Buyer-turned-consultant Chris Reynolds advises travel management companies to get pricing transparency right

The costs associated with the booking and management of travel by a TMC only accounts for a small percentage of an organisation’s total travel spend. This actual percentage will generally vary between three and seven per cent of total spend, but for some high-touch solutions it may even exceed seven per cent. This variance in cost is attributed to service configuration, volumes, service levels, technology, online/offline ratio, ancillary services and the quality of the buyer who negotiated the contract.
For some time TMCs have encouraged corporates to focus on the remaining 90-plus per cent of their spend that can be affected by both the corporate's and the TMC's actions. I agree with them on this front as TMCs in the main are providing a professional service vital to the success of those they serve.

Where I do believe there is a disconnect is around the financial reporting of both costs and savings. It is accepted that the TMCs need to cover their costs and make a reasonable profit in order to be a value proposition to the corporate.

There has been much discussion recently about the strengthening of relationships between the buyer and supplier communities. In this very column there has been discussion about broadening the scope of the TMC to include some roles currently undertaken by the corporate buyer.

All of this is very positive and a fantastic opportunity for the more forward-thinking TMCs. There are, however, three funda-mental requirements that the TMCs have got to get right in order to create trust.

At 3SIXTY we have spent a significant amount of time working with both corporates and account managers to get a handle on what the TMC costs are and more importantly what they are made up of. Undoubtedly there are TMCs who do operate with full transparency and clear and simple pricing, but in our experience there are a large number who do not.

During our audit process we have been amazed to find fluctuating total transaction numbers, incorrect transaction fees applied and, in some instances, transactions not even charged for. We have uncovered multiple charges for the same transaction as well as charges relating to agent error.

In some proposals TMCs give ‘inclusive’ pricing and then on a separate tab list additional charges covering items that should be part of the inclusive pricing. This lack of clarity is forcing buyers to focus on the small percentage associated with booking and managing travel rather than the remaining 90 per cent.

As most organisations are still focussing on controlling or indeed reducing costs, it is imperative that TMCs provide credible savings. The savings methodology will vary slightly by corporate but needs to capture savings made by corporate activity (eg, policy changes) as well as TMC activity (eg, creative fares, demand management, etc). Savings need to be credible and attributable to activities undertaken by the corporate or TMC, not based on variances between the full fare and the fare paid.

The account manager role is pivotal in the success of the relationship between TMC and corporate. They need to understand the culture of their customers, as well as identify and deliver process improvements and cost savings initiatives. They
are also key in communicating corporate requirements to the agents processing the bookings. They need to be more than sales people.

The complexity of the pricing models and lack of transparency will continue to be a barrier to building trust and assisting with their diversification. If TMCs want to take advantage of the opportunities to diversify, they need to remove any areas of distrust, have a pricing model that stands up to scrutiny and an account management team that delivers real value to its customers.

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