Rate parity can be defined in two ways. One, it can be defined as providing and maintaining consistent rates for a product for all distribution channels and to all distribution partners regardless of the commission that the online travel agency is making. What this means is that the hotel customers will find the services of the hotel consistently priced, regardless of where they are shopping for the services from.
The second way it can be defined is a legal agreement between a hotel and an Online Travel Agency (OTA) that seeks to provide and maintain consistent rates for services to all distribution partners. This means that the OTA will advertise your hotel for you but you will be required to do something for them in return. This among other things includes providing them with rate parity, which means that you will work with the price they charge without undercutting it. On the other hand, the OTA is not allowed to undersell the hotel that it’s in business with.
A vast majority of hotel marketers will tell you that rate parity is necessary to ensure that your distribution is successful. Well, in my opinion, that’s true and it makes sense but only for selected types of hotels and distribution channels. There are a variety of scenarios where using rate parity can bring losses to a hotel so it is not as straightforward as it sounds.
Here are some factors that hoteliers should consider that could also pose challenges when using rate parity.
The size and strength of the hotel brand are some very crucial factors to consider. How well is your hotel known? Do your potential customers know your hotel or are they just stumbling upon it by chance? Do your existing customers also know the strength of the brand of your hotel or are they hanging around until they’re swept away by a bigger brand? Hoteliers should make sure that they build the brand of the hotel since it gets harder for hotels that don’t have strong brands. If your hotel does not have a strong brand name, connecting with multiple OTA’s and offering rate parity may be a good way to go. For small hotels, however, it’s a tricky affair. You see, signing up with an OTA means that you’ll be required to pay them a commission on top of the lowest rates the hotel offers. This simply means the hotel`s revenue takes a cut, which wouldn’t have happened had they booked their customers directly. Most often than not, they will also be put under pressure to keep rates competitive compared to hotels in their compset, they will need to keep changing rates.
You can never have a hotel brand that is too big, so all hoteliers should work on things that improve the public perception of their hotel, whether they are contracted to an OTA or not. If you are, you could add some perks to your website, say like free breakfast, free parking, event tickets or even free Wi-Fi - things that you offer that are not being used by the OTA to advertise your hotel. You could also work on making the booking process on your website faster, better and smoother than that of the OTA so that in time potential and current customers will do their booking straight from your site rather than the OTA intermediary.
Erosion of Rate Parity Agreements
This one here mainly affects the OTAs. Many hoteliers are finding ways to go round the agreements they have made with OTAs. Most of them are not ready to give up the advantages they get from the OTAs marketing them, and at the same time gain control of the online rates. This makes them devise ways to do that without violating the original terms of agreement. Hoteliers use methods like excluding some room types from being placed on OTAs, on the other hand OTA’s are offering private rates for a select group of customers and offering member room rates which offer additional discounts on BAR rates. Hotels should take care when negotiating rate parity agreements, some things need to be specifically defined, such as what is commission % and if they differ for packages and room only rates, can OTA give additional discounts and member discounts, what constitutes a package for a specific hotel and ensure that there be no ambiguities regarding any exclusions from the agreement since this will just create loopholes.
Human Error and Lag Times
Since rates change constantly, it’s possible for them to have errors by the people handling them in this sense, there may be human errors where the people responsible take a while to restore parity. Some systems are automated and they update the changes as soon as they happen but sadly, delays are inevitable even for the best of systems. OTAs have their independent sync cycles meaning that hotel systems may experience 4-15 minute delays before parity is restored. Thankfully, there is a fix for this one and it comes in the form of rate shopping tools. These rate shopping tools are offered by most systems and they basically give warnings and reports in real time in case the rates change or do not escalate or drop when compared to online competition or based on room occupancy.
When to Avoid Rate Parity
As you ponder whether rate parity will be important for you, have in mind a few scenarios where it will not really be of benefit to you. One, if your hotel is small and cannot really afford to keep up with the extra commission costs and revenue cuts, it would be wise to steer clear of rate parity,. This is because hotels like these need the extra cash to help boost their growth further. If your hotel on the other hand is big enough and has a strong brand name, it does not make sense to go for rate parity since the hotel brand already does the trick for you, you may want to offer better pricing and packages to customers booking direct on brand.com website.
Something else that is worth noting is whether the market and customer segments you intend to reach normally use all the distribution channels you have offered your most competitive rates. Do not go for rate parity if your notice that your potential customers are likely to use one or two distribution channels only among list of 10 or more channels you have subscribed to globally. If you are small hotel, you may have exclusive contracts with certain OTA because OTA may be providing you with good bookings over other OTA’s and in return you may offer exclusive pricing to OTA to ensure you are ranked high and listed on front page and are part of OTA promotions. In this case the message passed may be that you do really value certain OTA business and they may in turn generate better share of opportunities for you.
Why Go For Rate Parity?
Rate parity may have its thorns but it has its roses as well. The single most obvious one is that OTAs are able to market your services and brand in regions you may not reach as a hotel on your own. They reach all sorts of customers and it really is a good marketing strategy for you at a very good cost for you so to speak. Rate parity brings about some structure in the hotel industry and protects the hoteliers from being undercut by OTAs.
Rate parity also helps hoteliers manage their pricing, since it ensures that all levels of distribution have the same pricing. It ensures that the brand has equity in markets that are not similar by ensuring that there is no market that has cheaper rates than others.
Since we are after customers, having rate parity goes a long way in increasing the confidence of the customer in the brand products and services. It also ensures that customers do not get loopholes, for example, if a customer fishes around a few distribution channels and finds one that has lower rates for your services than others, they will clearly opt for the cheaper option, but some will not even book with you if they find your pricing inconsistent.
In conclusion, rate parity is important for your hotel but you need to look into factors that will help you dictate how necessary it is for you to take it up so don’t just pick up on it because all other hoteliers have. Hoteliers also need to be well informed on how they select OTAs to avoid making losses. For example, if you get contracted to an OTA and your hotel doesn’t make their first or second page of the search results, your chances of getting increased booking through the OTA are cut down significantly and your chances of making losses on the other hand increase dramatically. Look carefully into OTAs before deciding on which ones to settle with to ensure that you drive an increment into your hotel revenue.