Distribution

A global airline ticket distributor solidified its channel role through a value-based pricing approach. Our client was under significant pressure from financially strapped air carriers to lower its transaction fees or be replaced by the airlines' own reservation systems. In addition, travel agents had begun to consolidate channel power and began requesting new incentives to win their business. Being squeezed by both ends, our client asked SPG to examine its pricing models and develop a strategy that supported its channel role and more equitably distributed fees among its trading partners. After conducting research, modeling industry dynamics and testing the company's value proposition, SPG recommended our client charge airlines based on the "value" of booked segments (e.g., ticket price), rather than the historically used measure of "number" of booked segments (e.g., connections). Additionally, we recommended that they continue to pay booking incentives to agents, but to rationalize pricing structures and make them more transparent in the marketplace. Our recommendations better aligned our client's fees with how channel partners made money. It strengthened their value proposition and role in the channel and significantly reduced "channel noise", which led to higher profits.