One of the terms you might sometimes hear as a hotelier is “hotel rate parity.” You might not be sure what it means, though, or its importance as it relates to your hotel.
This is a concept that is worth talking about. In the following article, we will discuss what hotel rate parity means, and then we will talk about different kinds and examples. We will conclude by addressing some of the most prevalent hotel rate parity challenges that you are likely to face and how you can effectively combat them.
The term rate parity refers to the practice of keeping your hotel’s rates consistent across all of your distribution channels. This is meant to happen regardless of the commission you are paying to online travel agencies, often abbreviated as OTAs.
Another way to put it is that hotel rate parity is concerned with the rates that travelers are going to see when they look at one of the OTAs with which you have partnered. Are they the same as the ones these same potential guests would see if they visited your hotel’s website directly, even if you are making less of a profit through an OTA booking? Fundamentally, this is the question that you’re asking yourself if you look at your hotel’s rate parity.
When a hotel owner partners with an OTA, they usually sign an agreement with that entity to attempt to adhere to rate parity. When they do so, the hotel is agreeing to not intentionally undercut on their website the rate at which an OTA is offering the same room.
Hotel rate parity might not seem at first glance like it would be that significant of a concern, but it matters more than it may initially appear. That is because it potentially impacts factors like your overall profitability, revenue management, and pricing strategy as a whole.
There are some additional reasons why it matters, though, that you can consider to be even more vital.
Rate parity helps you in the area of revenue management. It allows you to maintain strict control over your hotel’s room pricing strategy. It also prevents potential revenue losses that might
happen through undercutting. It stops many price wars from breaking out.
You want to be able to promote trust and loyalty from your guests. This reduces the need for them to shop around on different booking platforms. If you’re using OTAs like Booking.com or Expedia, ideally, you want your room prices to be the same.
If you maintain the same room rates across all of the channels your hotel is using, that also means none of the OTAs that you’re using, or your website, for that matter, have a strategic advantage. OTAs are going to want that from you.
It will also help in the sense that you can more easily see which OTAs are bringing you the most sales. If you had different prices for the same rooms on various OTAs, it would almost be a foregone conclusion that the one offering a lower rate would bring in more customers.
Finally, if you institute hotel rate parity, you are ensuring that your guests receive a consistent price message. They will get that same rate regardless of where they book, so they will see that your brand has integrity.
Now, let’s turn to some different types of rate parity and look at specific examples of each one in action.
In a broad sense, when you start to look at rate parity, you should quickly be able to identify it as falling into one of two categories. Those would be wide and narrow rate parity.
Wide rate parity could be considered the more restrictive of those notions. In that instance, a hotel would agree not to undercut a room price that an OTA would charge for one of their hotel’s rooms in the same way we described above. This blanket agreement would apply to all channels. Those would include both the other OTAs with which the hotel saw fit to partner and also the hotel’s own website.
Let’s say a hotel that you own is charging a rate of $500 per night for a certain kind of high-end room on your website. If you are adhering to wide rate parity, you would be agreeing not to lower your rate beyond that. At the same time, the OTAs you selected to partner with have the same room available for $500 as well.
You are both following the agreement and wide rate parity is happening. By doing so, you should be able to maintain a good working relationship with the OTAs that are promoting your rooms.
The other kind is narrow rate parity. This is a concept that evolved from intervention by European regulatory bodies. The basic idea is that hotels can offer lower rates than OTAs, essentially breaking the hotel rate parity contract that was agreed upon. However, the hotel cannot do so publicly online.
In other words, the hotel can break the agreement, but only when it offers these lower rates for rooms via offline channels. It’s crucial to understand that various countries have different regulations that govern this sort of activity.
If you attempt to do this, and something goes awry, it can severely damage your hotel’s reputation, not to mention negatively impact its profits. That’s why, if trying to use narrow rate parity is something you were to ever attempt, you should have a good grasp on whether it is acceptable to do so in the region where your hotel is operating.
