During one of my early days at a hotel reservation desk, I received an email followed by a call from an OTA manager. He stated the hotel was not maintaining online rate parity. I did not understand what did that mean. The person said there was some serious rate disparity issue.
Upon sensing my lack of knowledge; he asked me to Google my hotel. When checked, I realized that rates of the same room type for the same day varied between $16 to $32. It gave me serious dizzy.
It took countless calls, many emails, and more than a day to bring the rate parity. I kept a check on it every day after that day.
If you have ever managed rates for your property, you surely have received emails and/or calls from different OTA managers to sort rate disparity. One thing that irks OTAs more than a critical review is hotels not maintaining the rate parity.
At the present time, rate parity has become an important aspect of your property’s ranking and visibility on different online portals. Several OTAs even penalize the partner hotels by decreasing their visibility on their platforms for not maintaining the pricing parity.
Through this blog, we will try to understand different aspects of parity and ways to maintain it.
Table of contents
What is Rate Parity?
Rate parity is the governing principle of the hotel industry for selling via OTAs. It means that the displayed price of the property is uniform across all the OTAs, irrespective of the commission you pay them to bring you bookings.
It is an ideal and convenient situation as the prospective guest gets the power of choosing his preferred OTA with no confusion. Rate Parity Clause is a part of the contract that OTA and hotel sign.
Rate disparity occurs when an OTA does not honor that contract and starts selling the hotel at a lower price than others. Towards the end of 2010, hotels and OTAs considered rate disparity as a major challenge. Soon, hotels and OTAs started finding the causes of rate disparity and the prevention methods.
However, before we dig deeper into the causes of rate disparity and the measures to prevent it; let us understand some history of rate parity.
History of Rate Parity
Before technology took the driver’s seat into hospitality, people made bookings via phone calls, emails, local offline travel agents, or walked into the hotel. The bigger hotels used the GDS to penetrate the global market. However, the B2C market mostly remained untapped until the OTAs came into the picture.
Somewhere in the 2000s, companies like Priceline, Expedia, Booking.com took baby steps into the US market. Subsequently, Agoda was born in Singapore while Makemytrip, Yatra, and Cleartrip were launched in India.
With time, technology took a tremendous leap, making the internet reachable to everyone. The Internet facilitated people with the ability to book their hotels in any other part of the world from their desktop or cellphone.
Consequently, the rise of different websites blessed the consumer with choices.
Hoteliers too immensely benefited because of the availability of multiple distribution platforms (OTAs) to sell the inventory. The new players started using their funds to offer discounts to the clients without hampering the hotel’s net rates.
Soon enough, the existing players felt the heat. They as well started undercutting the rates to retain the customers. Every OTA started blaming the other one for disparity creating chaos in the market. Hotels were the ones at the losing end of this game.
Bigger hotel franchises invoked the parity clauses in around 2011 to prevent the third party from advertising lower rates than their website.
What is the Rate Parity Clause?
Rate Parity Clause or Price Parity Clause, commonly known as the PPC, is a part of the contract the OTA signs with hotel partners. The hotels introduced this clause to ensure that OTAs do not offer a lower price to the customers than the hotel itself. Several changes have been made to the clause since then.
All the OTAs restrict the hotels from offering a better price to their competitors. Certain OTAs even restrict the hotels from selling at a lower rate on the hotel website under the parity clause.
This price parity clause is divided into Wide Price Parity and Narrow Price Parity. The Wide Price Parity Clause bars the hotels from undercutting the selling price on any OTA and/or their website. The Narrow Price Parity Clause lets the hotel sell their rooms at a lower price in an offline market.
What is Rate Disparity?
When distribution channels display different prices for the same room type of your hotel for a particular day, we call it rate disparity. OTAs do not welcome disparity since it decreases their credibility and your saleability online. Several factors trigger rate disparity.
Causes of Rate Disparity
Rate disparity is triggered by various factors. Sometimes, OTAs trigger the disparity, and other times the hotels. Many a time, hotels are not even aware that they are creating disparity. I’ve listed several factors that lead to rate disparity.
Missing Room or Rate Types
If you have Standard Room type as your base category on Booking.com, and Deluxe Room type as your base room category on Expedia, you are bound to have the disparity. The rate shopper picks the lowest available rate for base occupancy.
Therefore, make sure to have all room types, rate plans, and occupancies updated correctly on all the OTAs.
Pushing Wrong Updates
If you are updating the rates manually on different OTAs, there are significant chances that you will make a mistake somewhere and update the wrong prices. A better practice to minimize such errors is to use channel manager software to update the prices. Always ensure to check for base rate adjustments.
Uneven Discounts
While offering discounts on OTAs attracts the customers and gives a better ranking on their site, uneven discounts cause disparity. Offer the same open deals on all the OTAs to avoid disparity.
