Importance of links and relationships within the retail travel environment

Horizontal Integration
• Why does it exist and why is it formed?
-Company’s merging together. 1 company taking over another. Financial reasons etc. Happens when a company owns or controls other businesses at the same level of the distribution chain
• How does Horizontal integration affect the organisations concerned?
-Can be a risk. 1 company may lose identity. Job losses can occur. Staff may not like the change leading to demotivated employees. If one company fails it can affect both.
• How does Horizontal integration benefit the organisations concerned?
-Can increase profitability. Staff can be trained to do more than one job. Bigger customer base. Less competition. More competitive in the market. • How does Horizontal integration benefit the customer?

-Customers have the security of knowing they have two organisations reputation and experience on side. More choice for customers. Better deals as they are more competitive and so can offer best discounts.

Vertical Integration
• Why does vertical integration exist and why is it formed? -Happens in the retail travel sector when a company controls more than one level of the distribution chain for products and services, in order to gain a competitive advantage

• Why does vertical integration affect the organisations concerned? -If one component fails this can affect all components on the chain of distribution, which could ultimately effect the whole organisation. The organisation is limited to what they can sell and promote due to commission restraints and having to sell their own brand.

• Why does vertical integration benefit the organisations concerned?
-Can improve profitability. Profits and commission can stay within the organisation. Staff can be trained to do more than one job.
• How does the vertical integration benefit the customer?
-Customer may get the best deals/discounts as vertically integrated organisations usually have the most buying power on the market. Customer benefits from booking all components through one organisation.

Preferred Agents
• Why do preferred agents exist and why are they formed?
Travel Agencies are sometimes given ‘preferred status’ by tour operators and other principals (airlines, hotels, transport operators etc), meaning that the agency receives:
– Extra staff training on products and services
– Offered the highest commission levels
– Staff are given enhanced sales incentives
– The agency is given more promotion by the principal
These things are usually based on an agency achieving high sales volumes over an agreed period of time
• Why do preferred agents affect the organisations concerned? -Can affect the principle as extra commission, staff training and incentives cost money to provide. Affects agents as they can be restricted on what products and services they can sell. Can also put a lot of pressure on staff to meet sales targets.

• How does the relationship benefit the organisations concerned? -Benefits principals as their products and services are being promoted and sold resulting in increase in sales. Benefits agents as they can receive higher commission and extra staff training etc.

• How does the relationship benefit the customer?
-Can benefit customer as preferred agents tend to get better discounts from the principle.

Commission Levels
• Why do commission levels exist and why are they formed?
-Commission is the payment that a travel agent receives from a principal for selling that company’s products or services. Commission levels vary greatly between different companies and holiday products. Commission levels change almost daily in response to competitor activity. • How do commission levels affect the organisations concerned? -Affects the principals as it costs them money to pay commission. Can affect agents as they are limited/restricted to what they can sell and promote due to commission levels.

• How do commission levels benefit the organisations concerned? -Benefits principles as when they offer commission their products and services get promoted and sold which should lead to higher sales volumes. Benefits agents as they are the ones receiving the commission. • How do commission levels benefit the customer?

-Benefits customer as commission enables them to book other
organisations products and services through one organisation.

Agency Agreements
• Why do agency agreements exist and why are they formed?
-All business conducted by travel agents on behalf of principals (i.e. tour operators, coach companies, airlines etc) is strictly controlled by agency agreements. These are contracts that set out the obligations of each party to the agreement, the terms of the agreement and payment details • Why do agency agreements affect the organisation concerned? -Affects both organisations as they are tied in to agreements. • Why do agency agreements benefit the organisations

concerned?
-Benefits both organisations as they have a contract so everyone knows where they stand.
• Why do agency agreements benefit the customer?
-Customers can be assured the money they are paying agents is going to the right place. It is like a form of protection for them that terms and conditions will be met.

Accommodation providers
Tour Operators
Transport Providers
Ancillary Providers

• Agencies have links with all of the above. How can this affect and benefit the agent, the principal and the customer?
• Affects
-Think about the affects on the principal of paying commission, being tied into agency agreements. Affects on agents as they are limited to what they can sell, and also tied into agency agreements. Affects on customer as they are charged commission or booking fee’s. • Benefits

-Think about the benefits on the principals when agents are promoting and selling their products and services as they are receiving commission, benefits on agents when they receive commission and incentives, benefits on customer when they are able to book everything through one organisation because of these links. Benefits on agents and principals as they have a constant source of business with each other because of these links and agreements.