Why Rate Parity Still Has To Be "The Law Of The Land" In Hospitality?
There was a recent discussion on LinkedIn about the need for maintaining rate parity in hospitality and its implications.
Just to clarify for the non-revenue management folks here, Rate Parity traditionally means maintaining the same publicly available rate for the same room/same stay across all public distribution channels i.e. channels available to any member of the public that is not a loyalty member or member of some guest appreciation or reward program.
Rate Parity is not a new online policy specifically designed for the OTAs. It existed long before the “commercial internet" came into being and there was only one reason for its existence: it made revenue management and management of distribution channels much easier. All major hotel chains and smart hoteliers applied rate parity across all offline distribution channels: voice, walk-ins, GDS/brick-and-mortar travel agents, etc. With the advent of the online channel, this business policy was applied to the hotel website and the OTAs as well.
Rate parity in the OTA – hotel relationship means the OTAs have access to any publicly available rate a hotel might have. Rate parity does not preclude hotels or OTAs to offer lower rates to their loyalty or reward program members such as Marriott BonVoy or Expedia One or Booking Genius members.
Some hoteliers argue that without rate parity the industry would be better off because hoteliers would be able to sell at whatever rates they want, unencumbered by the OTA rate parity restrictions. No rate parity, in theory, gives the right to publish lowers rates on the hotel website.
In other words, the abolishment of rate parity would be a good thing for the industry. Unfortunately I found these arguments rather naive especially coming from hoteliers who consistently underinvest in the direct online channel, in their digital marketing and technology.
Just imagine if rate parity magically disappears and now the hotel has the right to advertise and sell whatever rates they want? Let's say the property comes up with a 20% off promotion on the property website. Whom are they going to sell this promotion to? And how are they going to promote and sell such a “below OTA rate” if their digital marketing efforts are severely underfunded and their "digital marketing house" is not in order?
Who will even notice such a promotion if their property website is a tired and obsolete 5-year old mobile-unfriendly website with no SEO to speak of, stale textual and visual content, no merchandising capabilities, no chatbot for trip-planning and 24/7 customer service, non-existing support of robust digital marketing campaign, content marketing and social media engagements.
Under these circumstances, how is the hotel going to sell a below rate-parity promotion and who is going to even see this promotion?
In my view, rate parity helps, not hurts hotels. We have a great proof coming from Europe, where rate parity was outlawed in many countries. In the decade since rate parity provisions were outlawed in many European countries, the OTAs DOUBLED their market share of roomnights booked online. Currently, at independent hotels in Europe, the ratio of OTA vs direct online booked roomnights is 4:1 and even 5:1 i.e. 80%-85% of online roomnights come from the OTAs.
Luckily for us here in North America, rate parity is still the law of the land. The same applies to all major hotel chains who are vigorously enforcing rate parity across their portfolio hotels and distribution channels and actively promoting Best Rate Guarantee. This is one of the reasons why at the major hotel chains this same ratio of OTA vs direct online booked roomnights is 1:3 and even 1:4 i.e. only 25%-30% of online roomnights come from the OTAs. The other major reason is their robust loyalty programs.
There is another wrinkle to the story. While the hospitality industry was struggling to survive during the pandemic and slashed by more than 50% the industrywide technology and marketing spend, Expedia and Booking were hard at work to build their loyalty programs.
The results? Both Expedia’s One Key and Booking’s Genius loyalty programs boast cutting-edge loyalty tech platforms, 170 plus million loyalty members each, 360,000 participating hotels providing both programs with special membership rates.
Why is this important? The hundreds of million members of the OTA loyalty programs are being exposed to special member-only rates and not to publicly available rates. These loyalty programs are already helping the OTAs increase repeat business and market share at the expense of the direct channel, and lower their performance marketing spend, currently exceeding $12 billion/year!
So what should independent hotels do?
- Implement and enforce a rigorous Rate Parity policy across all publicly available distribution channels: property website, OTAs, GDS, bed banks, wholesalers, FIT tour operators, etc.
- Subscribe to a rate shopping/monitoring application like Lighthouse/OTA Insight, Triptease, RateGain to automate the monitoring of rate parity across distribution channels.
- Introduce Best Rate Guarantee on the property website stating that you guarantee that travelers won’t find lower rates than your website for the same room/stay period on any publicly available channel. Promote this guarantee in all of your marketing initiatives.
- Create a gated rate environment via the property website and mobile app: For smaller properties, introduce “Instant Rewards” program on the property website, which promises perks, benefits and member discounts if users sign up. Your webmaster or marketing agency can do this functionality easily. For full-service and 3-5 star hotels, implement CRM technology and guest appreciation program with benefits, special member rates, etc. Cendyn CRM, Amadeus CRM, Revinate CRM are all good technologies. In both cases, once you are logged in, the website recognizes you and you have access to the new member-only rates, perks and benefits, etc. All non-members would see the public rates but will be urged to become members by signing up for the program.
The best approach for any independent hotel is to maintain strict rate parity, promote Best Rate Guarantee and implement CRM technology and guest appreciation/reward program, the only way to increase repeat business, decrease OTA dependency and ensure deep engagement with your past and future guests.