An example would be if the OTAs with which you’re partnering are offering a particular room for $500, the same as in the last example. However, this time, you’re offering that same room for $470 via an offline channel.
Now, let’s move on to what happens when hotel rate parity runs into unexpected issues.
As we’ve described it, you might think that maintaining rate parity would be a simple matter if you set out to have your rooms priced the same across all the channels you’re using, including all of your OTAs and your website. Complications may arise through no fault of your own, though.
A disparity in a room’s price might occur if you have a lower or higher price listed on your website and an OTA or a third-party channel quoted a potential guest a different one. This can happen when there are direct relationships between hotels and OTAs.
In such a case, you might have a commission-based model or a net merchant one. It might also happen if an OTAs does not have a contractual agreement with you, if they have pricing at their discretion, or they buy from wholesalers.
Most hotel operators consider this the cost of doing business. Still, rate parity can’t help but pose some additional challenges, especially for independent hotels.
OTAs have the option of cutting from their own commission in the interest of offering a lower price. It also follows that when more room bookings come from that OTA, a hotel will lose out on some of the revenue that’s coming in.
That is why so many hotels try to get more direct bookings whenever they can. It’s a way for them to bypass all of these headaches and to increase revenue share coming from bookings.
This can be a slippery slope, though. Even if a hotel is running a discounted promotion, for instance, they are still obliged to tell the OTAs with which they have partnered.
There are some hotels that even exclude rooms from OTAs.
One of the reasons why hotels partner with OTAs in the first place is because the larger and more prominent ones have popularity and visibility going for them. They typically represent a significant and logical marketing opportunity for your hotel if you partner with them.
While you probably don’t want to sever your relationship with OTAs because of how much money they can still bring in, you have to find ways to beat them on value without breaking the agreed-upon rate parity. With this in mind, let’s conclude by looking at some ways you might respond to hotel rate parity issues as a hotelier that don’t violate your agreement but can still highlight the value of booking with your website directly.
If direct bookings are your objective, then setting up and encouraging your guests to join a loyalty program is a proven winning strategy. If you're able to build long-term relationships with your guests, it is far more likely that they will be willing to do direct booking on your website. A loyalty program with some tempting incentives can be the key to making that happen.
If you have an online booking process that is as smooth as you can possibly make it, that will certainly be a step in the right direction when you’re trying to increase the number of your direct website bookings. If you can make it even easier than using an OTA, that is ideal.
If you have website design best practices set up, your potential customers should appreciate that. A seamless, convenient, secure process can keep them coming back.
If you’re not sure about website best practices, contact a freelancer or an agency that can optimize your site. Ask them if they’re familiar with the hotel industry and make sure they know all about creating the best onsite UX before retaining them.
Metasearch engines can be of use to you as well. They traditionally let you use a PPC bidding model if you’re trying to get your hotel to become more prominent when someone uses the appropriate search terms. This is how you can get travelers to click through to your site, where they'll hopefully book directly.
Now, though, there are also instant booking models that are based on commission. While you must pay that fee to use one, you will probably not pay as much as you would with an OTA.
You might also consider running some exclusive promotions to highly targeted audiences. If you have X or Facebook followers, tell them about perks they can enjoy when they book directly on your website.
You can also take advantage of an email list of previous customers that you have compiled. When they booked with you in the past, they presumably gave you their email addresses, which you should have retained.
Finally, you can attempt to beat what the OTAs are offering by giving your guests some free perks when they book directly with your site. You might give them free valet parking, event tickets, in-room snacks, or anything else that seems appropriate. While OTAs offer a dollar value, you may still be able to beat them with experiences tailored to guests that they appreciate just as much or even more.
Remember that while you should strive for hotel rate parity across both your website and OTAs, if rate disparity occurs through no fault of your own, it’s not the end of the world. It should also not be a reason for you to stop using OTAs entirely, since they can be so useful to hoteliers.
If you use the strategies we mentioned to try to get more guests to book directly with your website, you should do fine. While trying to maintain hotel rate parity is certainly something you should have in your mind, there is also no need to become fixated on it.
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