tour Florence to Interlaken

Guided Bus tour Florence 2 Interlaken, 31.91 %

What Price is Right?Your strategical contribution margin will define the price you need to charge for your product. With most T&A products it will be a mix of high and low margin trips.

To reach your contribution margin you must set a price that:- Gives the customer the needed value- Holds up against competition- Covers your costs- Covers your commission

Low price & High numbers – High price & Low numbers – Sales – Price Dumping – Yield Management – Marketing Costs – Group Buying

Today's Global Market place offers a variety of opportunities and risks for pricing. We will address Commissions, Online sales and Currency risks in sessions 2 & 3.

Feedback Session 1

1)How do you calculate your contribution margins?

2)How do you decide if a trip generates a value (lucrative) for you or not?

3)What is your goal as a contribution margin 1? (25 %, 50 % or 75%)

Session 2

Commissions Transaction Costs &

Accepting Online Bookings/Payments

Pricing in a Global Market

Bookings, Bookings, Bookings

Direct Lcoal Sales Agent Own Online shop

Usually Late bookingsCustomer pays cash or by other systems. No Commission Possible CC fees

Customer pays agent. Commission for agent (can be defined) Limited control of booking

Early Reservation Confirmed booking Customer pays by CC Booking engine & CC fees.

Margin DefinitionSelling Price to Costumer (excl. VAT) - all trip/tour related

expenses= contribution margin 1

- salaries & social insurances = contribution margin 2

- all other expenses (rent, marketing etc.) = contribution margin 3

/Cashflow/EBITDA

Commission and Transaction costs reflect directly in your Contribution Margin 1

Total Commision Paid Outor other

Marketing Costs

Average Acquisition Cost /

Customer

Define Your Average Basket

Total Earnings NET

(Trips, Tours)

Total Passengers

Example (Tour Operator Company): Net Earnings = EUR 2 653 302.41 PAX = 14 910

Average Basket = EUR 183.93

Commission offered to agent = 10 %

Average Acquisiton Cost per Costumer = EUR 18.40

Average Basket

Average Basket

Acquisiton Cost per Costumer Knowing your acquisition cost / customer helps

you make smart decisions. Example: Is a Google Ad Words Campaign cost

effective?

= a conversion in google is defined by you

Where to sell online – 3 examples

+ powerful distribution

- very expensive (15%-30%)

+ potential new costumers

- extremely expensive

Marketplaces Accepting online Payments

Groupon & Co

+ good transactions costs

- WORK for YOU

Marketplaces Increase brand awareness and are important for

your presence in multiple distribution channels GetYourGuide, Gitsy etc. = normally high

commission rates (15% to 30 %) Too expensive to use as a booking engine

because of the commission rates

Calculation Example: Selling Price: EUR 100.-Comission (25 %): EUR 25.-Net Selling Price after comissions: EUR 75.-

- if you have low contribution margins you start to loose money

Group Buying SitesGroupon & Co

You sell coupons online for min. 50 % off and pay a commission to the site (groupon etc.) of between 30 % and 50 % = 60%-80% loss.

Expensive marketing and only make sense if you can generate returning costumers.

Calculation Example: Selling Price: EUR 100.-Deduction for costumer (50 %): EUR 50.-Kick Back to Groupon & Co (40 %): EUR 20.-Net Selling Price: EUR 30.-

It is almost impossible to make money. This is

marketing to attract new or repeat costumers.

Direct Online Bookings & Accepting Payments Online

PayPal Stripe Moneybookers Lots of country/payout limitations Your own credit card aquirer contracts and

PSP contracts (Payment Service Provider)

THIS IS THE BEST METHOD TO INCREASE ONLINE SALES WITH AFFORDABLE AQUISITION AND TRANSACTION COSTS.

How Online Payments Work

VISA / Mastercard /American Express /Country specific payment options

Credit card acquirer, commission on every credit card transaction

Payment Service Provider (PSP), fixed amount per transaction and monthly fix costs

YOU

1.2 % to 3 % 0.1 to 0.3 USD

PayPal

2.9 % + 30 cents

Stripe.com

2.9% + 30 cents

BOOKING ENGINE

Ow

n C

C co

ntra

ct

No

CC

co

ntra

ct

Problem with Stripe, PayPal etc.

Often limited by country & currency restrictions. Have a look at www.paypal.com/worldwide

Online/Offline Payments

Offline (POS/ over the counter/Telephone)= 76.40 %= 76.40 %

Online / Mobile= 23.60 %= 23.60 %

Most bookings are still offline

Fast increasing!!

