Merchandising and pricing hotel rooms is one of the core activities for businesses of all sizes in the hotel industry. It’s like a never-ending competition between a hotel and OTA. However, at any given point, either OTAs or hotels are at an unfair advantage.
In most cases, thanks to their resources and connections, some OTAs often can afford to undercut prices putting hotels and other OTAs in a tough spot.
How is this “unfair advantage” prevented? The solution comes in the form of hotel rate parity. Let’s see what it is and whether the hospitality industry sees it as something good or bad.
What Is Hotel Rate Parity
Hotel rate parity is a legal agreement between hoteliers and online travel agencies. It’s an agreement that stabilizes prices and ensures consistent rates across all distribution channels. Simply put, if a hotel cooperates with more than one OTA, it cannot give special offers or discounts to one OTA. It has to offer the same rates to all OTAs in its distribution network.
There is an easy way to check whether rate parity applies to a particular hotel’s offer. All you have to do is cross-reference the prices disclosed on the hotel’s official website with the prices shown on OTAs’ websites. If they are the same, the rate parity agreement is in place.
Why Is Rate Parity Important?
Hotel rate parity is vital for both hoteliers and people who live to travel. Let’s first see what the downsides of disparity are. When a hotel’s offer is not consistent across distribution channels, it can damage its reputation. Potential guests are unable to assess whether the offer is good in terms of value for money.
Also, if an OTA offers the same rooms at lower prices than the hotel does via its official website, travelers are more likely to book through that OTA. It simply means that the hotel will lose profits because it will have to pay the commission.
Rate parity is essential for hotels because it impacts brand image, revenue, and profit. The consistent message to potential guests prevents confusion. Additionally, the lower prices are no longer a reason for potential guests to book through OTAs. Direct bookings are more profitable for hotels because they don’t have to pay for OTAs commissions that can vary from 15% to 30%.
Why Are Some Hotels Against the Rate Parity?
Some hotels see hotel rate parity as an agreement that results in a profit loss. They are locked into consistent pricing. Hotels are unable to offer special discounts on their official websites without giving those discounts through OTAs as well. The hoteliers against it see it as an obstacle that makes it harder to attract guests by offering better deals.
Some hotels are against rate parity because it reduces the number of direct bookings. When guests book through OTAs, hotels have to pay the commission even though the price is the same at the hotel’s official website. It directly translates into lost profits.
Is Rate Parity Good or Bad?
There is no straightforward answer to this question. It appears that the industry experts’ opinions on this matter are divided. Both yay and nay groups have valid points. The yay side tends to view hotels as being at a disadvantage to OTAs when successfully selling rooms online.
Simply put, OTAs have more room to wiggle than hotels when it comes to offering discounts. They only need to give up a portion of their commission to offer attractive discounts and have travelers book through them instead directly. It’s a good thing for customers as well as they see consistent pricing instead of 10 different prices through meta-search platforms.
Others believe rate parity offers no benefits to hoteliers and OTAs. It’s a practice that doesn’t take into account the distribution and marketing costs for each channel and limits competition.
Types of Rate Parity
The specific rate parity clauses may vary from agreement to agreement. However, there are two types of rate parity agreements – wide and narrow rate parity.
Wide rate parity is the most restrictive type of rate parity agreement. These agreements simply state that a hotel should under no circumstances undercut the prices the OTA charges for their rooms. Such an agreement applies to both direct and indirect distribution channels.
A narrow rate parity agreement enables hotels to offer discounted prices to OTAs in their distribution network. However, they can’t do it publicly. A hotel also has the right to undercut prices found on OTAs’ websites through indirect channels, loyalty programs, telephone, and email booking.
Rate Parity Laws in Different Regions
Hotel rate parity laws are not uniform around the globe. Some countries have made it illegal. According to OTA Insight, here is how to rate parity laws changed in no particular timeline order across countries:
- The UK – in the UK, OTAs are forbidden to use misleading practices to generate more bookings such as discount claims, pressure selling, and hidden charges;
- Australia – Australia is among the first countries to ban hotel rate parity;
- France – France banned wide hotel rate parity back in 2015;
- Italy – rate parity is banned in Italy;
- Austria – Austria followed France and Italy banning restrictive rate parity;
- Germany – Germany prohibited wide rate parity in 2016;
- Sweden – Swedish court ruled Bookin.com to drop all rate parity clauses from its contracts.
How To Do Rate Parity With a Strategy Behind
With a wide rate parity, there is very little you can do. But with wide rate parity, hoteliers can still come on top by optimizing their channel and revenue management strategies. They need to take into account both availability and rates to be able to leverage flexibility. To do it, you need a more comprehensive revenue management strategy.
You can have lower prices than those on OTAs for your past guests and email subscribers. You can advertise your discount through email or telephone while the OTAs list the true price of your offer. This is a great strategy to help the guests understand that they stand to save the most money if they do business directly with you.
Meanwhile, you will have to find a way to upgrade and find generate new revenue streams. And for that, you will need to use technology such as UpStay, which is a solution to help you unlock hidden profits using modern solutions.
Hopefully, now you understand the ins and outs of hotel rate parity. While wide hotel rate parity is quite restrictive, narrow rate parity gives more freedom to hoteliers. You can optimize your channel mix and pricing strategy to generate more direct bookings, build trust with guests, and ultimately generate more revenue.
Graduated from Standford University, Arielle has over 5 years of experience in the Hospitality industry. She holds an MBA in business administration from the IDC Herzliya, Israel. She currently works as Account Manager at UpStay, building and maintaining strong, long-lasting customer relationships. She is deeply passionate about helping hoteliers unlock significant new revenue streams from unsold premium inventory.