What is Rate Parity and How Can You Adjust Your Small Hotel Strategy to Suit?
Thursday, March 12th, 2015
As a small accommodation provider – especially if you’re new to the game – you will no doubt have heard of the term ‘rate parity’.
But what is rate parity and how exactly does this apply to you?
What is rate parity?
Eye for Travel defines rate parity as “maintaining consistent rates for the same product in all online distribution channels – Expedia, Orbitz, Hotwire, etc. – regardless of what commission the OTA makes.”
When you partner with an OTA, they will usually require you to agree to rate parity. You are not allowed to undercut the rates they display for your rooms on their websites.
Why engage in rate parity?
To consumers, it’s a good thing that your room rates match across the web. If booking with you is more expensive than with an OTA, you could easily lose your customers’ trust.
Also, OTAs spend a ton on marketing, and can regularly bring you a large volume of customers. You can consider the high commission a marketing cost.
What are the challenges of rate parity for small hotels?
In small hotels, every dollar counts. While it’s fair for OTAs to ask for commission for promoting you to thousands of people every day, paying commission on top of your lowest possible rate cuts into revenue you would have earned had these people booked directly.
The challenge is encouraging direct bookings without using campaigns and pricing tactics. Even when running discounted promotions you have to let all of the OTAs know. At times, excluding an entire room type from the OTA is the only solution that small hotels can think of.
Small hotels try to at least match the rates being displayed by OTAs – but this can be difficult as OTAs are known to change their rates according to factors like device and location. OTAs can deliver reservations to hotels at a net rate, meaning they can and do reduce prices below minimum contracted margins by reducing their commission margins.
This puts tremendous pressure on small hotels to keep checking the OTAs’ rates so they can match their prices, but it’s a time consuming activity.
Then there’s the challenge of technology. When OTA channels aren’t directly linked to a small hotel’s PMS system through a channel manager, rate parity is even more difficult to manage. Small hoteliers have to log into multiple systems to update their rates.
What can you do to respond to rate parity challenges?
Small hotels are between a rock and a hard place, as the saying goes. On one hand, you don’t have the marketing budget to achieve the kind of reach that your OTA partners do. They bring you business. On the other hand, you want to drive more direct bookings.
Here are some ways that eTourism recommends you can do this:
Package your rooms to make them more appealing.
You can enhance your offering by adding elements like free parking, wifi, and tickets to a local event. Your OTA may be selling the room at a discounted price, but with your full price there are extras that are more valuable than the discount your guest would be getting if they booked with the OTA.
Lower your rates to a limited audience.
While you can’t publicly advertise lower room rates, you’re allowed to do so to a limited audience. This means that to drive direct bookings you can offer deals to:
Remember to invite people to join these audiences through calls to action on your website. Tell them they can get special discounts and promotions unavailable elsewhere.
Use meta search engines
Meta search engines like TripAdvisor are a great way to compete with OTAs for bookings. Through TripConnect, small hotels can bid to be featured at the top of the list. Because this is using a PPC model, it is likely to be cheaper than the commission paid to OTAs.
Meta search engines are increasingly popular with consumers. Not only can they compare and search properties, but they can choose the channel they want to use to book these properties. More often than not, they will choose to book direct because it is seen as being more reliable.
Improve the booking process
The ease of booking directly with you needs to match if not be smoother than booking with OTAs. Make sure it’s easy to understand what rooms are available and at what rate (don’t overwhelm with too many choices), and that it looks and feels secure to make a booking with you.