The Trouble With Transactions

The trouble with transactions is one of definition. "So what," you might say. "After all, one only needs to specify the term clearly and 'Bob's your uncle.' " Oh that it could be that easy and corporations are finding to their cost (as most pay by transaction one way or another) that what they thought was a clear definition is nothing of the sort.  [more]

Since paying by transaction became the new way, it has bred both new methods for travel management companies to present their costs and different yardsticks for corporations to measure price against. The thinking behind the concept is that surely more transparency will prevail, but I would argue the opposite is more likely.

This method of buying travel has created a new language in transaction definition with words such as bundled, unbundled, no touch, low touch, high touch, managed, and unmanaged to name a few. So, instead of a corporation being confused about what they are actually paying for in a management fee they now should be fretting about what kind of transaction they need as they all cost considerably different amounts.

One of the biggest "black holes" of confusion and downright disagreement comes from online transactions in all their many definitions. A TMC will come up with a very low lead price for one that needs no human touch or intervention in any way. This price will allow them minimal (if any) profit to secure the business and they make their money on the variations. Some TMCs rely on corporations not truly understanding their business requirements in this area.

A critical part of a corporation's award decision is based on this entry price, but I contend that the reason for the price being so low is that there is no such thing as a completely no-touch booking. I would go further and say that if you scrabble around elsewhere in the contract--in areas like fulfilment fees or, even worse, supplementary supporting transactions--you will find the entry price pretty irrelevant. In the final analysis, one could end up with extras such as a fulfilment fee plus up to four additional fees for a complicated booking and, if you add these up, it may be much higher than the other bidding TMCs with a higher entry fee with different terms. I have seen it happen so many times and the expression smoke and mirrors comes to mind.

There really is little point in going for sexy introductory prices when the non-commodity complexity of transporting someone from A to B (possibly via C) makes transaction purchasing such a lottery. Unless your travel is very simple, you know exactly what you want, your travellers will do as their told and economic/world conditions don't change, you do not have a prayer.

Let us look at this from a different direction. The cost mechanics of using a TMC are really quite straightforward. They comprise of actual cost of service, cost of journey, cost of using TMC core processes, bespoke processes and finally agreed profit--rather like a pure outsource model in many ways. These should be the key measures, not some confused transaction price. The problem is that procurement departments do not buy things that way and they feel happier measuring (and being measured) by unit price. This is a far more dangerous and misleading path in business travel, bred by an inability to both obtain funds to centralise TMC payments and control employee behaviour.

You may have guessed that I am not a big fan of this kind of pricing. It could and should be so much simpler than that. It also takes the focus of what is really important, which is the reduction of journey cost. I advocate that you could spend double your current booking cost by taking on more skilful people who could achieve a 400 percent return on that extra fee in journey price reduction ... but that is another subject for another day!