Managing Rate Parity: Just When You Thought You Had It Sorted
By Michael McCartan Managing Director Europe, the Middle East, and Africa, Duetto | December 08, 2013
What is Rate Parity?
Rate Parity is generally included as a primary clause into online travel agents' (OTA) agreements which makes it the hotel's responsibility to ensure that a given hotel room on a given day is selling for the same rate on all channels. For many industry pundits, this is a direct violation of competitive pricing and is against consumers' best interest. In August 2013, the U.K.'s Office of Fair Trading (OFT) directed major OTAs to relax contractual restrictions, which would allow other booking agencies to provide discounts on "room only hotel accommodations". Closer on the heels, German and French regulators are also keeping rate parity under the microscope. So does that signal a death sentence for rate parity?
At the cost of being risque, I would like to play the role of the devil's advocate and examine what would happen if there was no rate parity.
A World Without Parity
In the absence of rate parity mandates, the hotels - especially the independent properties, would be in a better position to manipulate rates. But does that ensure better rates and higher revenues? As a consumer, you might not mind paying extra for the experience of shopping in a luxurious mall but I would argue that the online purchasing experience through the majority of travel websites is very similar and ultimately the buyer's final decision will be driven by price.
For years, the hotel industry has been under the impression that rate parity is the root-cause for everything that has gone wrong with pricing. It's high time they do a reality check. The truth is that at a time when the majority of the world population is connected through the internet and information is readily available, consumers today have a plethora of options to find the best deals. A hotel room for a given night can be researched and booked through multiple avenues, such as the hotel's own brand website, online travel agencies, flash sites, opaque sites, review sites and in many cases, social networking sites.
OFT ruling & its long term implications
Much has been written about the recent OFT ruling, and its long term implications. Without going into the finer details, the verdict gives hoteliers and third party distributors in the UK, the right to offer discounts to "closed groups" such as members of their loyalty program. The most common 'deals' usually revolve around advance purchases or no-cancellation policies, adding an extra night or value added services into the rate, as well as offering preferential rates to specific customer types, such as loyalty program members. It is widely expected that mature markets like the rest of Europe and US will go the same way.