How Budding and Small Hotels Can Lessen The Effects of Rate Parity

Rate parity is a term that always alarms hoteliers and can even be a growth barrier for small and new players. Rate parity is the practice of maintaining consistent and same rates of the same room type on all the distribution channels/booking platforms, be it hotel’s own website or OTAs irrespective of commissions being earned by an OTA. The objective of this practice is to create leveled playground for all the players alike. Both hotels and OTAs have to agree to rate parity norms when they sign up with an OTA.

At times, this leveled field makes it difficult for new players to compete in this fierce competition and suffocates them even before they can spread their wings.

How should hotels look at Rate Parity?

The practice of Rate parity came up to safeguard the interests of OTAs from situations where hotels can reduce their website rates and cut OTAs.

Why hotels rely heavily on OTAs?

OTAs provide a readymade platform for any hotel to clinch bookings from the very first day they enter the world of online booking. They do not have to spend heavy on marketing, just negotiate better deals with the right OTAs and they are set to make revenues. Hotels can easily look OTA commissions as their marketing costs but with a higher success rate. Hence, the advantage that OTAs offer to hotels somewhat nullifies the disadvantage of rate parity to hotels.

What are the challenges of rate parity for budding and small hotels?

In small and new hotels, every single booking is crucial. Paying hefty commissions to OTAs from already thin margins becomes very difficult for hotels. This is where direct bookings can prove to be a game changer. However, fetching direct bookings can be an uphill task without promotional campaign and price manipulation. Many times, OTAs will ask hotels to keep them in the loop when they run any promotional campaigns or discounted pricing on their websites. To prevent any breach of Rate Parity clause sometimes small hotels exclude the entire room category from OTAs and sell it on their website at their own prices.

Competing with OTAs for prices is difficult for small hotels since OTAs are known to reduce prices below agreed prices by reducing their commissions. We do not live in a perfect world!

This requires hotels to keep a check on prices of various OTAs to keep their prices competitive with them. When OTA channels are not directly linked to a hotel’s PMS system through a channel manager, rate parity is even more difficult to manage. Hoteliers then have to log into multiple systems to update their rates. However, it is much easier and faster, if the hotel is using hotel technology tools to manage all this.

Few are of the opinion that in this situation, small hotels are stuck between a rock and a hard place, as the saying goes since on one hand, they do not have the marketing budget to achieve the kind of reach that OTA provide. On the other hand, it is difficult for them to pay the big fat commission to the OTAs. Moreover, OTAs bring them business. Hence, hotels want to drive more direct bookings. However, this course requires more dollars to spend on marketing. They are in this vicious circle.

Here are some tactics that hotels can use to tackle rate parity challenges

Creating bundled packages

Hotels can augment their offerings keeping the price same as OTA price by adding perks like free parking, Wi-Fi, wine tasting sessions, complimentary breakfast, sight-seeing, free pick-ups, etc. This practice can help them have a clear edge over OTAs without violating rate parity norms since for the same price the hotel is offering a better deal than the OTAs.

Lower your rates to a limited audience.

Hotels can reduce the prices for an age group, category, Close User Group (CUG) or mobile app users. Run e-mail promotional offers for CUG members or on mobile app bookings. This can help them drive direct bookings on their website and mobile app without violating rate parity clause.

Loyalty Program and Customer Engagement

Another way to boost direct bookings is loyalty programs. Loyalty programs provide manifold benefits apart from just saving OTA commissions. Getting a repeat booking from a loyal customer is far cheaper than acquiring a new customer. On top of that, hotels are aware of their choice and preferences that enable them to serve them even better. This spreads positive word of mouth for the brand and paves the way for more direct bookings.

Use Meta search engines

Meta Search engines like TripAdvisor and Trivago can be considered as a savior of small hotels. Small hotels can even feature on top of the list in TripConnect since it works on a PPC model unlike commissions as in case of OTAs. Metasearch engines are quite popular among consumers since they not only provide a comparison among different properties but also allow them to choose the cheapest channel to book the hotel. Consumers are often seen to resort to book direct provided the difference is not huge since direct bookings are considered more reliable.

User-friendly website and booking process

To boost direct bookings hoteliers must ensure that they have the necessary infrastructure in place, which induces and propels direct bookings like – a comprehensive user-friendly website with a clean interface providing all the necessary information without having to search for it. In addition, the hoteliers must make sure that the booking process is simple instead of cumbersome so that prospects do not bounce back. OTAs have a clear edge in this department, but hotels have no choice but to bring their online infrastructure at par with those of OTAs.

From above discussion, we may assume that while Rate Parity agreements can decelerate the direct bookings of any hotel; there are numerous factors that prove that OTAs are in fact good partners with hotels. Hotels can adopt several bypass strategies to mitigate the defies of Rate Parity and the same time enjoy the large number of bookings from the OTAs