Chris Pouney
Associate
GoldSping Consulting

Procurement has a reputation (some would say fairly) of being overly focused on money and prioritising cost and savings above everything else, sometimes to the detriment of the project as a whole.

You might be surprised then to learn one of the words I most despise in the English language is the word ¡®free¡¯. The word, which conjures up images of receiving something of wondrous value without the inconvenience of having to pay for it, offers precious little to celebrate.

So why then is so much in the travel industry offered for ¡®free¡¯ and why do so few people seem unaware of the risks it poses?

¡®Free¡¯ seems to be playing a huge part in the travel space right now, and I¡¯m not seeing too many people pushing back. To remain relevant, everyone seems to be expanding their remit and playing in everyone else¡¯s space.? From TMCs providing sourcing to technology firms offering consulting, and all as the sands of distribution shift all around us, the lines are blurring all the time, and the best way to get in on it seems to be to offer it for ¡®free¡¯.

Specialists become successful and either expand their portfolio to offer additional services or get bought.? Generalists divest and form specialists. Generalists buy specialists and, somewhere in the mix, the whole cycle starts again.

¡®Free¡¯ masks the true meaning, the true cost, the true value, and in many cases can cost you a lot indeed. Nothing is ¡®free¡¯, and nor in business should it be. Let¡¯s examine then the different types of ¡®free¡¯, and why it might not always be the best thing¡­

? A service offered for ¡®free¡¯ is often as a prelude, an assumption that you will go on to purchase more. In these conditions are you going to be getting a true reflection of the paid for service?

? ¡®Free¡¯ may be offered as an act of goodwill, to offer recompense of a failure previously.

? ¡®Free¡¯ may be in return for harvesting your data or using your company name.

? ¡®Free¡¯ may actually be a misnomer for the word ¡®included¡¯. You have already paid for it somewhere else.

? ¡®Free¡¯ may be at the detriment of transparency elsewhere in the supply chain, which could prove expensive overall. In the words of US Business guru, Arthur C Nielsen, ¡®the price of light is less than the cost of darkness¡¯.?

? ¡®Free¡¯ may rely on the giver being available. Something being offered for ¡®free¡¯ is unlikely to be delivered in a timely fashion if a paying client appears and requires something that needs doing promptly.

? ¡®Free¡¯ may not actually be well received ¨C who values something they haven¡¯t paid for?

? ¡®Free¡¯ may not actually be legally binding. Under English law, the law of consideration requires value to be exchanged in order for a contract to be at all binding.

? Paying a fee buys attention and focus. Anything offered for ¡®free¡¯ will have a bias in order to gain the giver revenue in the long run. Commission-based models epitomise this greatly. How can a ¡®free¡¯ service offer impartiality and help you reduce cost if the giver of service has a financial incentive to make you spend more?

In short, in business as in life, anything offered ¡®free¡¯ will have catches. Buyers should really be aware of which of the above applies and take mitigating action to remove the risks of failure.

Buyers value value

Back to procurement, and the fact that ultimately what we value most is value itself ¨C the ability to pay a fair price for a product or service received and for that product or service to be at least as good as what we expected and for it to deliver a demonstrable return on investment.?

That means value of course, enabled by transparency, visibility, understanding total cost of ownership (through understanding ¡®should cost¡¯ or examining the feedstock to the product or service), category management and overall trust.

Let¡¯s consider the buyer/TMC relationship. As we all know, if we wind the clock back twenty years or so there was plenty of ¡®free¡¯, but buyers knew that it was funded by commission and despite appearing to work on behalf of the buyers, TMCs earned more income the higher the ticket cost.? Things may have been free, but buyers knew perfectly well where the income was coming from and that any advice or guidance contained a natural bias as a result.

Fast forward to today and I challenge all but the most experienced travel buyers to truly understand the flow of money into and out of their TMC relationship. To say the money flows are opaque would be somewhat of an understatement.

As buyers we are, of course, somewhat complicit in this situation by using procurement tactics to drive down the cost of TMC services to a rate which is completely unsustainable to run their operation, so can we really blame them for needing income elsewhere?

So next time you are offered something for free, ask yourself¡­

? Has it been subsidised from elsewhere?

? Will it result in any advice of guidance carrying a bias and as a result carry less value?

? Is free giving you less visibility and would paying to receive greater visibility in reality be a better option during the life of the contract?

In short, suppliers get the buyers they deserve, and if both buyers and suppliers are more honest and realistic about the cost of things, and buyers are a little bit more open to hearing this, the buying process will be a much better place indeed. And products and services can be assessed not on price (whether hidden or otherwise), but on value and return on investment. And that must be good for everyone.