Rate Parity: The Battle
Have you ever wondered why the search for a hotel room often returns identical or near-identical results from all of the metasearch engines and online travel agencies (OTAs)? One major reason is that hotels and hotel chains usually have “rate parity” agreements with OTAs.
Simply defined, rate parity is maintaining consistent rates for the same product through all online distribution channels regardless of what commission an OTA makes. It ensures no channel is being favoured over another.
In some ways, rate parity is beneficial for hotels; and it others ways, it isn’t. Either way, it is under challenge and most industry observers believe that soon, it will either loosen up or disappear entirely. This is likely to have a massive impact on how you shop for hotel accommodation.
Who likes rate parity?
The big OTAs generally favour them; Expedia doesn’t want to be undersold by either Priceline or some niche online agency, and Priceline feels the same way. Most big hotel chains also support, or at least accept, price parity agreements: They’re passionate about maintaining control over pricing, chain-wide.
However, some individual hotels don’t like the fact that, with a parity agreements in place, they can’t sell a room at a lower price on their own website than through the chain’s website or an OTA. Individual hotels pay a large amount of commission – 15% to 20% – to OTAs, and that’s a lot off the top to give away to a third party. They’re willing to give that much away, however, because they know that a huge portion of their total room bookings originate from customers who find them through OTA and aggregator searches.
How would a weakening of price parity affect you?
The primary question is whether individual hotels could avoid parity agreements and offer rates on their own websites lower than those they give the big OTAs. If so, aggregators could search hotel’s own website in the search process. Aggregators would then displace OTAs as your initial go-to source for hotel search. And even with all the online searches, many travellers would be more likely to check with a hotel’s own website for better deals.
Major changes won’t come over night. But they will come, so make sure that you’re prepared.
Credit to Ed Parkins – Chicago Tribune
To find out more about rate parity agreements, contact Hotel Revenue Management today! Simply email jaco@hotel-revenue-manager.com or give us a call on +27 744 90 77 11.
