SC OCT NOV deutto
1 year ago
 

Regarding rate parity, proceed with caution

Recent government regulatory rulings against hotel rate parity are providing a spark for the industry to rethink common distribution models.

NB This is a viewpoint by Michael McCartan, managing director of EMEA for Duetto.

Hoteliers should take this opportunity to establish new pricing strategies, including offering promotions and value-adds through guest recognition, opaque offers and offline channels.

First, the facts.

Enforcement agencies in Germany and France have taken hard stances against rate parity. Most recently, the French National Assembly ruled to require the removal of any rate parity clauses from contracts between hoteliers and online travel agents.

The decision is having immediate ramifications in Europe and countries around the world are keeping a close eye.

Expedia and Booking.com reacted swiftly, both promising to axe clauses relating to rate parity in contracts with all of their European hotel customers. Regulators in France, Italy and Sweden accepted those changes.

Hotels and OTAs in these regions can now be as flexible as they please with discounting hotel room prices, both online and offline.

Meanwhile, in other areas around the world where parity is still enforced, including the US, hoteliers are becoming more sophisticated with their pricing, finding ways to fence deals or offer personalized promotions to a segment of customers without breaking contractual agreements.

A word of caution

Because new regulations allow suppliers to set lower prices, conceivably driving more direct and less costly business, it might appear at first glance that hotel suppliers are the winners here. For OTAs to offer lower prices, they would have to negotiate for discounted rooms or reduce their profit margin.

But a word to the wise: Be careful how you navigate these choppy seas. The OTAs will continue to ask for inventory at equal or better rates. Priceline CEO Darren Huston said as much in a recent earnings call:

“We will never charge our customers more. So we will adjust to whatever environment it is and we’ll make sure that we get the best pricing for our customer. And in some cases we have so much innovation we could do to make sure our customers don’t get shown prices that are uncompetitive.”

Essentially, if you refuse to offer similar publicly available rates, you could put your partnerships in jeopardy and lose that valuable demand that OTAs drive in times of need.

Therefore, the best strategy is to consider keeping your publicly available rates in parity on all channels.

Begin re-evaluating your business mix and become more discerning with whom you work.

Eliminate the distribution channels that will likely undercut you and improve your relationships with those who continue to drive consistent demand at fair prices.

Instead of segmenting your product by geography or demographic, consider segmenting by channel.

Then you can implement private or fenced promotions to tailor and personalize your offerings. Loyalty programs become even more important, as you can offer discounts to those who stay with you most often.

Loyal subjects

Loyalty programs provide login capability so customers can be identified at the point of booking. This way, hoteliers can use these logins to display discreet offers, including points promotions or even lower prices. And these discounts can be segmented based on customer profit.

For example, a top tier might include guests who stay 15 nights per year over peak dates in an expensive room type, or someone else who is more value conscious, but stays 40 nights a year.

When guests log in, you can offer them preferential prices, better than what a non-loyalty member would see at the brand.com site or what would be available through the best-available rates seen at third-party sites. These fenced offers would not violate rate-parity agreements and would incentivize customers to become loyalty program members and book directly.

Or, rather than dropping prices, a hotel could elect to offer the same prices as OTAs, but offer more value – such as premium wifi, mobile check-in or other perks – on its own channel in order to drive more direct business.

Taking advantage

In essence, the movement away from rate parity allows you to take advantage of various channels to provide the right product to differing audiences. Now you can put the right price in front of the right person to capture more demand and revenue.

On a broader scale, the industry needs its biggest players to lead the way, reconsider last-room availability and set the negotiating tone. In the meantime, hoteliers should prepare for this new world of pricing by making sure they have complete control over their rates across all channels independently and in real time.

To find out more:

Tnooz and Duetto are hosting a FREE webinar on this topic. “Hotel pricing in a post-parity world” takes place on Thursday 12 November at 1100 Eastern US, 1600 London, 1700 Paris/Berlin, and 2130 Delhi.

Click here for details, including a link to the registration page.

NB This is a viewpoint by Michael McCartan, managing director of EMEA for Duetto. It appears here as part of Tnooz’s sponsored content initiative.

NB2 Image by Shutterstock.

 

Share on FacebookTweet about this on TwitterShare on LinkedInEmail to someone
 
 
Special Nodes

About the Writer :: Special Nodes

Special Nodes is the byline under which Tnooz publishes articles by guest authors from around the industry.

