Rate disparity is an ongoing challenge for revenue managers. Not only do you have to monitor quoted prices on your other distribution channels, but legislation varies from one country to the next - and advances in technology have increased the number of distribution channels and interlinked chains, each with their own levels of markup.
However, rate parity must be a focus for today’s revenue managers if they want to be profitable. Here are three questions you must know the answers to if you want to achieve parity.
Why is maintaining parity so important?
So it’s no wonder that the industry has seen a rise in campaigns designed to encourage direct bookings and offset the reliance on online travel agents (OTAs) and wholesalers. But hoteliers are reluctant to fully sever ties with OTAs, as they remain an essential part of the mix for most hotels.
What causes disparity?
Our research and general industry observations indicate that there are two principal causes of disparity: issues arising from the direct, contractual relationships hotels have with major (or contracted OTAs) and those for which there’s at least one intermediary between the hotels and non-major OTAs.
Relationships with contracted OTAs
The problems with contracted OTAs are often technical in origin, and the financial loss or potential loss to hotels is significant but comparatively small. They can arise from “stale” cached data fed into external systems, tax miscalculations or other technical inconsistencies.
A further, related cause derives from the practice of a contracted OTA’s market manager approaching a property-level manager of a chain hotel or franchise to persuade them to reduce their rates as part of a promotion designed to fuel business.
Not only is this often against the hotel group’s policy, hotel managers will reflect these reduced rate changes through their channel manager tool, which feeds the OTA. But those prices often don’t feed through to the group’s central pricing system, causing disparity between the brand.com price and the OTA.
Relationships with non-contracted OTAs, through wholesalers
With non-major and non-contracted OTAs, the financial size of the problem per OTA is on average much higher, and they have no contractual obligations to hotels. Rather, their relationship is with a wholesaler, who provides them directly or via another non-contracted OTA with an opportunity to sell rooms at prices marked up at the non-contracted OTA’s sole discretion.
Note that wholesalers don’t usually buy inventory outright, so rooms remain listed on brand.com sites. Instead, they negotiate heavily discounted purchase rates for any they manage to sell, with the understanding that they’ll create extra demand and sell a substantial quantity, either through packages, or to OTAs at a markup of their choosing. OTA collaboration represents a growing and already sizeable part of wholesaler business.
What can you do to tackle disparity?
Dealings with both types of OTA are increasingly prompting revenue and distribution managers to refine their strategy across direct and third-party channels, and to review intermediary pricing and non-contractual distribution arrangements or rates that ultimately lead to disparity.
Here’s what you can do:
Review contractual agreements.
Addressing problems with contracted OTAs should be relatively straightforward if handled sensitively. But, given the contractual requirements around wholesaler relationships, and that there are no contracts between hotels and non-major OTAs, wholesaler-related parity is more of a challenge.
Work dynamically with wholesalers.
Working dynamically with wholesalers reduces the difference between the revenue-managed best available rate (BAR) and the net rate the distributor buys the room for. It also allows you to grow your average daily rate (ADR) with the wholesaler in line with your general distribution strategy. BAR pricing and no allocation also allows you to have operational control of the channel should issues come up.
Approach offenders directly.
Approach the wholesaler or non-contracted OTAs and look for diplomatic ways of persuading them they're displaying their hotel’s branding or messaging wrongly, or they’ll try to persuade the wholesaler to sell more inventory that isn't sold publicly.
Utilise effective parity-management tools.
Using real-time technology solutions like Parity Insight will help you discover and solve parity issues across your portfolio. The highly-intuitive platform tracks your parity performance on OTAs and metasearch and automates fixing parity issues.
Want to learn more about parity? Watch our webinar, The real rate parity problem no one is talking about.