Q: In a recent issue of The Beat, which is a sister publication of Travel Weekly, editor-in-chief Jay Boehmer interviewed Brady Jensen, the head of global pricing at CWT, the giant travel-management company. The interview was about the TMC's new "subscription model" pricing for corporate accounts. Can you explain how it works? Is that model really something new? What are its advantages and drawbacks?
A: Jensen's answers were remarkably candid and detailed. The key feature of the model is a flat monthly fee for unlimited basic TMC booking and reporting services, with potential, periodic adjustments based on changes in travel patterns.
The fee is set based on the account's historic travel patterns and both parties' projection for the coming year, including online booking usage. Included in the fee are after-hours and VIP calls, instead of the usual per-call or per-transaction pricing.
The fee starts out in one of about 10 brackets or tiers, depending on the account's travel volumes and mixes. As volumes increase, the fee can enter a higher bracket every three or six months. The higher brackets result in discounts on a per-transaction basis because the fee increase is not proportionate to the volume increase.
An all-inclusive monthly management fee is not a new idea. It is one of several "fee-based pricing" models advocated by Peter Sontag in the 1980s, when travel agencies were first starting to handle high-volume corporate travel. It never took off then, but its time may now have come.
As you probably know, monthly subscriptions for unlimited service have become very popular throughout the technology world. Microsoft, Apple, Zoom and many other business software companies have adopted it, and it has become a reliable and ever-increasing source of revenue for those companies.
One advantage of the model is probably that corporate accounts are familiar with it and like it because they can easily budget for the cost of the service. This makes the model attractive for TMCs because its familiarity makes it easy to sell.
Another major advantage, which is highlighted in the interview, is that it guarantees at least some income for the TMC even if booking volumes drop to near zero again.
Finally, the TMC saves mightily on the administrative costs of the transaction-fee model, especially where fees are billed in arrears. The account saves these costs, as well.
The big disadvantage is that the fixed fee is a gamble because the parties' projection could turn out to be drastically low. Although the fee could be adjusted in three or six months, the TMC could sustain a large loss in the meantime.
The interview did not cover the issue of whether commissions and the like are credited to the account, but the formula could work either way, with a higher fee if they are credited and vice versa.
On balance, the subscription-fee model is attractive to both sides and may well supplant the transaction-fee model that has been prevalent for a generation.