Virtuoso and Azamara Club Cruises are changing the traditional retail compensation model from volume-based to quality-based.
Under a three-year agreement that kicks in on Jan. 1, Azamara will compensate Virtuoso agencies more for high-value clients than for lower-value clients.
This means that an agency that routinely serves high-end clients but sells few cruises will earn as much for selling a high-value Azamara cruise (such as a back-to-back cruise, a certain cabin or suite category or delivering a high-end booking a year in advance) as a high-volume agency.
And a high-volume agency delivering a similar high-value client will also earn more than it would normally.
It also means that two $10,000 bookings are not the same. An agency delivering a high-end $10,000 booking would earn more than an agency delivering a lower-rated sale for several people, even if the two bookings produce the same transaction revenue for the line.
The policy covers first-time and repeat clients.
Azamara analyzed its passenger data going back three years and “got our arms completely around the notion of a high-value customer,” said Larry Pimentel, president and CEO of Azamara.
Pimentel defined high value as a combination of net ticket revenue and onboard spending.
The line also looked at the propensity for repeat business.
“Compensation in most of the industry is volume-based, irrespective of the fact that some agency organizations are producers of last-minute bookings at low rates,” Pimentel said.
The flaw in a volume-based compensation model, he said, is that “volume in the absence of profit is meaningless.”
He said some of the smallest agencies produce some of the highest-value customers.
“Not all passengers are created equal,” he said. “Some are scavengers who look for the lowest rate and don’t spend any money at all. We all have to have a bit of that, but to have too much is not a formula for success.”
Pimentel said he expects the new compensation model, SAIL (Strategic Alignment Initiative Levels), to be copied but said that Azamara’s metrics are unusually granular. He can tell how many drinks a customer had and whether they bought the call liquor or Dom Perignon. And he can pull that data from two weeks ago or three weeks ago.
Pimentel said that while Virtuoso seemed a likely partner because it is an “acknowledged leader” when it comes to having high-quality customers, “we were able to prove it by analyzing the customers they’ve sent us for the past three years.”
He said that Virtuoso clients tend to book more than 300 days in advance, book in higher categories, spend more onboard and are brand loyal.
“It’s getting paid for quality, not just quantity, which creates a kind of incentive that I feel has been kind of missing,” said Matthew Upchurch, chairman and CEO of Virtuoso.
Upchurch said that this rewards agencies that are not major cruise bookers but excel at delivering a high-quality client.
Pimentel said that when he and Upchurch described the new program on a call with agents, more than 500 agents participated.
And even though the program doesn’t start until Jan. 1, Virtuoso agents responded. In the week after the call, Virtuoso had its best week on record with Azamara, even though 2014 Virtuoso bookings for Azamara are 70% ahead of 2013.
“I think it’s brilliant,” said Jack Mannix, principal of industry consulting firm Jack E. Mannix and Associates and former head of the Ensemble Travel Group. “It rewards the agent for selling what’s profitable to me as a supplier. It gives the agent the incentive to sell higher-end stuff.”
And that’s as it should be, he said, since an agent is less necessary for selling lower-priced, less complex products, whereas suppliers need agents to help them sell more complex products.
Bob Joselyn, president and CEO of Joselyn, Tepper & Associates, a consulting firm, called the new program “creative for cruise lines and appropriate.”
“This compensation system rewards agencies for the very things that are most important to Azamara, and Virtuoso agencies, higher-yield bookings and advance bookings that enhance the predictability of available capacity and future revenue,” Joselyn said.