What is rate disparity?

Rate disparity occurs when lower rates are being offered on OTAs and other distribution channels than you’re offering on your own website. The reverse can happen, but it’s rare since many agreements with OTAs include rate parity clauses.

If rate disparity occurs, it can have a significant impact on your hotel and how it operates.

  • Your guests may lose trust in you, since they will be able to find lower rates through other channels.
  • You will lose out on direct bookings — which are far more lucrative than indirect bookings, since direct bookings come without commission fees.

Rate disparity is more common than many realise, especially for small accommodation providers. This is why it’s critical that you monitor your rates across all of your channels in order to check for rate disparity issues.

While you need to increase your distribution channels, you also need to make sure that you remain competitive with them to ensure a balanced distribution strategy.

This blog will delve into the nitty-gritty of rate disparity, its implications, and how to tackle it effectively. We’ll explore why it’s a bigger problem for smaller hotels and accommodation providers, and why it’s crucial to keep an eagle eye on your rates across all channels. We’ll also discuss the importance of maintaining a healthy balance between expanding your distribution channels and staying competitive with them. We’ll provide insights on how to navigate the tricky waters of rate parity clauses and how to keep your guests’ trust intact. Plus, we’ll share some handy tips and strategies on how to maximize direct bookings, which are a goldmine for your revenue as they come without those pesky commission fees.

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Why does rate discrepancy happen?

Rate disparity is most often created by administrative issues, which is why it is critical that small hotel operators work with a business solution that helps streamline their administrative tasks.

Here are the top six factors that contribute to rate disparity:

  1. OTAs are able to run out-of-date rates because the promotion has not been closed out by the hotel on their channel manager.
  2. The OTAs place your wholesale rates on sale, significantly cutting into your bottom line.
  3. Administrators work with OTA market managers to create direct promotions, making those same promotions unavailable on the hotel’s website.
  4. The OTA is using a different currency conversion than your hotel, leaving you with rate disparity issues to overcome.
  5. The OTAs use these commission fees in order to discount the rates that they are offering, making them appear more affordable than booking directly through the hotel.
  6. The revenue manager at the hotel accidentally links to the wrong OTA rate, inadvertently creating rate disparity and helping the OTAs sell more than the hotel itself.

How does price disparity affect small hotels?

Price disparity, also known as rate disparity, can significantly affect small hotels in various ways. It refers to the situation where the same room type is sold at different prices on different distribution channels. Here’s how it can affect your small hotel:

Decline in Direct Bookings

When customers find lower prices for rooms on third-party booking platforms compared to the hotel’s own website, they are more likely to book through these platforms. This leads to a decline in direct bookings for the hotel. Direct bookings are often more profitable for hotels as they don’t have to pay a commission to a third-party platform. A decline in direct bookings can therefore lead to a decrease in revenue for small hotels.

Low Profit Margins

Price disparity often leads to lower profit margins for small hotels. This is because third-party booking platforms often charge a commission for each booking made through their platform. When a significant proportion of bookings are made through these platforms due to price disparity, the hotel’s profit margin on each booking is reduced. This can make it more difficult for small hotels to cover their operating costs and invest in improvements.

Hotel Reputation

Price disparity can also harm a hotel’s reputation. When customers see a wide range of prices for the same room type, it can create confusion and potentially lead to dissatisfaction. Customers may feel that they are not getting the best value for their money if they find out they could have booked the same room for a lower price elsewhere. This can lead to negative reviews and a decline in customer loyalty.

Dilution of Revenue

Price disparity can lead to a dilution of revenue for small hotels. When rooms are sold at lower prices on third-party platforms, the overall average daily rate (ADR) for the hotel can be reduced. This can lead to a decrease in overall revenue, particularly if the hotel is heavily reliant on third-party platforms for bookings.

Rate Parity Penalties

Some online travel agencies (OTAs) include rate parity clauses in their contracts with hotels. These clauses require hotels to offer the same rates on the OTA as they do on their own website and other sales channels. If a hotel breaches this clause, they may be subject to penalties such as reduced visibility on the OTA’s platform or even removal from the platform. This can lead to a significant loss of bookings and revenue for small hotels.

How to solve rate disparity at your hotel

Given the fact that rate disparity is most often caused by manual error and administrative issues, the best thing you can do in order to combat it is invest in technology that improves your administrative efficiency.

The right hotel technology will monitor the rates that are being offered on OTAs and other distribution channels, and adjust your own hotel rates accordingly.

You also should be able to use this technology to keep track of your own daily rates, since you will want to make sure you are in compliance with all of your distribution agreements.

If at all possible, hotels should work to offer slightly lower rates on their own website in order to increase direct bookings.

Create Exclusive Offers on Direct Bookings

One way to encourage direct bookings and combat rate disparity is to create exclusive offers that are only available when booking directly through your hotel’s website. These could include:

  • Free room upgrades
  • Complimentary breakfast or meals
  • Discounted spa services or other amenities
  • Loyalty points or rewards for future stays

These incentives can make booking directly with your hotel more appealing than booking through an OTA, even if the room rate is slightly higher.

Use Channel Management Systems

Channel management systems can help you manage your hotel’s rates across multiple distribution channels. These systems can automatically update your rates across all channels whenever you make a change, reducing the risk of rate disparity. They can also help you manage your inventory more effectively, ensuring that you don’t overbook or under book your rooms.

Dynamic Price Matching

Dynamic price matching involves adjusting your hotel’s rates in real-time based on the rates offered by OTAs and other distribution channels. This can help ensure that your rates are always competitive and can help reduce rate disparity. However, it’s important to keep in mind that this strategy requires sophisticated technology and may not be suitable for all hotels.

Transparent Communication

Being transparent about your pricing can help build trust with your customers and encourage direct bookings. This could involve clearly explaining how your pricing works, why your rates may differ across different channels, and what benefits customers can get by booking directly with your hotel.

Negotiate with OTAs (if possible)

If you’re finding that the commissions charged by OTAs are causing rate disparity, it may be worth trying to negotiate lower commission rates. This isn’t always possible, but some OTAs may be willing to negotiate, especially if your hotel brings in a significant amount of business.

Monitor and Audit All Booking Channels Using Tools and Technology

Tools like Little Hotelier can help you track your rates across all your booking channels. This can help you identify any instances of rate disparity and take action to correct them. Regularly auditing your rates can also help ensure that you’re in compliance with any rate parity agreements you have with OTAs.

By Dean Elphick

Dean is the Senior Content Marketing Specialist of Little Hotelier, the all-in-one software solution purpose-built to make the lives of small accommodation providers easier. Dean has made writing and creating content his passion for the entirety of his professional life, which includes more than six years at Little Hotelier. Through content, Dean aims to provide education, inspiration, assistance, and, ultimately, value for small accommodation businesses looking to improve the way they run their operations (and live their life).