Hotel rate parity is essential in the hospitality industry because it gives customers price transparency and ensures they see the same price for the same room across all channels. While this is excellent news for consumers because they will get the same rate no matter where they book, hotels should remember that rate parity significantly impacts revenue and profitability. Because the cost of acquisition divided by the commission cost varies greatly depending on the distribution channel, net revenue varies.
What is rate parity?
Hotel rate parity is a policy that ensures that hotel rates are consistent across all distribution channels, including their direct channels. Hotels are frequently required by OTAs (Online Travel Aggregator) to offer the same rates across all booking platforms to prevent them from providing discounts, which would drive business away from the OTA.
Importance of price parity
Hotel rate parity is critical for hoteliers and travellers. A hotel’s reputation can suffer if it’s inconsistent across distribution channels. Potential guests cannot determine value. If an OTA offers the same rooms at a lower price than the hotel’s official website, travellers are likelier to book through that OTA. However, the hotel will lose money because the commission must be paid.
Best price parity strategies for hotels
Make a plan of action
Ascertain that you have a strategy to mitigate the effects of lost revenue on the rate parity model. Understand your current distribution landscape and how you can use various channels to achieve each goal.
Make use of and interpret the data
Track lost revenue with revenue management software and analyse the data to see where your opportunity lies to continue refining your market mix and ensure you have a strategy to compensate for that lost revenue.
Streamline the direct booking process
You are less likely to lose traffic if you have a streamlined direct booking process. Users often leave your website if they cannot find what they want. Therefore, having an optimised user experience, a secure and simple booking process, and a hotel booking engine on your website is critical. This ensures that you get as many direct bookings as possible.
Make use of metasearch engines
Metasearch sites are an excellent way to reduce OTA commissions because they frequently offer instant booking models with lower commissions than OTAs. They also allow you to use the pay-per-click bidding model, which will help you appear higher in the search results. The greater your visibility on metasearch engines, the more likely you will benefit from direct bookings.
Tips to win rate parity game
To win the rate parity game hoteliers should capitalise on their service provider position to win the rate parity game. In addition, hotels require a long-term online distribution strategy. Distribution and price parity tools enable hotels to be flexible and market-responsive while avoiding situations in which some channels have an undesirable, undercut the price.
You can also use the following points to increase revenue using the proper practices using rate parity.
- Instead of lowering your prices, provide more value than OTAs.
- Have solid contracts in place with OTAs and wholesalers.
- Create a loyalty programme and provide exclusive discounts to new and returning customers.
- Make your booking process as simple as possible. Remove unnecessary steps and make sure there are no fractions. Concentrate on improving website conversion rates.
- Contract directly with more OTAs, so they don’t try to sell your inventory to a wholesaler, and you retain complete control over your online rates.
- Consider technology; OTA control and disparity alert tools simplify detecting discrepancies across the web.
- Choose a channel manager who works well with your PMS and Booking Engine.
The channel manager should be connected to various distribution channels, so you don’t have to log in to multiple sites to update your room rates. This will save you time and assist you in avoiding technical errors.
What are the pros and cons of hotel rate parity?
While for the consumer, rate parity is useful as it provides transparency and makes the rate for the same hotel room universal across platforms, for hotels it makes it more difficult to attract direct bookings. Hotels are often obligated to work with OTAs in order to increase visibility and take advantage of their sizable advertising budgets, and this comes with a cost in the form of high commission rates. Furthermore, there is nothing stopping the OTA from raising commission rates and earning more while the hotel loses revenue.
At the same time, OTAs tend to have the last say, as they can also choose to take from their own commissions to offer the room at a lower price. Hotels, on the other hand, must inform them when they are running a promotional deal. Hotels in response can decide to exclude rooms from OTAs, but this can also be risky in the fact that those rooms may go unsold, especially for independent hotels.
As briefly mentioned above, due to the heavy reliance on OTAs, rate parity can have a big impact on revenue and profitability. Since every distribution channel has a cost associated with acquisition and commission, which can vary quite a lot from OTA to OTA, the net revenue as a result varies quite a lot. This is where having hotel revenue management software is so important in order to optimize your inventories and maximize your profits.
Hotel rate parity is important in the hospitality industry because it provides price transparency to consumers, and ensures that customers see the same price for the same room across all channels. While this is great news for consumers as they are assured the same rate no matter where they book, for hotels it’s important to keep in mind that rate parity greatly affects revenue and profitability. This is because the cost of acquisition divided by the commission cost changes greatly depending on the distribution channel, meaning that net revenue is different.
Rate parity is an agreement between a hotel and an OTA in which the hotel uses the same rate for the same room across all distribution channels. You can overcome these challenges by using platforms like RateGain to develop a strategy that defines your market and distribution mix, optimises direct booking channels, and favours metasearch sites over OTAs as much as possible.
