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.
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.
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.
NB2 Image by Shutterstock.
Special Nodes is the byline under which Tnooz publishes articles by guest authors from around the industry.