Q&A with Inderpreet Banga, part 2: the challenges and opportunities of rate parity

This article is the second of a two-part interview series exploring the challenges and opportunities of rate parity with Wyndham's Vice President, Channel & Distribution Strategy, Inderpreet Banga.

Disparity continues to affect hotels broadly. According to our hotel parity report for the first quarter of 2018, data analysis showed that independent hotels and local chains were out of parity 48% of the time. For major chains, the figure was 25%.

In the continuation of our earlier conversation on rate parity with Inderpreet, we explore technology’s role in rate parity efforts and specific strategies for hotels when it comes to identifying disparity, as well as how a hotel’s distribution contracts influence rate parity success.

How should hoteliers approach contracts with OTAs, wholesalers and other channel partners?

“Contracts are so important nowadays, especially in a newly connected world, that we typically have not been as connected as we have been ever in the history of the hospitality industry. Both brands as well as independent hotels need to take a step back and say, ‘what am I using this partner for and where do they need to play?’ Then create ‘sandboxes’ of where you want the inventory to be sold or where you want to be competitive with that partner.

“As it pertains to the major OTAs, they're so big now at this point that they can pretty much create any API with anybody in any part of the industry - whether it's GDS, whether it's TMC, consortia, corporate - that it's eroding some of the relationships that there might be directly. From a contractual perspective, the conversation really needs to be around: Who are you? What are you providing to me in terms of value? And let's work together to be more competitive in a certain part of the space - and really making that as extremely clear as possible.

“Last but not least, accountability is such a huge piece. I think penalties are huge; many big brands have implemented penalties, which is so important. If you find something as you're doing test bookings on these property-level agreements, then you should be compensated for when a partner violates whatever you have agreed to in your contracts.”

Are there different ways to structure a deal to benefit the hotel versus the channel itself - such as incentives to hit certain targets for rooms sold on a per-channel basis?

“There's definitely an opportunity to be competitive with any partner that you work with. We're getting to a new level of complexity in the hospitality industry in terms of personalisation, which has been such a big buzzword for the last however many years. Nobody's really been able to tackle it. You have demographic and audience targeting, which I think is going to be huge. There might be opportunity there, where you offer a metasearch, something where you're trying to encourage behaviour.

“But from a rate parity perspective, if you're going to be offering that rate you might as well keep that rate consistent across the board. You don't want to turn off a potential consumer that will see that your rate is so much lower on Brand.com and wonder why the other rate is so high or all over the place.

“So I think we're going to get to that level of personalisation where maybe at seven days out I might have one rate for a specific corporate client because I know they're going to book that rate seven days out, or I'm trying to encourage that behaviour. That could be very segment- or channel-specific in terms of inventory: maybe I only offer Kings during that time or Double Queens if I have an ample amount of Double Queens left.

“It's still extremely important to focus on the basics: if you're going to be giving a discount, be consistent. We are in this new age of complexity and connectivity; these rates and inventory are going to be found on different channels whether people like it or not. You have to be very mindful in your contracting - and even your rate shopping across the various platforms to not only look online, but where their affiliates are going to be getting those rates as well.”

What role does the technology play in that?

“That's the million-dollar question. The technology still isn't there. I can answer this in two parts. From the personalisation aspect, the technology is still not completely ready. It's still being tested on the personalisation piece, so we’re not quite where we need to be on personalising rates more effectively.

“That’s why rate shopping and tracking where those rates are being fed is extremely crucial. OTA Insight has seen so much growth over the last couple of years and the team has done an amazing job of growing the organisation because this is really a huge issue for the industry. It eventually hurts the industry because the hoteliers are the ones that feel the brunt of it. The intermediary is still going to get the commission, the margin.

“But if you look at the Kalibri Labs data, hoteliers lose just a little bit more money each year due to higher intermediary costs. At the end of the day, you might lose some hoteliers because they keep on losing money every year and more and more business continues to go to areas where they may not want it to go. And I think that's where the direct booking initiatives are so important.”

As far as budgets, when you're allocating money to distribute inventory, what would you approximate is a good percentage to give towards your technology versus your marketing? What is a good blend?

“It really depends on how many partners you work with. If you don't work with a lot of partners then your rate parity should be pretty good. It really depends on the size of your property. There are certain providers that provide rate parity reports, sometimes at no cost. But if you're doing a good amount of revenue, if you have a good number of partners that you're working with, it definitely makes sense to budget accordingly.

“To remain competitive, look at how many partners you have to find the impact of your rate parity. You can do some simple math: if my rate parity goes from 40% to 20%, and I get X number of direct bookings, then that difference potentially could be applied to my technology partner cost.

