Rate parity is a term that always alarms hoteliers and can even be a growth barrier for new and small players. Rate parity is the practice of maintaining consistent and equal rates for the same room type across all distribution channels / booking platforms, whether on the hotel website or OTAs, regardless of the commissions an OTA earns . The goal of this practice is to create a level playground for all players equally. Both hotels and OTAs must agree to rate parity rules when signing up for an OTA.
Sometimes this level field makes it difficult for new players to compete in this fierce competition and suffocates them before they can even spread their wings.
How should hotels view rate parity?
The practice of rate parity emerged to safeguard the interests of OTAs from situations where hotels may lower their website rates and cut OTAs.
Why do hotels rely heavily on OTAs?
OTAs provide a ready-made platform for any hotel to obtain reservations from the first day it enters the world of online reservations. They don’t have to spend a lot on marketing, they just negotiate better deals with the right OTAs, and they’re ready to generate income. Hotels can easily consider OTA commissions as their marketing costs, but with a higher success rate. Thus, the advantage that OTAs offer to hotels somewhat overrides the disadvantage of rate parity relative to hotels.
What are the rate parity challenges for small and budding hotels?
In small and new hotels, every reservation is crucial. Paying high commissions to OTAs with already low margins becomes very difficult for hotels. This is where direct bookings can be a game changer. However, getting direct bookings can be a daunting task without a promotional campaign or price manipulation. Often times, OTAs will ask hotels to keep them informed when they run promotional campaigns or discounted prices on their websites. To avoid any breach of the rate parity clause, small hotels sometimes exclude the entire room category from OTAs and sell it on their website at their own prices.
Competing with OTAs for prices is difficult for small hotels, as OTAs have been known to lower prices below agreed prices by lowering their commissions. We do not live in a perfect world!
This requires hotels to control the prices of various OTAs to keep their prices competitive with them. When OTA channels are not directly linked to a hotel’s PMS system through a channel manager, rate parity is even more difficult to manage. Hoteliers have to log into various systems to update their rates. However, it is much easier and faster if the hotel uses technological tools to manage all this.
Few think that in this situation, small hotels are stuck between a rock and a hard place, as the saying goes, since on the one hand they do not have the marketing budget to achieve the kind of reach that OTAs provide. On the other hand, they find it difficult to pay the large commission to OTAs. In addition, OTAs provide them with business. Therefore, hotels want to generate more direct bookings. However, this course requires more dollars to spend on marketing. They are in this vicious cycle.
Here are some tactics hotels can use to address rate parity challenges
Create packaged packages
Hotels can increase their offers by keeping the same price as the OTA price by adding benefits like free parking, Wi-Fi, wine tasting sessions, complimentary breakfast, sightseeing tours, free pickups, etc. This practice can help them have a clear advantage over OTAs without violating rate parity rules, since for the same price the hotel offers a better deal than OTAs.
Lower your rates to a limited audience.
Hotels can lower prices for an age group, category, nearby user group (CUG), or mobile app users. Run promotional offers via email for CUG members or on mobile app bookings. This can help them generate direct bookings on their website and mobile app without violating the rate parity clause.
Customer engagement and loyalty program
Another way to boost direct bookings is loyalty programs. Loyalty programs provide multiple benefits in addition to saving OTA commissions. Getting a repeat booking from a loyal customer is much cheaper than acquiring a new customer. In addition to that, hotels are aware of your choices and preferences that allow them to serve you even better. This spreads positive word of mouth for the brand and paves the way for more direct bookings.
Use meta search engines
Meta search engines like TripAdvisor and Trivago can be considered a savior for small hotels. Small hotels can even appear at the top of the list on TripConnect, as it works on a PPC model as opposed to commissions as in the case of OTAs. Meta search engines are quite popular with consumers, as they not only provide a comparison between different properties, but also allow them to choose the cheapest channel to book the hotel. Consumers are often seen as turning to direct booking as long as the difference is not huge, as direct booking is considered more reliable.
Easy to use website and booking process
To drive direct bookings, hoteliers must ensure that they have the necessary infrastructure in place, which induces and drives direct bookings such as: a comprehensive and easy-to-use website with a clean interface that provides all the necessary information without having to search for it. Additionally, hoteliers need to ensure that the reservation process is simple rather than cumbersome so that potential guests do not bounce back. OTAs have a clear advantage in this department, but hotels have no choice but to match their infrastructure online with that of OTAs.
From the above discussion, we can assume that while rate parity agreements can slow down direct bookings for any hotel; There are numerous factors that show that OTAs are indeed good partners for hotels. Hotels can adopt various bypass strategies to mitigate rate parity challenges while enjoying the large number of bookings from OTAs