This if from the Tnooz Site – a must daily read for those in the travel and hospitality business.
A guest article by Matt Weisberger, chief operating officer of Travel Spike.
The wrong industry is paying attention to Tingo, the recent side project from TripAdvisor which is gaining notoriety from the travel trade. Tingo’s spin is turning what others have deemed a feature into a product. Offering refunds on booked hotel itineraries if the price drops. Its momentum alone is fascinating considering Orbitz Price Assurance, Yapta and TripIt Pro are all variant flavors of the same refund policy. And while none have it right yet, it’s worth noting that Tingo is the fourth player to endeavor this model.
If a company finally succeeds with this approach, its impact could be wide reaching even beyond travel. The obvious buzz is coming from the travel category, whereas perhaps we should be hearing from RETAIL. Why? If Tingo proves successful, deductive reasoning draws a direct line to a cataclysmic sea change that impacts the retail industry. So while not an original offering, a Tingo victory could lead us down a unique path.
Though myriad differences separate Tingo from existing players, a new expectation is being created for travel consumers. The presumption that no matter when your itinerary is booked, you’re guaranteed the lowest rate. Whether true or not is irrelevant – public perception guides the expectation. Which incites consumer demand for parity. And parity ultimately means the creation of a new industry standard.
The interesting subtext of this potential new standard is an exploration of what happens when Refunds for Price Drops becomes common practice among travel suppliers. Finding our answer takes us on a journey beginning with the assumption that Tingo is a brilliant success. While far fetched this early in its history, we’ll make the hypothetical leap and say that they steal share from OTAs and independents alike provoking a strong competitive response.
Tingo is fuelled by Expedia, and we can expect the largest player in online travel to embrace this now successful policy. As Expedia goes, so goes the OTAs, who would be fast followers on the Tingo model if Expedia adopts it. With the OTAs onboard, it will be nearly impossible for independents not to follow suit, since their value proposition can no longer be price-based, so we assume they do so.
If Tingo works in hospitality, it’s likely all players would translate the model into other travel mix like air, car, cruise, etc. As such, the online travel market (now one-third of global travel market value, according to yStats) is further commoditized. Customer service and user experience become the only true gaiting factors for travel bookers. A coup for travelers!
Based on this path, every travel supplier would now protect any booking from price drops. Now we need to ponder how this impacts those establishing the actual price points: ie. revenue management. Revenue management has been the profitability engine of travel and hospitality for decades. Its operators manage the delicate balance between inventory, demand curves, rack rates, best available rate (BAR), RevPAR, load factors, time to stay/flight/ride, promotions, discounts, pre-pay, opaques, blended rates, rate parity, cancelations, refunds, rewards programs, OPEC, seasonality, advance day fares, etc.
It’s endless the elements required for consideration when establishing a price of travel products. It’s a combination of science and art form. Yet should Tingo prove victorious, revenue management teams will have their hands full figuring out how to adequately respond to this model. That response could be as simple as “No More Price Fluctuations” – yield management disappears. Blasphemy! And most Revenue Managers would tell you keeping price points flat actually has a decrementing value against the forward-looking P&L.
However, if travel is now a commodity, and downward pricing is being refunded automatically, why bother chasing longer margins to gain nothing. How does Revenue Management respond when their most reliable arrows (price adjustments and time) are removed from their quiver?
For air travel, it’s slightly different in that last-minute purchases don’t always bring the best price. RMs leverage advance day purchases and often only respond to competitive price drops as needed. Regardless, our position remains that if Tingo is successful, all travel suppliers will need to adjust accordingly.
So we assume all travel pricing becomes static. Suppliers offer a flat price for a single product that remains in perpetuity. And we further assume it’s a resounding victory. Should we not also assume the Retail category takes notice of such success? They’ve already done it to some degree, amateurishly. Retail has price matching, 110% guarantees, list pricing with deep discounts, MAP pricing from manufacturers (Apple). Anything to make you feel your purchase is guarded against the inevitability of price drops. That is of course, unless the price never drops. All of these marketing mechanisms are intended to restore confidence in our purchase, exploiting our fear of getting taken, robbed, hoodwinked. Imagine a consumer market where that was never in question.
There are far more gaps in retail since they often aren’t dealing with finite inventory and a long booking window. Most retailers are thinking about store inventory, warehouse inventory, competitive pricing, turns and GMROI. If more product is needed, they contact the manufacturer who happily delivers. If the manufacturer is out, they produce more. The model is certainly not a direct parallel, but the structures are similar.
Refunds in retail aren’t automatic like Tingo is offering. The burden of proof rests with the consumer. Scan an item in-store with an app that searches competitors, reveal your lower priced finding to customer service, and most big box retailers will honor the lower price. Imagine buying a new TV, and 90 days later you see $100 back on your credit card statement because the price dropped $100. Wouldn’t you be more likely to buy a TV at the retailer that offers this kind of service?
Placing enough pressure on retailers to embrace such a policy would be like moving an iceberg by hand. Our loudest voices and preferences don’t have the PSI for that kind of battle. For such a model to work, retailers would need to realize the benefit for themselves. After all, I once sat in a room with a revenue manager who said: “Why charge $250 for something they’re willing to pay $350 for.” Tingo is another player challenging that antiquated but profitable thought process. I don’t know that I’m a Tingo-supporter yet, but I’m enjoying the trend it’s yielding off of.
For a moment, we’ll imagine commerce, based not on what someone is willing to pay for a good, but a fair and economical valuation of the cost of goods, labor to create it and a reasonable profit? Dream of such a marketplace, then wake up, and realize the cost to you as a consumer is typically based on what you’re willing to pay for it. But wouldn’t that dream be a pleasant reality, if only for the momentary lifespan of a small travel brand.