“There are times where OTAs make sense [as tech partners] because you don't have certain language capabilities or you don't have certain payment capabilities and they do that extremely well. But if that's something that you need to design for, or you want to capitalise on, then you need to put the investment in. Hoteliers pay so much to OTAs… Well, if you're paying them $100,000, take $10,000 out of that. Don't give them a better rate, so you're saving some commission and then put that $10,000 towards improving your website, improving your content, getting a partner that is able to help you with rate parity. Eventually that's going to drive more direct bookings than what you’ve ever seen before.”

Comparing yourself to other similarly sized chains, how do others deal with rate parity? Do you have any thoughts on what they could be doing better or that you could do better?

“It's definitely an opportunity for the entire industry. A couple of big brands have really made huge strides in rate parity. They are the beacon for the rest of the industry. Whether independent or big brand, there's always an opportunity to make sure that they focus on rate parity.

“Revenue management has many levers but mainly around rate or occupancy. At the same time, their goal is rate parity, but because a contract might be with the director of sales, they don't really say anything. So there might be like a political conflict. Hoteliers need to take a step back and ask what's really important to their business.

“There's a partnership between directors of sales and revenue management; they have to see eye-to-eye in saying that this partner is selling my inventory and undercutting our revenue management strategy; I don't think we should be working with those guys, or we should have some penalty clauses. It's extremely important for individual hotels as well as big brands to really find accountability and ensure that the partners are working in the ways that the hotel or brand wants them to be working in.”

When it comes the proliferation of channels, metasearch providers, wholesalers, do you think it's getting easier or harder to make rate parity a priority and successfully manage it?

“It's definitely becoming easier with the tools that are out there. OTA Insight does an amazing job of being able to track all of that, as well as some of the other providers. I think it's going to get harder because of the way that technology has advanced. We've seen some partners do specific rates at 11am to 12pm, and then have a different rate out there after 12 o'clock. So the the technology on the rate parity needs to constantly evolve, especially as the technology allows certain personalisation of rates to evolve as well.”

If you're planning on personalising rates, rate parity becomes quite challenging, doesn't it? Like if I see a rate different from one of my friend sees for the same trip, right?

“You really have to qualify: is that something that you are willing to do, and if you do that then most likely your competitors, like the OTAs, may do the same thing whether you like it or not. It comes back to the Ts and Cs of the contract - the hotelier has control over the inventory.

“You're seeing all this consolidation both sides; the OTAs have gotten so big, they hold a lot of the power. But I think you're going to see a lot of consolidation in terms of partnerships, in terms of alliances, in terms of mergers and acquisitions. What it comes down to is control of the inventory.

“All your distributors are marketing companies, so they don't really have their own inventory. Now, Ctrip is a different example because they just created their own hotel brand, Rezen Hotel Group. That's why you're going to kind of see a little bit of a conflict.

“The direct book wars are going to escalate in the next three to five years. For those groups that have a really strong control over their inventory, they'll still be able to work together with distributors as long as they work on their terms.”

Do you think it's any harder for large brands to manage rate parity, because of sheer scale, or are there some advantages to being smaller?

“I don't think there's really an advantage on either side. Being part of a bigger brand, you don't necessarily have the resources to educate every single one of the properties. I think it's probably a disadvantage actually. But from an individual hotelier perspective, you have a smaller team so maybe that could be an advantage.

“It all depends on what the mindset is in the organisation. Is rate parity a KPI? Have the brands done a good job of educating properties and holding properties accountable if they're violating rate parity, or working with certain partners that are violating rate parity - because it ultimately decreases your brand proposition if you know that XYZ brand is always undercutting because these certain hotels are working directly with certain partners. Then that hotel should be held accountable because they're reflecting poorly on on the brand.

“Vice versa, from a brand perspective, there are advantages because we're a little bit closer to what's happening in the industry, what's happening in the market, where these rates are being found, making sure these are all these are in the Ts and Cs of our agreements. And then, purchasing the tools because we have a little bit more money or would like to believe that we have more money, to be able to purchase this. And then, on our hotels' behalf, do these rates shops or look at all the rate shops across the entire landscape, for our entire portfolio.

“It really depends on the teams at the brands or the teams at the hotel and what the mindset is. If rate parity isn't a KPI, then obviously whoever does make it a priority, will win more direct share and ultimately win the game that we all play.”

Final question: Can you summarise why, ultimately, rate parity matters?

“Rate parity is profitability. That’s what it comes down to. Rate parity means everything to the hotel because you want to be selling the right room at the right price at the right time to the right consumer. If that's not aligned with your strategy then obviously you will be leaving money on the table and losing profitability.”

We've compiled some of Inderpreet's views from our conversation with him, alongside those of Cycas's Jennifer Kim, into a themed eBook, Conversations on rate parity: an exclusive eBook from OTA Insight. Including an extensive introduction and key takeaways for each chapter, the eBook explores the challenges - and opportunities - of parity.