 

Comments

Your email address will not be published. Required fields are marked *

  1. Ben Bethel

    Rate Parity rules are a clear violation of the Sherman Act, where marketing/advertising a product for sale across multiple locations or distribution channels at the same prices clearly violates antitrust laws. By being penalized by OTAs for not being in parity, hotels are then forced to market everything at the same exact price. If not, then we’re punished by being forced ‘off the page’ or down to page 20 of hotel listings. This will create some issues… first, consumers will no longer trust OTA sites and just go direct to the hotel… second, someone out there with $5K in their pocket will create the ‘craigslist of hotels’ – if craigslist doesn’t do it first…. basically, a margin free, commission free model to load rates and inventory, pass on some savings to consumers, and make a few hundred million in the process… I think margins need to start going down, down, down… they’re really high, and a 3-5% model would have me exclusively listing on the Microsoft sphere – Expedia PSG and all of their partner sites would have complete exclusivity with my properties, and I’d pull my inventory off any non Expedia PSG sites.

     
  2. RobertKCole

    Information is power and the major OTAs have more/better information than even the largest hotel groups. They are processing hundreds of terabytes of data daily, capturing an expansive range of data elements and performing thousands of tests to identify signals capable of adapting pricing, sort order and content based on user behaviors in real time. In short, the hoteliers are not only out-gunned, but in the case of many independents, walking into a gunfight armed with a teaspoon.

    It was the hoteliers that originally instituted rate parity (technically resale price maintenance) as a defensive strategy to combat intermediary tactics that were being used to erode hotel margins and capture incremental market share. RPM helped individual properties gain control over their retail pricing structures and ensure that consumers were able to efficiently search and book the best available retail pricing,

    In an RPM-free environment, consumer price transparency is lost and pricing power transitioned to the intermediaries who are free to steer business to suppliers that are compliant with the commercial terms they dictate. Those that refuse will likely lose visibility through that channel, further reducing volume.

    Offering discounts to frequent/loyal guests is one strategy, but that results in eroding profitability from the hotel’s most lucrative business segment, while doing nothing to attract the much larger universe of travelers that are either not aware of the property, or brand agnostic.

    Reaching, appealing to, converting and retaining those individuals is not a simple task. If sufficient volume is not available through an intermediary’s production-based model, then a comparably higher risk budget-based marketing expense model will need to be employed. Sadly, hoteliers not only hate those, but they are also not nearly as strategic or efficient as the intermediaries they will be competing against.

    If the hoteliers have access to alternate sources of demand that are more cost effectively exploited, that’s great, no need to work with an intermediary. If not…

    Sometimes one needs to be careful what they wish for… especially when they fail to consider all the factors or history when naively making that wish…

    Somewhat ironically, the hotel industry has once again made its bed, and thus will be forced to lie in it…

     
    • Marc Marquez

      >They are processing hundreds of terabytes of data daily, capturing an >expansive range of data elements and performing thousands of tests to >identify signals capable of adapting pricing, sort order and content based on >user behaviors in real time

      Where are you getting this information? At 300 Terabytes/Day, they would be processing more data than the global internet traffic in 2000[1]

      [1] https://en.wikipedia.org/wiki/Internet_traffic

       
      • RobertKCole

        Marc – Yes you are correct. The source is direct from Expedia CEO Dara Khosrowshahi, and it clearly not a mistake or typo. Please note that this stat was before Expedia acquired Travelocity or Orbitz, so assume that figure will be much higher as those platforms are integrated into Expedia’s tech platform…

        Here is the full context of the quote:
        “in general we see that data in the travel industry is exploding. Data in general on the Internet is exploding. As an example, in 2005 the size of the entire Google index was 200 terabytes. Today Expedia processes over three times that amount in a single day. We process over 600 terabytes per day. People are shopping more because there is so much data available to them from so many more sources, not only us, but there are so many sites out there. And, their ability to get to that data is easier than it ever has been.”

        Source: Interview: Expedia’s CEO on the Transformation of Travel Booking | Dennis Schaal/Skift – Sep 02, 2014 | link: http://j.mp/1wQIMHw

        Another example of a lot of data being captured/evaluated? The individual responsible for Orbitz’ hotel infrastructure in 2013 was quoted as saying they were “collecting daily around 100 million records related to price quotes—including when customers viewed a particular rate and if that rate had changed since its last viewing.”

        The purpose? Predictive analytics, survival rate testing of the accuracy of hotel pricing. The results of the analysis produced savings of $10 million/month. That’s why OTAs are using big data to boost operating efficiency and improve conversion. It takes a lot of data to be accurate with those predictions, and they are just getting started…

        Convinced?

         
  3. Dorian

    “Therefore, the best strategy is to consider keeping your publicly available rates in parity on all channels.”

    And then quickly go out and hang yourself and let Booking.com peck at your bones.

     
 
 

Newsletter Subscription

Please subscribe now to Tnooz’s FREE daily newsletter.

This lively package of news and information from Tnooz’s web site provides a convenient digest of what’s happening in technology that drives the global travel, tourism and hospitality market.

  • Cancel