Your primer in rate parity management: a run-up to our on-demand webinar

Today's dynamic pricing technology makes it possible to monitor rates in real-time; the days are long gone when hotel room rates were static numbers re-visited quarterly.

This applies to optimising your revenue opportunities with reference to your competitors’ rates. But what about monitoring in the increasingly fraught realm of parity management?

Whether via spreadsheet or software, the struggle to intelligently manage rate parity across channels has become very real.

As a taster for our new on-demand parity webinar, we review the state of parity today, along with offering some tips on approaching rate parity strategically.

Parity: a brief overview

Historically, rate parity has been a contractual obligation between distribution channels and hotels. In recent years, government regulations and souring industry sentiment have made these clauses rarer. Across much of Europe, parity clauses are either banned or no longer used by online travel giants like Expedia and Booking.com.

This has changed the dynamic but third-party booking channels have maintained much of their dominance, thanks both to consumer habit and the shift towards metasearch.

Driven by a surge in metasearch, third-party channels have massive market share; this graphic appears in our eBook, Hotel rate parity: understanding and meeting the challenges

Now, rather than always being a contractual obligation, parity has to an extent become a competitive lever. As competition for customers intensifies, hoteliers can consider leveraging a lower rate to pull customers away from third-party channels into ones with lower customer acquisition costs. For hoteliers, this is one of the driving forces behind the push for booking direct. But they must weigh these activities up against the impact it might have on their OTA ranking and visibility.

OTAs spend a large amount of money to acquire customers but earn good commissions on each booking. This focus on the booking can encourage undercutting of best available rate (BAR) pricing. Even so, the cost of customer acquisition must be lower than any commission payouts for a booking to be profitable.

Wholesalers also complicate the picture. When acting as intermediaries between the hotels and non-major OTAs, these wholesalers can deftly manoeuvre pricing to their advantage - especially when selling individual, unpackaged rooms originally combined for discounted packages or tours. These rooms are often not priced recognising a dynamic BAR, so, when sold on to their OTAs, it’s hard for hotels to keep a lid on heavily discounted rates that affect a hotel’s reputation in consumers’ eyes.

It's within these nuances that rate parity matters most. Without a clear handle on which rooms and packages are offered at what price across all channels, profitably operating a hotel is nearly impossible.

How to approach rate parity strategically

Managing rate parity is an ongoing task. Rather than a race to the bottom as far as rates, we recommend a wise strategy powered by real-time data that delivers accurate insights that are easy to act on. Starting by setting your rates optimally, a strategic approach to rate parity includes the following:

• Set and monitor your rates, based on events, timing, trends, and the competition’s ever-changing prices and market demand, and respond accordingly.
• Keep reviewing and reporting on your pricing, which helps you price more effectively and evolve your pricing strategy.
• Choose your distribution channels wisely. Direct sales deliver the highest gross profit. But your net profit is impacted by the marketing costs associated with driving direct bookings. Balance the desire to pay fewer commissions with the realisation that acquiring direct customers costs money.
• Be more nuanced in how you sell to partners. In the traditional agency model, an OTA allows a guest to book through their site, and passes the details to your hotel. On checking out, the guest’s payment goes directly to your hotel, after which you pay the OTA commission. With the merchant model, an OTA receives inventory, is billed the discounted rate and is required to mark up the rate back to BAR. The guest pays the OTA when they book the room, with the OTA later paying the hotel at the time of the stay. Managing these models can help you sell more rooms at the highest possible price while still hitting your sales targets.
• Manage wholesaler relationships carefully. It's rarely advisable to keep your rooms off these channels but do take time to consider how much inventory to sell wholesalers. From a parity point of view, the trouble is that wholesalers often can’t control how their distribution partners distribute - but you can still monitor the landscape.

As you strategise, remember that parity is a primary lever to price competitively, plan your channel mix, and maintain consistency with consumers.

The future of rate parity

As parity clauses fade in popularity, new skills must be forged for the so-called post-parity era. Recent academic research suggests that this will be an ongoing education for us all.

Simon Schmid, in his Master’s thesis, Revenue management in a post-rate parity Europe, analysed 285 hotels in five different cities over five European countries to “evaluate whether different factors like the star category or the legal situation influence the level of parity within the hotels”.

Schmid’s results show that “the number of cases where hotels are in disparity is not primarily dependent on the legal situation but influenced by other variables like the destination of the hotel, the star category or whether a hotel offers a loyalty programme or a best-price-guarantee”.

The issue of parity is alive and well. In a fragmented omni-channel marketplace where complexity reigns and competition thrives, hoteliers will be rewarded for tackling the issue strategically and proactively.