*

* www.trekksoft.com // dynamic Graph out of over 300 000 PAX bookings

T&A operators are not online T&A operators are not onlineLes than 10% of Tour & Activity (T&A) providers do have a web presence (far less than hotels or airlines) Customers are onlineOnline and mobile bookings are increasing drastically. 10–15% in 2012 and growing. Solutions are expensiveExisting online booking solutions are too expensive and complicated. (contracts, high set-up costs, commissions and expensive payment gateways)

Pre Payments Travel Bond Regulations exist to protect

consumers from the risk of paying in advance for travel services.

Marketplaces

Groupon & Co

Groupon & Co Accepting online Payments

Pay out after trip

Pay out after trip

Realtime pay outs

Influences your cash

management

External payment gateway Integrated payment gateway

Low commission(5–10%)

High commission(15–40% or extremely high initial costs)

Point of sales of tour operators

Agents / Travel companies

Review platforms (Tourradar, TripAdvisor, etc.)

Online Payments Overview

*

* payouts based on transaction date, not trip date

* PayOut based on credit card turnover date

What do today’s Tour and Activity companies need to succeed in the global online

marketplace

?

Intuitive booking engine

TrekkSoft Ltd. | Company Presentation 39

Integrated Social Media

Powerful Admin Tools

Mobile Bookings

In the very near future (if not already), if you are not bookable on a mobile device you will be missing a huge part of the travel market.

Case Study: TrekkSoft Total online bookings since 2010

CHF 8.5m turnover300k passengers

2012CHF 5.2m turnover 200k passengers 70 T&A operators

2013CHF 10m turnover 400k passengers 170 T&A operators

Pricing TrekkSoft Low commission

Free software as a serviceCommission of 6% incl. credit card and PSP commission on online transactionsOffline, over the counter and POS transactions are free of charge

Summary TrekkSoftWebsiteCustomizable website with integrated CMSOnline booking solutionSimple booking engine for online, mobile and offline bookings worldwidePayment gatewayIntegrated payment gateway (no set-up or fix costs, no PSP or CC contracts necessary)FunctionalityAdvanced features for bigger tour operators like: tour mgmt., trips and capacity mgmt. incl. yield-mgmt. prices

Who’s Using TrekkSoft?

Feedback Session 21)How do you decide if a advertising platform ir

CPC/CPM campaign makes sense? Do you calculate an acquisition cost per costumer and how?

2)How do you reach your costumers? Online or Offline. Which online which platforms do you use?

3)How much commission are you willing to pay to your Agents or Online Booking Engine?

Session 3Currency Risks for

small & midsize companies + practical

solutions

Pricing in a Global Market

Accepting different currencies

YOU

USD

EUR

AUD

GBP

CHF CAD

INR

Definition of Currency Risk

YOU (CHF)

YOU(CHF)

Costumer(EUR)

Suppliercosts(CHF)Pays in EUR Pays in CHF

Problem 1

Problem 2

Costumer(EUR)

Suppliercosts(CHF)Pays in CHF Pays in CHF

Co

nve

rt Mo

ne

yT

oo

Exp

en

sive

= converts money

YOU (CHF)

Costumer(EUR)

Suppliercosts(CHF)Pays in EUR Pays in CHF

Co

nve

rt Mo

ne

yProblem 1: Operator accepts Forex and

bears the risk of exchange.

Make a few large exchanges instead of lots of small ones.

Use an intermediary to get better currency rates (www.wechselstube.ch)

Problem 1: Operator Currency Exchange

Savings of CHF 6,064.88 / USD 6,423.30 in 2012

Instead of making a lot of small transactions Bus2alps made a few large ones and received better currency exchange rates.

Problem 1: Operator Currency Exchange

Check out www.wechselstube.ch for more info or look for another intermediary in your country – using intermediaries instead of banks saves money.

Make a yearly plan how much money you will need to convert and AVOID small conversions.

Problem 1: Operator Currency Exchange

Problem 2: Guest Currency Exchange

YOU(CHF)

Costumer(EUR)

Suppliercosts(CHF)Pays in CHF Pays in CHF

To

o E

xpe

nsive

= convert money

Depending on your currency, forcing your customer to convert their money moves the risk from you to them. However, you run the risk of becoming too expensive and pricing yourself out of the market.

Besides optimizing costs, contribution margins and prices you can`t do

anything about this problem.

Feedback Session 3

1) What is your experience with currency risks?

2) How do you minimize your currency risks and optimize your.

3) In the global market there are winners and losers in the currency game? Which group do you belong to?

Thank you for your time!Safe Travels

Philippe Willi // TrekkSoft Ltd.

Philippe@trekksoft.com

Jon Fauver // TrekkSoft Ltd.

Jon@trekksoft.com