By definition, rate parity for hotels, is the practice of providing identical (equal) room pricing across all distribution channels.
Exercising integral control over the marketing mix, in particular, pricing, is becoming increasingly complicated for hotels within this fragmented marketplace.
Digital technology, in particular, has proliferated a ‘spaghetti junction’ of sales channels through which hotels are now able to feed target audiences instantly with available deals and offers. This agility increases sales volume.
Greater volume of business activity leads to a greater need of governance to protect brand reputation.
Brands suffer where corporate/business governance is slacked and presentation faces a mix-up.
Contradiction in the marketplace is easily done by hotels in a fast moving market.
Where customer savvy is on the rise, as avenues for researching more effective solutions to their problems exist on the internet, businesses must pay greater attention to keeping a tight ship with consistent communication.
Room Rate: Decision Making
- 1 Room Rate: Decision Making
- 2 Price Parity & ‘The Hotel vs. OTA’ Power Struggle
- 3 Online Booking: Do-It-Yourself or Get The Professionals In?
- 4 Getting Things The Right Way Around
- 5 “My Ball!”
- 6 The Larger They Come…
- 7 Rate Parity & Integrity
- 8 Would OTAs Be As Attractive If Price Parity/Integrity Was The Standard?
- 9 Redressing The Balance
- 10 Quality Over Quantity
- 11 Our Thoughts On Rate Parity
Pricing, is one of the classic 4P’s of marketing management.
Price is a major indicator of value for any customer assessing the benefits of a business offering.
The setting of hotel room rates are an aspect of fine tuning which hoteliers keep under close control for the purpose of maintaining consistent profit margins.
Each sales channel has it’s own profile of cost efficiencies – some being more profitable than others.
Pricing disparity allows for a hotelier to choose different pricing across channels to the protection of profit.
Price (rate) parity is a policy by which the hotelier prioritises equalising pricing across the board. Keeping parameters consistent among audiences is given the priority, in turn making hotel profit varied across saleschannels, but simplifying the buying process for customers.
Price Parity & ‘The Hotel vs. OTA’ Power Struggle
In recent years, dictation of rates has become a key strategic territory in the battle between hotels and online travel agencies.
OTAs earn by spread, much like financial commodity brokers – earning the difference between ask (customer) and bid (vendor) price. By nature they will use leverage where possible to knock push up the ask and knock down the bid.
In the fightback by hotels to hold on to share of their own marketplace via direct bookings, many independent hotels and chains are offering guests significant price incentives, like ‘best available rate guarantees‘ via their proprietary channels, like their own website.
In the countermove by OTAs, many are now stipulating a price parity clause to stem off this route of attack by hotels.
Yet wherever you may stand on the topic, we ask the question: “Rate parity – is it really worth all the fuss?”
But before we get into the detail of whether the practice in itself is credible, we start with defining the relationship between a hotel and an online travel agency (OTA).
Hotels posses and sell hotel rooms. They are the market’s vendors.
When it comes to marketing and sales as a hotel, you can either:
- do it yourself (DIY), or;
- outsource to a 3rd party
“Why do hotels on average only re-invest as little as 6% of their business revenues back in direct bookings marketing strategy?”
Infographic Courtesy of Micrometrics
Online Booking: Do-It-Yourself or Get The Professionals In?
By DIY you avoid the service charge, whereas hiring professional help comes at a fee, of course.
Paying an upfront fee is to be expected when seeking the help of a consultant.
Whereas in contrast, brokers traditionally work on commission-only. A kind of no-win, no fee.
Brokers license the authority of their suppliers. They are feeders.
Getting Things The Right Way Around
The power in the relationship should always dwell with the supplier. They are the ones with the goods, after all.
Without suppliers, there are simply no brokers.
But, on the other hand, suppliers could always survive without brokers (…some would argue, even thrive). Therefore brokers are dependent upon suppliers and not the other way around.
To bring things back home to hospitality… simply exchange the terms ‘suppliers’ for hotels and ‘brokers’ for OTAs, and we’re back on track.
In a marketplace where there is a general inertia among suppliers to invest in shoring up their ownership of market share through self-initiated marketing strategy – brokers proliferate.
