What is Rate Parity? Strategies to Increase Direct Bookings and Reduce OTA Dependency

Rate Parity is most often a difficult and complicated thing to manage... While Rate Parity clauses are now illegal in most of Europe, and therefore can't be required from OTAs anymore, it is not the case in the rest of the world.

In this article, we will try to understand the intricacies of Rate Parity to look at ways you can use it to your advantage while keeping the upper hand in your everlasting fight to control bookings and guests.

What is Rate Parity?

Hotel rate parity, the practice of maintaining consistent room rates across several distribution channels, is often part of the agreement between hotels and Online Travel Agencies.

It simply means that a hotel needs to offer the same rates on all booking platforms, including its official website.

Even if you think the commission being paid to OTAs is high, you can't have different room rates on different distribution channels to manage pricing and revenue. It's kind of unfair, don't you think?

Most OTAs want pretty solid rate parity clauses to prohibit hotels from 'stealing' guests with discounts or other tricks. However, if you consider the hoteliers' point of view, rate parity seems like a way to stop hotels from attracting direct bookings. If customers knew that official websites would offer rooms at lower prices, it could hurt OTA revenues quite severely.

Is Rate Parity a Good or a Bad thing?

At HotelMinder, when we build a Pricing Strategy (or a Distribution Plan), we always place Direct Booking sources at the core to achieve goals like:

• Increasing direct Bookings
• Lowering Cost of Acquisition
• Decreasing OTA Dependency

Why we do this is simple:

We will always favor direct reservation channels (Email, Website, Phone, Social Media, etc.) before non-direct channels (OTA websites, Travel Agents, etc.) because the former are sustainable, and have zero incremental cost.

Here's detailed information about the different booking sources of a hotel.

Apart from not having to pay any commission on direct bookings, developing your own sources is sustainable, and gives you full control over prices, bookings and guests' information (while Online Travel Agencies typically give you as little as possible).

Consider OTA platforms for what they truly are: Marketing channels. More often than not, there's no point in favoring one over the other unless it benefits your business! It's clear that direct business offers more benefits. So why not establish a strict Rate Parity among non-direct channels to push them towards your own website? Your most sustainable and rewarding channel!

Yes, Rate Parity is a good thing if you can use it to channel more reservations to your direct sources.

The Challenges of Rate Parity

While it's part of doing business, rate parity may pose several challenges for small and budget hotels.

More often than not, OTAs are allowed to offer a lower price by cutting into their own commission. As such, when more bookings start pouring in from OTAs, hotels tend to lose out on revenue.

Hotels need to revamp their digital marketing efforts. To increase revenue share, direct bookings are the most important factor. But because of rate parity clauses, hotels are obliged to tell OTAs about running discounted promotions.

While some hotels exclude entire rooms from OTAs' listings, they risk of having the rooms going unsold. Hotel rate parity poses certain challenges. But like everything else in life, it's a problem that comes with a set of solutions.

How to turn Rate Parity to your Advantage?

In the last few years, OTAs have held the fort quite easily. Hotels, whether big or small, need OTAs for marketing. But hoteliers also want to increase direct bookings. So, how do we ensure that both goals are achieved without too much trouble or inconvenience?

Provide More Value Than OTAs

While OTAs have the power of higher visibility, hotels have more control over value. To entice guests to book direct, hotels can add perks, such as free Wi-Fi, parking or event tickets. While OTAs focus on providing monetary value in the form of discounts, you can definitely beat them on experience.

Market to Specific Audiences

Exclusive promotions should be part of your overall hotel sales strategy but only if they are to your advantage!

It's better to segment and target audiences, such as Twitter followers, Facebook fans and private email database. Just make sure these lists keep growing, so you have a better chance to convert.

Use Metasearch Websites

Using metasearch is one of the most effective hotel marketing strategy right now.

Traditionally, metasearch sites allow you to use a pay-per-click bidding model, which brings your ad to the top, and gets more travelers to click through to the website.

These days, you can use commission-based instant booking models, which still offer lower commissions than OTAs.

Improve the Booking Process

To increase direct bookings, you need to improve the booking process. The ease-of-use and experience of your online booking process needs to be at least on par with OTAs.

You need to follow a seamless, secure and convenient website design and development process centered on user experience.

Use a Channel Manager

With a channel manager, you can effortlessly connect to several distribution channels. This means you don't have to log into multiple extranets to update room rates.

It saves a lot of your time, and makes the entire process more efficient.

8 Techniques to Manage Rate Parity Seamlessly

With evolving pricing and marketing strategies in the hospitality industry, contractually-enforced rate parity seems to be fading. Hotels have the power to shape a strategy that considers both availability and rates. While this can be intimidating, it's also refreshing for the industry. It requires hoteliers to learn how to leverage pricing flexibility with a broader revenue strategy.

