Is it unreasonable for suppliers to believe that their high standards have everything to do with repeat business? And is it unreasonable for travel agents to believe that, if they hadnt sent a client to a specific supplier in the first place, there would have been no opportunity for repeat business?
Both are valid arguments, but, interestingly, the way most suppliers have structured commissions seems to discount their own contribution to repeat business. Most suppliers pay commissions and overrides based on the number of bookings or dollar amounts.
First-time passenger, 10th-time passenger, it doesnt matter -- the override tabulations just look at passengers in terms of numbers. They may just as well be paying for passengers by the pound.
Presumably, by looking at repeat business patterns, a supplier knows the average lifetime value of a customer. A certain percentage will never repeat, another percentage will repeat once, another percentage twice, and on and on.
And a supplier doesnt have to be terribly sophisticated to discover that certain factors -- age, income, location of residence -- among passenger demographics contribute to creating the highest lifetime value.
Given all that, its a mystery why suppliers dont pay travel agents more to bring them new business than repeat business, and, further, give them a bonus to bring in the type of new business that has the greatest lifetime value.
The flip side of this type of compensation would be that agents would get less on subsequent repeat business from that same passenger -- after the first booking, the commission on that passenger would go down. Thats fair on two levels -- repeat business usually takes less time to book than new business, and suppliers would be allowed to reap a greater reward for having produced a product good enough to merit repeat business.
Doing away with volume-based pay would address other vexing problems. Level playing field? The current system encourages rebating, but a sliding compensation scale, though by definition not level, would make it more difficult to offer flat rebates.
Are suppliers poaching your clients for repeat business? Theyll have much less incentive to do so if theyre paying less commission on repeat business.
Accepting this type of structure may require a bit of enlightened self-interest on the part of traditional agents. Though the current structure is lucrative for them in the short term, they should be aware that overrides based on volume alone disproportionately reward the online channel.
Look at the cruise lines, for example. The largest sellers of cruises these days are the online players, which also get the highest overrides, based on high volume. So when a repeat passenger migrates from a traditional agent to a large online aggregator, the cruise line ends up paying more for repeat business, even though all that has occurred was a shift in market share between channels.
This affects distribution costs -- under the current system, as long as the trends favor the online channel, a cruise lines distribution costs will go up.
I have no doubt that it will reach a point where the lines will feel they have to restructure commission compensation -- and when that occurs, theres a possibility the new structure will not be as fair as one that focuses on lifetime value rather than volume. Instead, the lines thinking may be more similar to how airlines approached cutting commissions.
There are, of course, further issues that would have to be worked out in a compensation plan based on customer value. For instance, tracking first-time vs. repeat passengers, and paying agents enough on repeat business to prevent them from steering clients to a competitor simply to reap a first-timer reward.
I dont think these challenges are insurmountable. But I think the problems presented by the current system are.