Tourism Australia's publication 'Planning for Inbound Success' details pricing and how it is affected by the travel distribution system, some of this information is summarised below. For further detail the publication can be downloaded from Tourism Australia's website.

A product must be priced consistently, accurately and competitively to be successful in the market place. This requires a clear understanding of each individual cost component, including commissions and their impact on the total price of the product.

Getting your pricing right is a key requirement for success. The price should be set according to:

• Your competitor's pricing
• The level that your target market is prepared to pay
• The cost of distribution (i.e. commissions) built into the overall price
• Any fixed costs and overheads and
• Seasonality

If you plan to sell your product through the travel distribution system, you will need to factor commissions into your price structure. Commissions are the fee paid to the inbound tour operator, wholesaler and retail agent to market, distribute and sell your product. This is their income, paying for their operation and the services they provide.

Each level of the distribution chain receives a different rate of commission. If the price of your product does not allow for these levels of payment, you will find it very difficult to market your product through an inbound tour operator, wholesaler or retail agent. It is important to remember that wholesalers and ITOs provide valuable distribution that you may never be able to secure on your own. Commission is only paid once a sale has been made!

When dealing with the travel distribution system, you must understand the difference between nett and gross rates and 'protect your rates' by providing the correct rates to each level of the distribution chain. Rates should be clearly marked as either gross or nett.

Gross Rate = Nett Rate + Agents Commission

The gross or sell rate of a product is the amount that the consumer pays and should be consistent across all distribution channels. For example, a customer should pay the same price if they book direct, via an international travel agent or via the Internet. Consumers will not purchase the product from a travel agent in advance if they know they can purchase it directly from you at a reduced price. Agents will not promote and market your product if they know the consumer is not going to buy from them.

Nett Rate = Gross Rate - Agents Commission

Your trade distribution strategy i.e. how much of your product you aim to sell through agents versus how much you want to sell directly to customers, should relate to your volume and profit targets.

The Do's and Don'ts of Pricing:

Do's

• Get the price right for the market and compare it with your competitors' prices.
• Build a totally consistent rate schedule.
• Guarantee your rates for at least the period 1 April to 31 March. Price guarantees may need to be valid for 18 months.
• Ensure that your price will generate sufficient profitability and turnover.
• Ensure that the validity date and all booking conditions, including your cancellation policy, are clearly stated on all correspondence related to pricing.
• Ensure that you identify any seasonality in your product (i.e. high season, low season, days of operation) and clearly identify the corresponding rate alterations.

Don'ts

• Distribute rates intended for wholesalers and inbound operators to retail agents. This will either increase your commission payments or dispense with one level of the distribution chain for your product.
• Consider commissions as a 'discount' as they are part of the cost of doing business. 'Intermediaries' have to promote your product and pay their costs in selling and packaging your product.
• Try to set different rates for locals and overseas visitors unless there is a variation in the product offering.

Loyalty and ethics are an integral part of the inbound travel industry, particularly for new products and services in the international market. To maintain rate integrity and avoid indiscriminate distribution of rates, it is important that suppliers of new products and services understand commissions and distribution channels. You must factor all commission levels into your pricing.

Tourism New South Wales has published a comprehensive fact sheet on Pricing Your Product which can be downloaded from their website.

Tourism South Australia has developed a sophisticated Interactive Pricing Calculator which can be used to set your pricing and notify the distribution channels of your pricing structure. This excel template can be downloaded from their website (select the 'Interactive Pricing Calculator').

Tourism Western Australia has produced a Tourism Marketing Guide (Click on the 'Tourism Marketing Guide' PDF link) which has some useful advice on setting prices (page 34).