Pricing in a Global Market Strategies for Value

Pricing in a Global Market Strategies for Value, Pricing and Commission, and Navigating Currency Risks Philippe Willi // Trekk. Soft Ltd. Jon Fauver // Trekk. Soft Ltd. #ATWS-hashtag

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

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

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

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

Concrete Example European 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 - 3 th party expenses - Commissions = CONTRIBUTION MARGIN 1 *COGS= Cost of Goods Sold

Concrete Example 2 European 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

Concrete Example 3 European 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

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. )

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

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

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.

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.

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

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 contribution margins. 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. Activity Provider GOAL: Contribution Margin 1 > 65 % Tour Operator GOAL: Contribution Margin 1 > 25 %

River Rafting Contribution Margin §Rafting: - 60. 56 % to 45. 65 % (fix costs and „jumping“ contribution margins)

Canyoning Contribution Margin §Canyoning: 37. 63 % to 63. 66 %

Ropes Course Contribution Margin §Ropes Course: - 332. 85 % to 47. 09% (very high fix costs)

Night Sledding Contribution Margin Night Sledding: 17. 08 % to 38. 74 %

Guided Bus tour Florence to Interlaken Guided Bus tour Florence 2 Interlaken, 31. 91 %

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.

Feedback Session 1 1) How do you calculate your contribution margins? 2) How do you decide if a trip generates a value (lucrative) for you or not? 3) What is your goal as a contribution margin 1? (25 %, 50 % or 75%)

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

Bookings, Bookings Direct Lcoal Sales § Usually Late bookings §Customer pays cash or by other systems. § No Commission § Possible CC fees Agent § Customer pays agent. § Commission for agent (can be defined) § Limited control of booking Own Online shop § Early Reservation § Confirmed booking § Customer pays by CC § Booking engine & CC fees.

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

Define Your Average Basket Total Earnings NET (Trips, Tours) Total Passengers Average Basket Total Commision Paid Out or other Marketing Costs Average Basket Average Acquisition Cost / Customer 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

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

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

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

Group Buying Sites Groupon & 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.

Direct Online Bookings & Accepting Payments Online § Pay. Pal § 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.

How Online Payments Work VISA / Mastercard / American Express / Country specific payment options BOOKING ENGINE Credit card acquirer, commission on every credit card transaction 0. 1 to 0. 3 USD Payment Service Provider (PSP), fixed amount per transaction and monthly fix costs YOU Stripe. com 2. 9 % + 30 cents 2. 9% + 30 cents No CC contract Pay. Pal Own CC contract 1. 2 % to 3 %

Problem with Stripe, Pay. Pal etc. § Often limited by country & currency restrictions. Have a look at www. paypal. com/worldwide

Online/Offline Payments * Online / Mobile = 23. 60 % Offline (POS/ over the counter/Telephone) = 76. 40 % * www. trekksoft. com // dynamic Graph out of over 300 000 PAX bookings Fast increasing!! Most bookings are still offline

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

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

Online Payments Overview External payment gateway Integrated payment gateway Low commission (5– 10%) High commission (15– 40% or extremely high initial costs) * Point of sales of tour operators * payouts based on transaction date, not trip date Agents / Travel companies Review platforms (Tourradar, Trip. Advisor, etc. ) * Pay. Out based on credit card turnover date

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

Intuitive booking engine Trekk. Soft Ltd. | Company Presentation 39

Integrated Social Media

Powerful Admin Tools

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.

Case Study: Trekk. Soft § Total online bookings since 2010 § § CHF 8. 5 m turnover 300 k passengers 2012 CHF 5. 2 m turnover 200 k passengers 70 T&A operators 2013 CHF 10 m turnover 400 k passengers 170 T&A operators

Pricing Trekk. Soft § 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

Summary Trekk. Soft Website Customizable website with integrated CMS Online booking solution Simple booking engine for online, mobile and offline bookings worldwide Payment gateway Integrated payment gateway (no set-up or fix costs, no PSP or CC contracts necessary) Functionality Advanced features for bigger tour operators like: tour mgmt. , trips and capacity mgmt. incl. yieldmgmt. prices

Who’s Using Trekk. Soft?

Feedback Session 2 1) How do you decide if a advertising platform ir CPC/CPM campaign makes sense? Do you calculate an acquisition cost per costumer and how? 2) How do you reach your costumers? Online or Offline. Which online which platforms do you use? 3) How much commission are you willing to pay to your Agents or Online Booking Engine?

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

Accepting different currencies EUR USD AUD YOU INR GBP CHF CAD

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

Problem 1: Operator accepts Forex and bears the risk of exchange. Pays in EUR Pays in CHF Supplier costs (CHF) § Make a few large exchanges instead of lots of small ones. § Use an intermediary to get better currency rates (www. wechselstube. ch) Convert Money Costumer (EUR) YOU (CHF)

Problem 1: Operator Currency Exchange Savings of CHF 6, 064. 88 / USD 6, 423. 30 in 2012

Problem 1: Operator Currency Exchange Instead of making a lot of small transactions Bus 2 alps made a few large ones and received better currency exchange rates.

Problem 1: Operator Currency Exchange § Check out www. wechselstube. ch for more info or look for another intermediary in your country – using intermediaries instead of banks saves money. § Make a yearly plan how much money you will need to convert and AVOID small conversions.

Problem 2: Guest Currency Exchange Pays in CHF YOU (CHF) Pays in CHF Supplier costs (CHF) = convert money § Depending on your currency, forcing your customer to convert their money moves the risk from you to them. However, you run the risk of becoming too expensive and pricing yourself out of the market. Besides optimizing costs, contribution margins and prices you can`t do anything about this problem. Too Expensive Costumer (EUR)

Feedback Session 3 1) What is your experience with currency risks? 2) How do you minimize your currency risks and optimize your. 3) In the global market there are winners and losers in the currency game? Which group do you belong to?

Thank you for your time! Safe Travels Philippe Willi // Trekk. Soft Ltd. Philippe@trekksoft. com Jon Fauver // Trekk. Soft Ltd. Jon@trekksoft. com