What is rate parity in the hotel industry?

What is rate parity?

Rate parity is the practice of maintaining consistent hotel rates across all distribution channels, regardless of online travel agent (OTA) commission.

This means that the rates that travellers see on OTA websites are the same as those on your own hotel’s website, even though you are making less of a profit from OTA bookings.

Rate parity is usually part of the agreement signed by hotels when they partner with an OTA where hotels are not allowed to undercut OTA rates on their own websites.

Understanding rate parity is crucial for hoteliers as it impacts pricing strategies, revenue management, and overall profitability. In this article, we’ll delve deeper into the nuances of rate parity, its implications for hotels, and strategies to navigate this complex landscape.

Example of rate parity

Hotel Seaside Retreat offers its ocean-view suite at a rate of $200 per night. They want to ensure rate parity across all their distribution channels. Here’s how they maintain it:

1. Hotel’s own website: The ocean-view suite is listed at $200 per night.
2. OTA (e.g., Booking.com): The same ocean-view suite is also listed at $200 per night.
3. Travel agent: A local travel agent who partners with Hotel Seaside Retreat offers the ocean-view suite to their clients at $200 per night.
4. Direct phone booking: A guest who calls the hotel directly to book is quoted a rate of $200 per night for the ocean-view suite.

Regardless of how a potential guest discovers the ocean-view suite (whether through the hotel’s website, an OTA, a travel agent, or a direct phone call), they will encounter the same rate of $200 per night. This consistency is the essence of rate parity.

Types of rate parity

Rate parity in the hotel industry ensures that a hotel room is offered at the same rate across all distribution channels. However, the concept of rate parity isn’t one-size-fits-all. It can be broadly categorised into two types: wide parity and narrow parity.

1. Wide rate parity

Wide rate parity is the more restrictive of the two and involves a hotel agreeing not to undercut the room prices that the OTA charges for their hotel. This agreement will generally apply to all channels, including other OTAs and the hotel’s website.

2. Narrow rate parity

Narrow rate parity evolved from European regulatory intervention and allows hotels to offer lower rates than OTAs, but not publicly online. This means the hotel can offer lower rates via offline channels.

Different countries have different regulations and if something goes wrong it can cause major damage to a hotel’s reputation and profits. So it’s important to have a good grasp of what you’re dealing with and ensure you’re on the right side of the equation.

Why is rate parity important?

Rate parity is important for guests, so they don’t get confused by seeing the exact same offering for different prices across different sales touchpoints. This is a bad experience for them and can make them feel like they are being tricked into paying more or buying something different than what they expect. However, this is only one aspect of why rate parity is important.

1. Brand consistency. Ensuring guests receive a consistent pricing message no matter where they book, which reinforces your brand’s integrity.
2. Fair competition. Maintaining the same rates across all channels means no single distribution platform has a pricing advantage, ensuring a level playing field. This is crucial for understanding which channels are most profitable for your business, without the confounding factor of pricing differences.
3. Trust and loyalty. Consistent pricing builds trust with guests, reducing the need for them to shop around and fostering loyalty to a specific booking platform. For example, rather than remembering they got a great deal from booking through Expedia as opposed to Booking.com, the pricing is the same, so they remember your hotel’s name rather than the booking platform.
4. Revenue management. Rate parity aids in effective revenue management, allowing you to maintain control over your pricing strategy and prevent potential revenue losses from undercutting or price wars.

Hotel franchisers were the first to use online rate parity agreements to prevent third parties from advertising lower rates than what the chains were offering. As hoteliers began to have different prices per room type, OTAs began introducing rate parity into their negotiations with hotels.

Hotel rate parity issues

Rate parity is a much talked about topic within the hotel industry and one that’s quite difficult to handle for business managers.

It might seem simple enough but rate parity can get complicated. Disparity is when the price on the hotel website is higher or lower than the price quoted by OTAs or other third-party channels.

Disparity can happen when OTAs create direct relationships with hotels, resulting in net merchant or commissionable models. It can also occur when OTAs don’t have a contractual agreement, buy from wholesalers, and have pricing at their discretion.

While it is considered the cost of doing business, the practice of rate parity poses several challenges for independent hotels.

OTAs are allowed to cut into their own commission to offer a lower price – and when more bookings come from OTAs, hotels lose out on revenue.

Hotels rack their brains to figure out how they can get more direct bookings to increase their revenue share from their bookings. This can be tough because even when running discounted promotions, hotels are obligated to tell OTAs.

Some hotels exclude entire rooms from OTAs in response, but they then risk having those rooms going unsold.

Responding to hotel rate parity issues

Obviously, OTAs also offer a big marketing opportunity for hotels, but they still want to push for direct bookings and escape rate parity restrictions.

Something hotels can try to do is beat OTAs on value. By adding perks like free parking, Wi-Fi, or event tickets, hotels can entice guests to book directly. If travellers see similar rates across different channels they’ll obviously be looking carefully for reasons to book one way over another.

How can hotels strengthen their direct booking strategy? Here are things to include.

1. Beat OTAs on value

By adding perks like free parking, WiFi, or event tickets, hotels can entice guests to book directly. OTAs may offer only a dollar value, but you can beat them on experience.

2. Market to limited audiences

You can run exclusive promotions to targeted audiences, like your Facebook fans and Twitter follows, or your private email database. Just make sure you keep building up these audiences so the list keeps growing.

3. Use metasearch sites

Metasearch engines traditionally allow you to use a pay per click ad bidding model to get your hotel to the top of the list, getting travellers to click through to your own website where you can get them to book direct. Now, there are commission-based instant booking models that you can take advantage of. These are still offering lower commissions than OTAs.

4. Improve the booking process

Your online booking process needs to be as smooth if not smoother than that of OTAs. Make sure you follow website design best practices and that it is a secure, convenient, and seamless process.

5. Use a channel manager

Channel managers can connect you to all your distribution channels so that you don’t have to log into multiple extranets to update your room rates. This is time-consuming and not the best use of your time.

6. Access market intelligence

Seeing what your competitors are doing and understanding upcoming demand for certain channels can give you the opportunity to close off unprofitable channels in favour of direct strategies.

7. Reward loyal guests

Loyalty programs are very useful for bypassing rate restrictions and achieving direct bookings. The more long-term relationships you build with guests the better.

The way to turn rate parity restrictions to your advantage is definitely via offering guests more value on direct bookings than they will find through any other sales channel.

Manage hotel prices and achieve hotel rate parity with SiteMinder

Ensuring rate consistency across multiple distribution channels is not just about maintaining brand integrity, but also about optimising revenue and building guest trust. SiteMinder offers a suite of features designed to simplify this process and empower your hotel to achieve effective rate parity without sacrificing profit.

• Unified dashboard: SiteMinder offers a centralised platform, making it easy for hoteliers to monitor and adjust rates across all channels, ensuring consistent pricing.
• Real-time updates: Changes made in SiteMinder are instantly reflected across all platforms, ensuring rate consistency and reducing discrepancies.
• Intelligent analytics: SiteMinder provides data-driven insights, helping hoteliers adjust rates based on market demand, ensuring competitiveness and rate parity.