OTA Discounting
Sometimes you get flagged for disparity; despite setting the rates with the channel manager and offering the same discounts. In such cases, the disparity is caused by the OTAs.
To get better sales, the portals regularly offer additional discounts from their side. OTAs offer these discounts in the name of coupon codes or under banners like flat sale, flash sale, weekday sale, loyal customer sale, etc. Parity checker tools used by the other OTAs detect these discounts and flag the disparity.
The OTA which offers these discounts often argues that taking the discounts down will lead to decreased visibility and fewer conversions. Another argument the OTAs present is that they are offering the discount from their end, keeping the net payable rate intact.
A high price variance on different sites can cause trust issues among the users.
Unless offered as a bundled deal or an opaque deal, the best idea would be to stay away from these deals.
The above factors trigger disparity which causes you a loss of business, trust, and reputation. Hence, let me help you with steps to prevent rate disparity.
How to Maintain Rate Parity?
In contrast to a popular belief, maintaining rate parity is not a hard task. If you follow these four simple steps, your rates will always be at par.
Tech to Check Disparity
OTAs check for disparity using rate shopping tools. These tools are available to hotels also and can be easily integrated with your channel manager. Certain PMS and channel managers offer the rate shopper as an in-built tool.
This tool checks for your hotel’s price for a defined time frame on different OTAs. Investing in such a tool can prevent you from a potential loss that you might suffer due to one OTA matching the prices with the other OTA.
Dynamic Pricing
As crazy as I may sound to you, but keeping a floating price prevents OTAs from doing any tomfoolery with your prices. Use dynamic pricing tools available in the market which corrects your sell prices as per occupancy and demand.
Daily Check
It never hurts to monitor the OTAs daily. When you keep a constant vigil, you will prevent disparity issues.
Getting ahead of OTAs
Let us be honest about this; we can’t beat OTAs in the pricing. Instead, we can beat them at the offerings. Offer perks like free early check-in, free late check-out, meal upgrades to people booking via your website.
Moreover, you can also offer them free pickup & drop services, room upgrade, or even free cancellation if possible. These gestures help in improving conversion from your booking engine.
In general, hotels having price parity tend to get a higher ranking on OTAs.
Over the last few years, however, certain nations have got rid of the parity clause from the OTA’s contract giving a freehand to the hoteliers.
Further, you can also work with hotel revenue management professionals to cope with rate parity issues.
How are Different Nations Managing Rate Parity?
Despite price disparity being a global nuisance, every nation has different policies to deal with it.
US and Latin America
There are no pricing regulations in Latin American nations. The US too does not have any pricing regulations. Though, it requires that hoteliers have as transparent pricing as possible.
France
The French government passed Macron Law in 2015, ending all the pricing parity clauses imposed by OTAs. This resulted in the power of pricing getting transferred back to the hotels.
Austria, Italy and Belgium
Austria ended the pricing parity clauses in 2016, while Italy and Belgium followed suit towards the end of 2017. Hotels are no longer required to sell at a higher price or at par with OTAs on their website.
European Nation, Australia and New Zealand
In July 2015, the EU moved the OTAs from the wide parity clause to the narrow parity clause. Australia and New Zealand did the same in 2016.
India
In India, the OTAs only expect you to guarantee the price parity across their competitors. The insistence on maintaining meta-search parity is now declined. Hotels often offer the best price guarantee for the direct booking made through their websites.
Earlier, there have been instances where only certain OTAs were banned from invoking the pricing parity clause. German government banned HRS from using any pricing parity clause in 2013. In 2015, Booking.com too was asked to remove the clauses.
FAQs
OTA stands for an online travel agency or online travel aggregators. Some leading OTAs are Agoda, Booking.com, Ctrip, Expedia, Goibibo, MakeMyTrip, etc.
This would depend upon local laws in your country. It is, however, advisable to maintain rate parity as it helps build a customer’s trust in your hotel.
Absolutely. A channel manager software pushes the same rates across all the OTAs, thus reducing the chance of disparity. It is the OTAs end which you need to monitor.
If you do not follow rate parity, you will lose your property’s ranking on different OTAs, lose customer’s trust, and lose revenue.
As mentioned earlier, many channel managers and PMS providers offer an inbuilt rate shopping tool. The price of a rate shopping tool is negligible compared to the revenue you’d lose because of rate disparity.
Conclusion
Despite what a court or a Government says, it is in the best interest of the hotel and the consumer to maintain pricing parity on different online portals for all the open rates. Set correct discounts for all the OTAs. You can always rationalise the high commission charged by an OTA with reducing the discounts offered as opaque deals.
These clauses may change in the due course of time.
Until then, happy selling..!!
