Mr. Chopra

Revenue Management

Rate Parity: A Boom or Doom for Hotels

Hotel vs Otas; Need Not be a Battle, it is a Win - Win

By Bhanu Chopra, CEO, RateGain

The relationship between Hotels and OTAs is that of Love & Hate. They can't live with each other; they can't live without each other. In fact, to put in another way, they exist in a symbiotic relationship. Hotels need OTAs for selling their inventory, and in return, OTAs extract a substantial commission from hotels to produce an enormous amount of bookings, which hotels hanker after.

No matter how much hotel prefers their own brand website, front desk or call centers to be the major channel for bookings, the matter of fact is it has become unimaginable for hotels to do business without OTAs. According to a phocuswright research OTAs capture close to 71% share of online booking.

One challenge of the hospitality industry in particular that we are going to talk about in this blog is the most debatable issue of Rate Parity. A revenue manager's major concern is about revenue and profits. Modern RMs are using cutting edge technology to ensure that their rate parity management vows are tackled while distributing their inventory online. Such tools make their everyday activities much less time consuming and easier.

A section of revenue managers has a different take on the impact of Rate Parity. They believe that Rate Parity offers a uniform playground for all distributing channels and strengthens a hotel's association with its distributors, ensuring no channel is being favored over another. The exercise of Rate Parity also allows a Revenue Manager to evaluate its partnership with an OTA and allow them to make conclusions if the association is profitable and whether the hotel should continue a business relationship with the particular OTA.

Another section of hospitality industry believes that rate parity ban restricts them in their price offering and they cannot effectually contest against the OTAs with respect to price. Revenue managers believe that all customers are not alike. For example, they would like to offer better rates for someone wanting a longer length of stay or for someone who books far in advance.They also agree that though technology advances have made it far easier for revenue managers to customize and deliver offers that are relevant to their target customers but the rate parity clause takes away their autonomy to be relevant in their pricing and their marketing approach.

Apart from this, there is completely a different angle to this debate, around 2014 and 2015, several anti-trust and fair trade organizations in Europe began reviewing rate parity to conclude if it is anti-competitive and akin to price fixing. More than a year back, in July 2015, France banned rate parity completely.

On similar lines, the German Competition Authority prohibited Booking.com from using strict parity clauses. In most parts of Europe, in more than 10 European countries, including Great Britain, Italy, Belgium, Hungary, Poland and Sweden, there have been grave discussions to consider similar bans. The European Commission is reviewing rate parity. Hospitality industry worldwide need to take note of this trend and establish a stand on this because what happens in one part of the world will eventually impact the rest of the world too.

This debate to prohibit or not prohibit rate parity has impelled a series of new dispute on this subject, as the hospitality industry is very fragmented and hotels don't operate in a regulated environment. Hotel operators across the globe have different outlooks as to whether rate parity is good, necessary or completely an evil.

Hotel Rate Integrity and Hotel Rate Parity Run Parallel

Another important concept often less discussed and less understood is the concept of Rate Integrity. Rate Parity and Rate Integrity go hand-in-hand. When a hotel practices rate parity, rate integrity is assured by default, as not only is there a fair playground among the hotel and its partnering travel agencies, online companies, distribution partners, and hotel franchisors; the consumer can also be confident that they are getting a fair price and won't be hesitant about booking, only to find there was a better rate through another medium they were not aware of.

Threat From Wholesalers

Another major threat to Rate Parity comes from wholesalers. With the number of third party booking sites, growing exponentially, hotels are often amazed to find their rooms being sold on sites they have never even heard of. The big players like Expedia, Priceline, etc. have hundreds of affiliate sites, they can share your room rates with.

Wholesaler rates began showing up on public sites around 2008, when financial markets crashed and hotel industry fundamentals followed. Hotels started cutting public rates drastically, wholesalers at that time could not markup as usual their pre-negotiated rates and thus they then started opening websites to sell inventory out of rate parity when demand was sufficient.

But the real trouble begins when wholesale rates, offered exclusively for a large scale sale, start getting published on public channels. Wholesalers practice the technique of lowering their margins in order to drop these rates even further. And then, when these rates are given to a public seller, your hotel ends up with multiple price points for the same room type available online. And with this situation, your other partner's sure going to react with significant consequences. And not to ignore, sites that publish wholesale rates on public channels are undercutting your own channels too, which mean a loss of direct business for you.

