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Philippe Willi // TrekkSoft Ltd. Jon Fauver // TrekkSoft Ltd.

Pricing in a Global Market Strategies for Value, Pricing and Commission, and Navigating Currency Risks. Philippe Willi // TrekkSoft Ltd. Jon Fauver // TrekkSoft Ltd. #ATWS-hashtag. Agenda. Session 1 Value & margin definitons with examples & controlling. Session 1 Feedback, Q & A.

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Philippe Willi // TrekkSoft Ltd. Jon Fauver // TrekkSoft Ltd.

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  1. Pricing in a Global MarketStrategies for Value, Pricing and Commission, and Navigating Currency Risks Philippe Willi // TrekkSoft Ltd. Jon Fauver // TrekkSoft Ltd. #ATWS-hashtag

  2. Agenda Session 1 Value & margin definitons with examples & controlling Session 1 Feedback, Q & A Session 2 Commission, transaction costs and accepting online bookings/payments with examples Session 2 Feedback, Q & A Session 3 Currency risks for small & midsize companies & practical solutions Session 3 Feedback, Q & A

  3. Session 1 Pricing in a Global Market Value & Margin Definitons with Examples & Controlling

  4. Definition of Value Price paid for tour, trip or activity VS customer experience Value for the Customer Contribution Margin on a tour, trip or activity Tour Operator, Activity Provider

  5. Margin Definition Selling Price to Customer (excl. VAT) all trip/tour related expenses Contribution Margin 1 salaries & social insurances Contribution Margin 2 Contribution Margin 3 /Cashflow/EBITDA* all other expenses *EBITDA = Earnings before interest, taxes, deprpeciation, amortization

  6. Concrete ExampleEuropean Tour Operator Company „Philippes European Adventure Experience“ • Income Statement • Net Earnings (excl. VAT) • + Travel Activities Switzerland+ Travel Activities Europe+ Add Ons+ Diverse Earnings- Commission to Sales Points- Commission to Credit Cards= Total Earnings • Trip/Tour Expenses (COGS*) • Trip/Tour expenses- 3th party expenses- Commissions • = CONTRIBUTION MARGIN 1 • *COGS= Cost of Goods Sold

  7. Concrete Example 2European Tour Operator Company „Philippes European Adventure Experience“ • = CONTRIBUTION MARGIN 1 • Salaries/ Social Insurance • Salaries- Social Insurance- Pension Funds- Accident Insurance- Health Insurance- Taxes- Divers Personal Expenses • = CONTRIBUTION MARGIN 2

  8. Concrete Example 3European Tour Operator Company „Philippes European Adventure Experience“ = CONTRIBUTION MARGIN 2 • Rent- Maintenance- Insurances- Car Expenses - Duties - Office Supplies - Accounting Consulting - IT Expenses - Advertising Expenses - Representation Expenses - Interest, Expenses - Taxes = CONTRIBUTION MARGIN 3 or CASH FLOW

  9. Attention!!! There are two ways to look at your income (earnings): Revenue by trip date sold (accounting by current cashflow) Revenue by trip departure date This is one is best for accounting (refunds etc.)

  10. Company Contribution Margin Trip 3 + Trip 1 + Trip 2 Trip 6 + + Trip 5 Trip 4 Trip 9 + Trip 7 + Trip 8 Combined trip margins = Company Contribution Margin

  11. Implementation of Contribution Margins • At the trip/tour level (operational) you define Contribution Margin 1 as a goal per trip (for example 25 %)

  12. Implementation of Contribution Margins • At the company level (strategical) you define a target Company Contribution Margin 1. This is the combined result of all the tours/trips of your company.

  13. Implementation of Contribution Margins • On a company level (strategical) you define a target Contribution Margin 3 (for example 8 to 12 %) • Contribution Margin 3 = Cashflow = What is left in your bank account.

