A visionary commission model

By Richard Turen
Richard TurenIt's always appreciated when those of us who comment on industry affairs can end the year filled with excitement and New Year cheer at what might lie ahead. The excitement this year comes not from the North Pole but from two men on my very short list of industry visionaries.

Azamara Cruises President Larry Pimentel and Virtuoso CEO Matthew Upchurch have taken some first bold steps toward changing the way the industry might look at consultant compensation. The essence of their plan derives from a simple but long unacknowledged truth: Some clients are worth more to suppliers than others.

Rather than prolong the decades-old debate about agent compensation, these long-time friends struck a deal to pay higher commissions for certain kinds of bookings. But the devil really is in the details.

A 36-month test of the plan begins on Jan. 1. It offers Virtuoso agents a 3% commission override if the booking meets several criteria.

The first criteria is, I think, the most interesting, because it has such obvious application to the hotel sector. The override will be paid exclusively on balcony, penthouse and suite bookings. There are other key criteria, but this is the heart of the concept.

Higher-cost bookings for premier accommodations are more profitable to the supplier and should, therefore, reflect a higher level of compensation.

Of course, an agent is already earning a higher commission by selling a more expensive product, so why the need to offer a higher commission rate for suites that already produce additional revenue at any commission level?

The two 694-passenger vessels in the Azamara fleet were born 14 years ago as Renaissance ships. Azamara and its parent, Royal Caribbean Cruises Ltd., had no role in their original design. By my count, each ship has 347 cabins, 72 of which would not be eligible for the override. That means that only 21% of the fleet would not qualify for the override. So, one has to wonder if the 3% override is really an attempt to move market share to Azamara via additional compensation. Or, to put it another way, if 79% of the cabins are verandas or suites, is this really a plan to get Virtuoso agents to upsell from standard cabins all of which are on a single deck?

To really understand the plan and the vision behind it, I think you have to look beyond the eligible cabin categories to the next set of criteria: Bookings must be made at least one year in advance of sailings.

Azamara has some of the most creative itineraries available, and the size of their ships enables them to visit ports that larger ships can only wave at as they pass. Azamara does get its schedules out far in advance, so booking more than a year out is reasonable.

But while it can be done, I have to wonder why it is a criterion for the override. When a client books is often a reflection of personal health or financial circumstances. It also rests on the client's view of world events and possible perceptions of safety. Should the agent really be expected to get clients to make decisions about their next vacation more than a year in advance? And if the answer is yes, would Azamara also anticipate a jump in cancellation rates, given the long window between deposit and sailing?

The third ingredient in the new model is the length of the voyage. No problem there. If your clients are willing to do longer, back-to-back or world cruise segments, it seems fair that you'd get higher compensation than an agent booking a one-week itinerary. But again, this is already the case. The higher the invoice, the more you make.

When you follow the logic, I think it becomes clear that Azamara and Virtuoso believe that agents, even the best thoroughbreds in the Virtuoso stable, need an incentive to sell up. They can sell veranda cabins or suites when their clients want window cabins, they can send guests on a longer voyage than they really wanted, or they can sell a client on the idea of booking at least one year out.

While I have some problems with manipulating a client into making a selection that is not in the guest's best interests, this is clearly a revolutionary take on the traditional travel industry pricing model. It can be applied easily to the hotel sector, where getting a client to upgrade from a standard room produces tangible experiential differences. I wonder if portions of the hotel sector might see this model as a golden opportunity to stimulate higher-end bookings from agents.

My fascination with the new model really revolves around the fourth criterion -- the "metrics" portion of the plan, known as the Strategic Alignment Initiative Levels, or SAIL. Azamara claims to have deep client data about onboard spend. The line can tell which of its guests ordered which drinks on past cruises. The Dom Perignon guest is worth more than the Corona drinker. Pimentel clearly wants to pay less for bottom feeders, the super-price-conscious, deep-discount hunters, while rewarding those willing to take advantage of the various onboard products and services that largely determine a cruise line's profitability. But at this stage, having great metrics might not be enough.

So here are some questions:

• If Azamara, a small, two-ship niche player in the industry, has good past guest metrics, what should we assume about the largest brands, like Royal Caribbean International, Carnival and Norwegian Cruise Line? Is it fair to say that they have more sophisticated computer models measuring guest preferences and onboard spending and more staff to do it? If so, why have they not reached the same conclusions as Azamara and Virtuoso?

• What of competing consortia and agencies? What will Azamara have to do in 2014 to convince top cruise-selling members of other consortia that they are playing on a level playing field? What are the other key luxury players to make of this exclusionary alliance?

I suspect that volume still counts, and cruise lines of great scale have figured out ways to make money off price scavengers. But paying extra for more profitable bookings is an idea whose time has finally come, and no one should be surprised that Pimentel and Upchurch are the visionaries who designed a payment method that can have industrywide ramifications.

It could be that other cruise lines ignore this new model, and the hotel sector ignores any concept that results in higher commissions for some agents. But then there's this: In the week following the joint announcement of the new model, Virtuoso had its best booking week ever with Azamara. And that happened despite the fact that the call came at a time of year when new bookings are normally sluggish.

This will be one of the great stories I will enjoy sharing with you as it unfolds in 2014.

Contributing Editor Richard Bruce Turen owns Churchill & Turen Ltd., a luxury vacation firm based in Naples, Fla. He is also managing director of the Churchill Group, a sales training and marketing consultancy. Contact him at rturen@travelweekly.com. 
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