The sad part is, even though a revenue manager might think they're offering rates in parity, but once a rate is pushed, the control of inventory rate is essentially out of the revenue manager's influences.

The Metasearch Site Challenge

The rise of metasearch sites has allowed the practice to bloom, as metasearch sites with the same prices on all channels are not very exciting for customers.

With literally thousands of players and distribution channels, your rooms can be published on, it's difficult for hotels to monitor each and every site. Even if a revenue manager does find a rate out of parity, tracking down the origin of that rate can be a Herculean task.

The rise of metasearch sites has enabled this practice to thrive much faster, as metasearch sites with the same prices across all channels is not very attention-grabbing.

The growing importance of metasearch sites has given birth to the progressive online channel manager so as to keep rate parity in check.

Is Rate Parity in Favor of OTAs?

Some of the hotel fraternity has also raised the opinion that rate parity is skewed in favor of the OTAs. OTAs have a fair advantage in allowing consumers to shop and compare rates. Revenue Managers debate that rate parity takes away the differentiation that each hotel or brand can create for themselves and the special value they can give to their customers. Without rate parity, they can distinguish themselves with a much wider choice of rate plans, product offerings, and other value-added perks.

Harmonized with this argument, many industry experts advocate the viewpoint that the most effective defense Hoteliers have against OTAs or the likes of Airbnb and others is the experience they provide at their hotels. There are some hotels that are known for the truly unique experience they provide to the travelers. As per a survey, 87% of properties named booking.com as their top performing online travel agency.

But we need a reality check here. Creating a distinguishable experience is not an easy task for a hotel every time, however, most hotels can create a memorable experience though. So if the outcome of this conclusion is that since most hotels cannot provide a truly unique and distinguishable experience and hence they need OTAs, then we need to be true to ourselves. Perhaps, yes, we do need rate parity so the OTAs cannot take advantage of this situation.

The Key: Revenue Management Solutions

The solution to all such parity vows is an advanced Revenue Management tool; including Rate Shopping, Rate Optimization, Channel Distribution and Online Reputation Management solutions. In addition to arming a hotel in maintaining its rate parity and integrity, these revenue management solutions can also automatically make price suggestions, update online distribution channels, also keep you abreast with your online reviews & presence and place your hotel in the prime place on the OTA page to optimize bookings and eventually upsurge revenue.

The practice of this kind always guarantees a fair price for the consumers, and at the same time ensure that the hotelier is also making strategic and proactive decisions in order to run a business operation profitably. This is where a cutting edge Revenue Management Solution comes into play. Hoteliers can realize a rational rate structure with a comprehensive hotel revenue management solution. Such solutions enable hotel revenue managers to manage their room inventory and pricing by studying supply, demand, and competitive pricing in real-time.

Hotels, in order to compete with their own distribution channels, are finding innovative techniques to entice customers to book directly through their brand website or front desk.

Further, in this blog we will talk about strategies that hotel operators can use without conflicting with their OTA agreements. Hotels can increase their direct bookings without breaching rate parity.

Smart hotel operators are finding ways to offer enticements that lure customers to book directly through their brand websites, customer service desk or over the phone.

In this article we are listing 8 tactics that hotels can use without conflicting with their OTA agreements and Parity issues.

Tactic #1 - Offer Special Schemes to Selected Customers

Because of parity agreements, hotels cannot offer discounts publicly, however, this limitation does not apply if the hotel does so for a limited audience, but make sure it is well hedged.

For instance - You may send discount coupons to your social media followers like you may offer discount codes to only your twitter or Facebook followers.

Another approach could be to offer a value-added package for big events; hotels can design a special package for any important big event that is going to happen in your city, including complimentary airport and event transfers, free parking and Wi-Fi, etc.

These strategies will ensure that your room rate is never lower than what the OTA has offered, however, the overall value of the package will be much higher than OTA's room rate offer. Plus, it will also guarantee more business to the hotel during the event season.

Tactic #2 - Stay in Touch With Your Regular Customers

Out of sight, out of mind, applies truly here. Stay in contact with your loyal customers with offers and discounts, which will appeal most to them. Try different modes to be in touch with your customer base like newsletters, blogs, discount offers, events and festival information organized in hotels. This ensures that your regular customers are updated about what's going on in their preferred hotel.