Technology has become a hotelier's best friend. Tools and technologies allow hoteliers to analyse data in real-time. Instead of reacting every time rate disparities are identified, which can be quite time-consuming, hoteliers can now take proactive measures to prevent and resolve issues. Here are some effective techniques to consider.

1. Never agree to Channel Specific Promotions

Online Travel Agencies' representatives, usually called market managers, will do everything they can to enforce Rate Parity. In fact, they'll also try to convince you to try special offers, such as a discount for specific dates, an offer for their members etc.

It's just an attempt to break Rate Parity to their advantage.

Never ever agree to channel-specific discounts!

If you want to lower your rates, do it everywhere at the same time.

Don't favor one channel over another, even if it goes to great lengths to convince you it's the right thing to do (Spoiler: It's right for them, not for you!).

2. Clarify your Policies

Rate parity policy is a critical part of the overall Revenue Management strategy. What's your brand's policy? To ensure accountability, consistency and compliance, you need to communicate guidelines and policy to staff members.

If your policy is to maintain rate parity at all times, your employees shouldn't be allowed to cut deals with and for anyone. One odd instance can affect the perception of your entire brand.

3. Think Long-term

While anticipating a drop in sales, it can be quite tempting to lower rates on specific OTAs or participate in promotions. While this may offer a short-term solution, the negative effects on brand reputation and traveler perceptions can be long-lasting.

A long-term hotel sales strategy should always be your priority. If you need to lower your rates, do it everywhere at the same time.

4. Advertise the Benefits of Direct Bookings

When rates seem similar on several channels, travelers obviously look for other reasons to choose one distribution channel over another.

Your most impactful digital hotel marketing effort is to display the benefits of booking direct prominently.

Promote the benefits in email marketing, advertising, on-property materials and reservation calls. These benefits may include price-match policy, flexible cancellation terms, priority room allocation, free Wi-Fi, no hidden fees etc.

5. Reward Loyal Guests

Loyalty programs are one of the most effective ways to bypass rate restrictions. Moreover, they allow you to market directly to loyal customers.

You should offer incentives to guests who book direct. Loyalty memberships often lead to long-term relationships with guests.

6. Invest in your Website

OTAs make huge investments in their websites and IT infrastructure to maximize conversion. While small and budget hotels may not be able to set up agile IT teams, they can still increase spends on the website.

Your prospective guest should be able to easily navigate the website to find a clear path to book a room.

Discover our top 8 tips for a great hotel website that converts visitors into bookers.

Consider using applications like Channel Managers, Property Management Systems and Website Booking Engines to leverage the power of technology.

You could also consider adding rate-check widgets, best-rate guarantee pop-ups and other such elements.

7. Monitor your Rates

Sometimes, OTAs inform you about rate disparity or other OTAs undercutting rates. However, you shouldn't wait for them to provide alerts.

Rate shopping should be a part of your daily routine. While it's better to use a rate checker tool, you could also use metasearch websites to spot-check rates.

You need to search for your hotel in different regions, since some OTAs may offer different rates as per different geographies. Most importantly, your efforts shouldn't be limited to OTAs, since you never know where your hotel might show up. A comprehensive search on Google will give you a better idea about rates on different channels.

8. Negotiate Favourable Terms

Last but not the least, you need to review distribution agreements carefully to understand the terms. If you've agreed to maintain rate parity, honour the commitment.

When it's time to renew the agreement, you should consider it as an opportunity to negotiate favourable terms. You could ask the OTA to adjust rate parity, lower commissions or eliminate certain availability requirements.

An OTA should never undercut your direct rates unless specific exceptions are made for campaigns. Moreover, you should be able to offer lower rates to your guests through email campaigns, loyalty club programs, social media and marketing channels.

Another area that needs your attention is the practice of OTAs to bid on hotel brand names in search engine marketing. Such advertising can mislead travelers into thinking they'd be booking directly with the hotel. If possible, you should negotiate an agreement that prohibits such behaviour, and run your own campaigns.

Build your Rate Parity Strategy

Hoteliers shouldn't give up on rate parity, ever. At the same time, it's important to realize that rate parity requires team effort, dedication, technology and clear procedures across the brand.

With a well-executed strategy, you'll be better positioned to achieve more direct bookings at a lower cost of acquisition and reduce OTA dependency.

While rate parity may pose certain challenges, it's important to consider pricing strategies to ensure coherence across several distribution channels. You should not only focus on rate parity, but also try to improve overall guest experience and offer benefits for booking direct.

An integrated strategy, focusing on pricing, marketing and user experience, is the way forward to impact revenue.

Next up in: Revenue Management