  14. Controlling of Margins OPERATIONAL Trip Controlling/Trip Report (all trip/tour related income and expenses are controlled on a excel sheet) Contribution margin 1 Trip/Tour Level Contribution margin 2 company Accounting, Bookkeeping from a speficic period STRATEGICAL Accounting, Bookkeeping from a speficic period Contribution margin 3 (Cashflow) company FINAL CHECK ON YOUR BANk ACCOUNT (OWNER)

  15. Contribution Margin on a Trip/Tour Level • Most trips have both variable and fixed costs that result in an increasing contribution margins with an increasing amount of PAX • Some trips (boats) have jumping contributionmargins. This occurs when a trip reaches a maximum number of seats and then has a jump in fixed costs to start a new one. • It is important to define a corridor of contribution margins which makes sense for your industry, company, or product. Tour Operator GOAL: Contribution Margin 1 > 25 % Activity Provider GOAL: Contribution Margin 1 > 65 %

  16. River Rafting Contribution Margin • Rafting: - 60.56 % to 45.65 % • (fix costs and „jumping“ contribution margins)

  17. Canyoning Contribution Margin • Canyoning: 37.63 % to 63.66 %

  18. Ropes Course Contribution Margin • Ropes Course: - 332.85 % to 47.09% (very high fix costs)

  19. Night Sledding Contribution Margin Night Sledding: 17.08 % to 38.74 %

  20. Guided Bus tour Florence to Interlaken Guided Bus tour Florence 2 Interlaken, 31.91 %

  21. What Price is Right? • Your strategical contribution margin will define the price you need to charge for your product. With most T&A products it will be a mix of high and low margin trips. • To reach your contribution margin you must set a price that: • Gives the customer the needed value • Holds up against competition • Covers your costs • Covers your commission • Low price & High numbers – High price & Low numbers – Sales – Price • Dumping – Yield Management – Marketing Costs – Group Buying • Today's Global Market place offers a variety of opportunities and risks for pricing. We will address Commissions, Online sales and Currency risks in sessions 2 & 3.

  22. Feedback Session 1 • How do you calculate your contribution margins? • How do you decide if a trip generates a value (lucrative) for you or not? • What is your goal as a contribution margin 1? (25 %, 50 % or 75%)

  23. Session 2 Pricing in a Global Market Commissions Transaction Costs & Accepting Online Bookings/Payments

  24. Bookings, Bookings, Bookings

  25. Margin Definition Selling Price to Costumer (excl. VAT) - all trip/tour related expenses = contribution margin 1 - salaries & social insurances = contribution margin 2 - all other expenses (rent, marketing etc.) = contribution margin 3 /Cashflow/EBITDA Commission and Transaction costs reflect directly in your Contribution Margin 1

  26. Define Your Average Basket Total Earnings NET (Trips, Tours) Total Passengers Average Basket Total Commision Paid Outor otherMarketing Costs Average Acquisition Cost / Customer Average Basket Example (Tour Operator Company): Net Earnings = EUR 2 653 302.41 PAX = 14 910 Average Basket = EUR 183.93 Commission offered to agent = 10 % Average Acquisiton Cost per Costumer = EUR 18.40

  27. Acquisiton Cost per Costumer • Knowing your acquisition cost / customer helps you make smart decisions. • Example: Is a Google Ad Words Campaign cost effective? = a conversion in google is defined by you

  28. Where to sell online – 3 examples Accepting online Payments Marketplaces Groupon & Co + powerful distribution - very expensive (15%-30%) + potential new costumers - extremely expensive + good transactions costs - WORK for YOU

  29. Marketplaces • Increase brand awareness and are important for your presence in multiple distribution channels • GetYourGuide, Gitsy etc. = normally high commission rates (15% to 30 %) • Too expensive to use as a booking engine because of the commission rates - if you have low contribution margins you start to loose money Calculation Example:Selling Price: EUR 100.-Comission (25 %): EUR 25.-Net Selling Price after comissions: EUR 75.-

  30. Group Buying SitesGroupon & Co • You sell coupons online for min. 50 % off and pay a commission to the site (groupon etc.) of between 30 % and 50 % = 60%-80% loss. • Expensive marketing and only make sense if you can generate returning costumers. Calculation Example:Selling Price: EUR 100.-Deduction for costumer (50 %): EUR 50.-Kick Back to Groupon & Co (40 %): EUR 20.-Net Selling Price: EUR 30.- It is almost impossible to make money. This is marketing to attract new or repeat costumers.