Also, hotels can share information of special offers every month, just to instill trust with their customers, that you are offering better rates to them.

Tactic #3 - Use Design Best Practice For Website

The hotel's own website seems to get the least attention when it comes to its user friendliness and booking ease. This is one aspect, hotels ignore mostly. Hotels should focus on designing their website hassle free and easy to use to get maximum bookings. The website should capture interest immediately, there should be a call for action like "Book Now" and prominently displayed phone numbers. Ease of use across multiple platforms is the key. Smartphones, tablets are a major mode for booking hotel rooms. Hotels need to have a mobile & a tablet friendly website able to take reservations and a button that will automatically call the hotel for the prospect when pushed.

Most hotels have websites, which are a turn offs when compared with actual hotel property, which is a huge loss for hotels, as they might lose a lot of bookings from the website because it's not as impressive. Also, hotel's website should be alleged as most reliable and economical source of booking by customers.

Tactic # 4 - Offer Perks to Loyal Customers

Many hotels go for offering gift cards and discounts for their returning customers. Hotels send an email blast to their existing customer database and their subscribers. This tactic over a period of time helps in establishing a loyal customer base and eventually more bookings.

Tactic # 5 - Work Towards Generating More Reviews by Leveraging and Engaging Online Reviews and Driving More Website Visitors

Travelers at OTA sites, view reviews to evaluate all properties and also see which property has maximum positive reviews. This is your chance to draw customers to your website, rather than losing them to OTAs. In order to generate maximum positive reviews, you have to spread customer delight culture in your hotel. Ask your front desk executives and other staff get feedback from guests and also ask what needs to be done to make their stay even more pleasant. You can also request guests to write a review and offer discount vouchers on their next visit. Have a sign at the front desk or rooms, encouraging guests to write reviews.

This process does not end here, in order to sustain your customers, hotel staff should respond to every review comment by guests. This portrays that you value customer feedback and are putting in efforts to work towards providing better service.

Tactic # 6 - Design Packaged Offerings and Add-on Perks

Packaged offering and add-ons are another way of offering discounts, without penetrating parity contract. To explain this further a hotel may offer a 500$ package for a 4-night stay, vis-a -vis an OTA offer of 400$, but offers perks and add- ons like free pickups, Wi-Fi, etc.

Add-ons are a great way to motivate guests to book through the hotel's own website. Free Wi-Fi, is the most popular bait, others are free parking & breakfast. Spa and gym vouchers are other desirable extra guest fall for.

Tactic # 7 - On the Table Discount at Front Desk

The front desk is another direct point of contact with guests apart from your brand website. Use this face to face engaging opportunity to give customers good reasons to engage with you directly. For any customer coming through OTA, offer them a discount on their next direct booking through the hotel. This will establish a trust in the minds of the customers that the hotel is offering lower rates as compared to any OTA.

Tactic # 8 - Collaborate with OTAs For Best Results

We have discussed tactics hotels can use to encourage customers to book through the hotels. But this, in no way implies that OTAs are hotel's competitors or opponents. In fact, we would term them as partners. As they help you get surprising booking numbers. Involve your OTAs in your promotion plans, you might consider giving them additional benefits like additional inventory etc.

We promote a win - win situation for both hotels and OTAs as they complement each other for mutual benefit, Hotel vs OTAs; need not be a battle.

http://www.bestwesternitspersonal.com/2016/01/27/is-rate-parity-good-or-bad-for-the-hotel-industry/

Bhanu Chopra, CEO of RateGain is responsible for establishing the vision that guides the development of RateGain’s solution offerings and delivery methodology. Mr. Chopra is a seasoned start-up entrepreneur in IT consulting. Prior to RateGain, he co-founded Riv Consulting. He began his career at Deloitte Consulting where he worked on large ERP implementations for Fortune 500 companies. Mr. Chopra earned a double Bachelor’s degree in Computer Science and Finance from Indiana University, Bloomington. He is one of the founding member of iSpirit a policy think-tank for Indian Software Product companies. RateGain has become a leader in hospitality and travel technology solutions for revenue management, decision support, rate intelligence, seamless electronic distribution and brand engagement. Mr. Chopra can be contacted at bchopra@rategain.com Extended Bio...

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