Sizing the financial impact of that Inventory Gap
Having no inventory available can and does every day account for millions of dollars in potential lost revenue opportunities for one travel provider or another. If you are not returning products then you can’t clinch the deal. Triometric has been working with many intermediaries, both big and small for some time. Our experience in this sector suggests that it is quite typical for more than 20% of searches to show zero availability with an even higher percentage to show low product availability or choice. This we call the inventory gap.
The following two charts taken from our Trio analytics platform system explains how we arrive at our assessment. Online travel distributors are not going to be able to respond with availability to every search received. The key question is: why is my availability only 80% and what can I do to increase it and thereby increase profitability?
Availability 20% down — revenue leakage
A closer look over a couple of days depicted in Graph A indicates the average level of availability over time, measured as responses returning at least one product per search. Whilst there are no dramatic dips in availability visible in this sample, the availability level shows an average of approximately 80% and there is some variance with peak levels around 90% and low points around 60%. The red region shows the times when no availability was returned at least once in every 4 requests.
Meanwhile Graph B gives the trend lines over the same period of searches and responses with availability. Dips in which the availability volume (red) line drops significantly away from the search volume (blue) line are the times when percentage availability levels drop. In this particular dataset there is quite a noticeable drop in availability levels during the peak trading part of each daily cycle.
Calculating the Loss
Using the 20% example mentioned above, the financial impact of zero availability alone can be assessed using the step-by-step flowchart calculation shown in the diagram below. The numbers used here are based on a ‘real’ example, but we recognise that for most intermediaries these numbers are quite modest in relation to their own volumes. The wholesaler identifies some 30 million searches over a single working week (5 days) and how the lack of availability can be said to have impacted the business in terms of revenue potential (being lost). A typical 6 million of “no availability responses” to search requests received translates into an annual revenue opportunity of potentially £7 million, had these requests been able to be responded to and converted into revenue. The basic numbers are representative so try exchanging some of the figures for your own business’ data!
Flowchart example showing how the annual cost of non-availability is calculated
Understanding the Causes
In practice, there are a significant number of reasons why requests can result in no availability responses. The chart below, which shows the frequency of the various types of errors, highlights just how dominant the lack of product (rooms) is and how it readily accounts for 75% of all XML level errors. For many online wholesalers this underlines a significant mismatch in inventory availability when compared to searches.