Rate Parity in Hotels: What is Rate Parity, What are its Challenges and How to Overcome Them
What is hotel rate parity?
Hotel parity rate is an unwritten understanding between all online channels that all hotels will sell their rooms at one common rate across all publicly available online channels. This will ensure there is no preference given to any specific channel or OTA towards reducing rates, thus maintaining standardization and uniformity in the online world. This is also beneficial for customers because the customer is not confused about which online channel to book from to get the cheapest rate, and hence focuses more on user-friendly channels for hotel booking. This is also beneficial for hotels because it maintains even distribution of business across all channels and does not give abnormal power to any specific channel.
What are the hotel rate parity challenges?
While parity rate is a noble concept, in theory, it hardly is practiced in reality.
There is cut-throat competition among the OTAs, especially in this hyper funding environment with high growth necessary for high valuations
OTAs understand that the only way to increase their market share is by giving customers higher discounts.
Hence, they resort to under-cutting rates (vis-à-vis) other channels, sometimes even funding those discounts from their own coffers.
Pricing has become very opaque and confusing because OTAs discount rates upfront, then add ‘service fees’ at the end of checkout, to make up for that discount, thereby creating an illusion to the customer that their rates are lower than other channels.
Many of these discounts are NOT approved by the hotels and are done without the agreement of parties because OTAs command bargaining power with hotels and also technological expertise to implement these discounts, which cannot be easily countered by the hotels.
Many of these discounts are offered in metasearch platforms (like Google), which the hotel has NO control over, and hence most of the time, the hotels cannot do anything to counter/stop these discounts given to customers. Many of them eventually get funded by the hotels unwillingly.
While this is detrimental to profits of the OTAs, currently, the OTAs are looking for hyper-growth and market share. Hence what they lose out in profits, they make up for in valuations (due to high market share).
How to tackle these challenges?
Here are top 3 ways you can overcome rate disparity issues
Focus on increasing direct business to the hotel
Increasing direct bookings is better because it helps reduce the cost of OTA intermediation. You can attract direct bookings by
Optimizing your website
Your website plays a crucial role in increasing direct bookings. Ensure that your hotel business has a strong digital identity to attract maximum visitors. Make your hotel website user-friendly, visually attractive, and easy to navigate.
Incorporating a booking engine into your website
By integrating a web booking engine into your brand website, you enable your visitors to view the availability of rooms in real-time and book with you instantly.
Enticing your website visitor with offers or freebies
Add perks like free WiFi, parking, or event tickets, which your guest might not get if they book through OTAs.
Growing your presence on metasearch engines like Google
Metasearch engine allows travellers to compare hotel prices listed on several OTAs. It also shows the price mentioned on the hotel website. This prompts the travellers to visit the hotel’s website for direct booking.
Maintain strong relationships with all OTAs
Take some time to focus on your relationship with your OTAs and distributor account managers. Also, ensure you pay accurate and timely commission to your OTAs. This helps build a healthy working relationship.
Partner with correct hotel technology companies
Today hoteliers work with several technology partners to make investments in systems like channel managers and PMS systems to manage the entire hotel business processes efficiently. However, it’s important that you partner with the right technology providers to tackle parity issues.
When you partner with Aiosell’s automated revenue management system, you can figure the best hotel strategy for overcoming hotel rate parity challenges. The revenue management system consolidates and analyzes large amounts of data collected from internal and external sources to identify anomalies and patterns. This helps:
identify rate parity issues;
provide smarter hotel analytics, and
forecast room demand that allows to figure out the best room prices in real-time.
While there are many creative ways to manage your rates, you should always watch out for rate disparities. Correcting issues of rate parity in hotel industry can be an overwhelming and time-consuming process, but it can save you thousands in revenue.
When you overcome rate disparity issues, you not only encourage your guests to book directly with you, but you also get to control your property and prices and give yourself the chance to earn more revenue.
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