Rate parity therefore should be the least of worries, but rather market ownership.
Where suppliers drop the ball, shrewd operators pick-up both the pieces and the profits.
A fragmented marketplace which lacks fortified market share, is up for grabs.
Bankrolled OTAs don’t need an invitation to get involved.
Banks & investment consortia move in on sovereignty.
Banks have many faces.
Where they see owners of assets resting on their lees, they move with haste to strip value and gain spoil.
Online hotel industry news outlet, Skift, publishes the following warning relating to an increasingly concentrated hotel market due to the trade dominance of online travel agencies:
“This gives OTAs huge control over the marketing and online sales of hotels, and in their bargaining power with their ‘suppliers’.
If hotels – particularly small independent hotels – do not take the terms dictated by the OTAs they are effectively closed out of the online market.
If left unchecked, this will lead to an increasingly dysfunctional market for both visitor accommodation providers and consumers.”
The Larger They Come…
Bank-funded OTAs have ‘large-scale, investment readiness’ on their side to upscale their strategies.
When they emerge from the waters, towering over independent suppliers lauding their advantage, they instill fear into independent suppliers who have dwelt quite carelessly.
Giants can be quite persuasive if you let them.
If allowed to dictate, they’ll use their size to influence and further, to dominate, the relationship.
Rate parity is such an example.
Many OTAs under the guise of urging the customer-friendly practice of price integrity have included rate parity clauses within their small print with hotels.
This prevents hotels who use OTAs from offering price incentives/discounts to customers for booking directly.
Why should this matter?
The use of an OTA comes at additional ‘direct cost of sale’ to the hotel…in some cases commission is as high as 20% of sale price.
Hotels using an OTA lose considerable margin, but get immediate results.
Hotels which go direct, invest today for consistent gains in years to come.
Rate Parity & Integrity
In truth, the operational cost of supplying a hotel room to a customer doesn’t differ, whether it’s sold direct or via a broker/OTA,
‘…so why should a customer be penalised for a hotel’s choice to market their stock with a broker?‘
“…or, why should a customer purchasing a room via an OTA miss out on a value-added ‘package deal’ offered direct on the hotel website?”
This practice of diverse offerings by the same hotel only makes the perceived benefit of OTAs greater in the estimation of guests who seek comparative tools for making easier their market research for getting the best value.
Would OTAs Be As Attractive If Price Parity/Integrity Was The Standard?
If price integrity was standard practice, and rate parity (equal pricing) offered across the board – it begs the question… why then use an OTA at all?
Aside from this, we’re stuck for distinct commercial advantages over direct booking.
Long term profit-wise, however, there is just simply no contest.
Direct bookings ‘the world around’ is obviously the preferred sales channel of hoteliers.
Leonardo, digital solutions vendor to the hospitality industry, applies some substance to the matter of evaluating a net revenue balance between direct bookings vs. OTA bookings:
“How much does a 75-room hotel stand to save in OTA commissions, by redressing the balance in favour of direct bookings by only 20%?…”
Redressing The Balance
Whether OTAs are used by hotels for their ‘on-demand sales potential’, or not – they should by no means become a substitute for developing your own hotel direct bookings.
The job of a hotelier in these days no longer begins in the lobby, but rather starts from the first point of contact.
The anchor for this digitally should always be your own hotel website. Become digitally hospitable.
Investing in your hotel website as THE leading edge to your internet based sales function should be the standard. Anything less is inexcusable.
Quality Over Quantity
As with many other industries, hotels should find the quality of custom gained directly via their own business website leads to far more informed (immersed) purchase – granting stickier returns over the long term.
The ROI benefits will prove incomparable, but you’ll need patience and faithfulness to see it.
Our Thoughts On Rate Parity
Why should rate parity receive such inordinate attention?
Where dependence on 3rd party sales channels is high, the control mechanism of price becomes coveted.
Weed out the root of the issue.
Invest in your own proprietary direct booking sales channels as primary focus – then rate parity all of a sudden is less of an issue.
What are your thoughts? Feel free to join the discussion in comments below.