  31. Direct Online Bookings & Accepting Payments Online • PayPal • Stripe • Moneybookers • Lots of country/payout limitations • Your own credit card aquirer contracts and PSP contracts (Payment Service Provider) THIS IS THE BEST METHOD TO INCREASE ONLINE SALES WITH AFFORDABLE AQUISITION AND TRANSACTION COSTS.

  32. How Online Payments Work 1.2 % to 3 % 0.1 to 0.3 USD Own CC contract VISA / Mastercard /American Express /Country specific payment options Credit card acquirer, commission on every credit card transaction Payment Service Provider (PSP), fixed amount per transaction and monthly fix costs BOOKING ENGINE YOU No CC contract PayPal Stripe.com 2.9 % + 30 cents 2.9% + 30 cents

  33. Problem with Stripe, PayPal etc. • Often limited by country & currency restrictions. Have a look at www.paypal.com/worldwide

  34. Online/Offline Payments * Online / Mobile= 23.60 % Fast increasing!! Offline (POS/ over the counter/Telephone)= 76.40 % Most bookings are still offline * www.trekksoft.com // dynamic Graph out of over 300 000 PAX bookings

  35. T&A operators are not online • T&A operators are not onlineLes than 10% of Tour & Activity (T&A) providers do have a web presence (far less than hotels or airlines) • Customers are onlineOnline and mobile bookings are increasing drastically. 10–15% in 2012 and growing. • Solutions are expensiveExisting online booking solutions are too expensive and complicated. (contracts, high set-up costs, commissions and expensive payment gateways)

  36. Pre Payments • Travel Bond Regulations exist to protect consumers from the risk of paying in advance for travel services. Marketplaces Groupon & Co Accepting online Payments Influences your cash management Groupon & Co Pay out after trip Realtime pay outs Pay out after trip

  37. Online Payments Overview * * payouts based on transaction date, not trip date * PayOut based on credit card turnover date

  38. What do today’s Tour and Activity companies need to succeed in the global online marketplace ?

  39. Intuitive booking engine TrekkSoft Ltd. | Company Presentation 39

  40. Integrated Social Media

  41. Powerful Admin Tools

  42. Mobile Bookings In the very near future (if not already), if you are not bookable on a mobile device you will be missing a huge part of the travel market.

  43. Case Study: TrekkSoft Total online bookings since 2010 CHF 8.5m turnover 300k passengers 2012 CHF 5.2m turnover 200k passengers 70 T&A operators 2013 CHF 10m turnover 400k passengers 170 T&A operators

  44. Pricing TrekkSoft Low commission Free software as a service Commission of 6% incl. credit card and PSP commission on online transactions Offline, over the counter and POS transactions are free of charge

  45. Summary TrekkSoft • WebsiteCustomizable website with integrated CMS • Online booking solutionSimple booking engine for online, mobile and offline bookings worldwide • Payment gatewayIntegrated payment gateway (no set-up or fix costs, no PSP or CC contracts necessary) • FunctionalityAdvanced features for bigger tour operators like: tour mgmt., trips and capacity mgmt. incl. yield-mgmt. prices

  46. Who’s Using TrekkSoft?

  47. Feedback Session 2 • How do you decide if a advertising platform ir CPC/CPM campaign makes sense? Do you calculate an acquisition cost per costumer and how? • How do you reach your costumers? Online or Offline. Which online which platforms do you use? • How much commission are you willing to pay to your Agents or Online Booking Engine?

  48. Session 3 Pricing in a Global Market Currency Risks for small & midsize companies + practical solutions

  49. Accepting different currencies EUR USD AUD YOU INR GBP CAD CHF

  50. Definition of Currency Risk Problem 1 Convert Money Suppliercosts(CHF) YOU (CHF) Costumer(EUR) Pays in EUR Pays in CHF Problem 2 Too Expensive Suppliercosts(CHF) YOU(CHF) Costumer(EUR) Pays in CHF Pays in CHF = converts money

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