What is hotel rate parity?

Everything you need to know for successful revenue management at your hotel.

With so many factors impacting revenue management, the key is understanding how you can optimise and leverage them.

What is hotel rate parity?

Rate parity is the practice of maintaining consistent rates across all distribution channels.

If the quoted price on hotels’ own websites is the same as the price shown by OTAs and other third-party channels then there is rate parity.

If the quoted price on hotels’ own websites is higher or lower than the price shown by OTAs and other third-party channels then there is disparity.

The two main sources of disparity arise from:

  1. Contracted OTAs who have a direct relationship with hotels, and work together on a net merchant or commissionable model.
  2. Non-contracted OTAs/wholesalers who have no contractual obligations to hotels. When OTAs buy from wholesalers (or other OTAs), pricing is at their sole discretion.

The two basic problems of disparity:

  1. Disparity can damage your hotel’s brand reputation by presenting a confusing, inconsistent message to potential guests, which undermines their confidence that they’re getting good value for money.
  2. Being undercut by OTAs discourages direct bookings on Brand.com, which dents your profits by sending customers channels where the rate is lower, on top of which you have to pay commission.

A closer look at the problem

Why is parity important for the customer?

It creates consistency for customers and ensures they don’t get confused by seeing the same room for different prices on different channels.

Why is parity important for hotels?

Every distribution channel (except brand.com) has a cost of acquisition/commission cost (e.g. booking made via Booking.com = hotel needs to pay booking.com 15-18% commission; Booking made via Expedia = hotel needs to pay Expedia 20-25% commission).

So parity for the customer is clear and they see the same rate everywhere, but for the hotel, the net revenue is different (booking via Expedia is more expensive than booking via their own website).

This has a big impact on revenue and profitability, given the high proportion of non-direct bookings.

Why are distribution channels important for hotels?

Distribution gives a hotel global visibility. If you are a hotelier you will only have a marketing budget to focus on a couple of markets, and the reality today is that most people book via an OTA (e.g. Booking.com and Expedia) or meta-site (such as Trivago, Tripadvisor and Hotelscombined).

Hotels want to be available on those channels, so they can be seen and potentially booked by consumers who are going on a trip. Being available on online distribution channels helps hotels to be successful and gain market share.

What is important for hotels when looking at parity?

It is important to have the right business and market mix. Hoteliers need to find the right balance between OTA business and direct business. If 85% of bookings are coming via one OTA, what happens if that OTA suddenly doubles commission?

Some channels bring mainly international business (Ctrip = China; Agoda = Asia; Makemytrip = India; HRS = Germany; Bestday= Latin America). This can be good as international business usually has a longer length of stay. To attract these customers it is important to know which channels are strong in specific markets and gain market share in that region.

Why is there so much discussion about parity?

In the last year, there has been a huge shift in online business from hotel websites to OTAs, which has increased the cost of acquisition significantly for hotels. It also makes them a lot more dependent on OTAs.

With hotels competing with OTAs to win customers, they have moved towards adding value if the customer books direct (If you book direct with Hilton you get free Wi-Fi, book via an OTA and Wi-Fi is $15 per night).

OTAs, of course, do not want to lose their customers and are also adding value and implementing new initiatives to keep customers with them (loyalty programs like booking genius etc. started with Booking basics and getting rates from wholesalers to ensure they have lower rates than hotel websites).

Parity is a global issue, evidenced by the variety of stances taken in different countries.

The UK: Starting on 1st September, hotel booking platforms must drop any misleading practices, such as pressure selling, discount claims, and hidden charges. This means that booking platforms can no longer give a false impression of scarcity, offer misleading discounts (such as comparing the price of a luxury suite with a standard room), or bury compulsory fees deep in the booking process. These platforms must also make it clear how hotels are ranked after a customer has entered their search requirement by, for example, telling people when results have been influenced by hotel commission payouts.

France: France was one of the first countries to ban restrictive rate parity clauses back in 2015. Championed by Emmanuel Macron, at the time Minister of Economy, the law allows the hotelier “to consent to any customer discounts or pricing advantage of any kind whatsoever.” In essence, hotels can price their rooms however they want on whichever channel they prefer - except on their own channels, which must match the OTA price. This is “narrow parity.”

Spain: Despite efforts elsewhere, narrow parity clauses can still be enforced in Spain. The country never participated directly in active investigations on rate parity clauses. This wait-and-see approach nonetheless benefitted the country once parity clauses fell in countries like Italy, France (see above), Austria, and Belgium: one piece of research analysis (PDF)determined that banning MFN clauses resulted in lower hotel room costs in Italy, France, and Spain.

Sweden: In mid-2018, a Swedish court ordered Booking.com to drop all parity clauses from its contracts, ruling such clauses in violation of EU competition law. OTAs responded with attempts to limit parity to only between OTAs and a hotel’s direct channel, or “narrow parity.” The courts struck down these contractual restrictions as well.

Germany: Germany joined France in limiting broad rate parity clauses. However, it wasn't until early 2016 that the country also prohibited “narrow parity,” or contractual restrictions the required hotels to price rooms at the same rates on both direct channels and OTA. It's total control over channel pricing strategy.

Australia: Recent developments in Australia point to a likely ban on rate parity clauses. As one legislator told the media about the OTA duopoly, “They’re gauging local hotel owners”. While there hasn't been any action yet, Expedia has already announced that it will no longer enforce any narrow parity restrictions.

As these countries welcome a new era of rate parity, hotels must evolve their own techniques in this brave new world.

What role does OTA insight play in rate parity?

 

OTA Insight helps hoteliers by providing tools to show when they are being undercut on OTAs and meta-sites. This is fundamental to effective revenue management, as it helps increase RevPAR.

Our data and easy reporting help hoteliers spot issues and make steps to resolving them and stemming further revenue loss. This helps them keep control over rates across different channels and manage distribution the right way.
Every day or even several times per day, rates are being updated or changed, so it is time-consuming to check this manually. OTA Insight automates the process via cutting-edge technology, with only a couple of clicks, allowing users to see in real-time the pricing situation on different channels. This is done through a live shop.

How do I start taking action on rate parity?

Parity doesn’t have to be a constant problem. In setting up an action plan you can take more control. Consider the following:

  1. Familiarise yourself with the issue - survey the current distribution landscape and understand the relationship between OTAs and hotels.
  2. Select the right tools to take action - research which tools will be the most effective in analysing your data and helping you track revenue loss.
  3. Interpret the data - learn how to process your data and determine the root cause.
  4. Define your escalation process - consider implementing a system to deal with parity offenders that acknowledges the size of the violation.
  5. Build your case and contact offending parties - isolate the data that proves your case, and have a process for contacting those causing disparity that is simple and effective.
  6. Review your partnership strategy - look at your partnerships and contracts moving forward and examine if they are providing value.

Find out how OTA Insight's data solutions can help maximise your revenue.