Recent developments in legislation throughout the world have made rate parity an important topic in the hospitality industry.
But despite its frequent appearance in the news, rate parity remains a complicated issue, and one that takes a different form from one market to the next.
To understand what exactly is happening with rate parity in the greater hotel industry, our researchers examined it on a global scale. Presented here, their findings offer a comprehensive look at rate parity from its origins to its current legal status in countries around the world.
What is rate parity?
Rate parity is a legal agreement between hotels and online travel agencies (OTAs) in which the hotel guarantees to use the same rate and terms for a specific room type, regardless of the distribution channel. The price of the room can regularly change – which means the exact rate is flexible – but it must always remain the same across all distribution channels, both direct and indirect.
While the specific terms of each rate parity agreement vary depending on the country and parties involved, there are two broad categories: wide rate parity and narrow rate parity.
Wide rate parity
Wide rate parity is the more restrictive form of parity agreement. In such clauses, a hotel agrees not to undercut the room prices that the OTA charges for their hotel. This agreement generally applies to all distribution channels, including other OTAs and the hotel’s own website.
Narrow rate parity
Narrow rate parity developed in response to intervention from regulators in Europe. Such clauses generally allow hotels to offer lower rates to other OTAs, but not publicly online through their own websites. Narrow rate parity clauses also generally don’t restrict the hotel from offering lower direct rates when it’s through indirect or offline channels, such as email or telephone bookings, or to guests in their loyalty programs.
How did rate parity first come about?
Franchisers of hotel chains were the first to use online rate parity agreements to prevent third parties from advertising lower rates than what the chains were offering. Later, as hoteliers began to have different prices per room type, OTAs began introducing rate parity into their negotiations with hotels.
How have hoteliers adapted to rate parity?
While rate parity clauses generally restrict the hotel’s ability to offer and promote lower rates online, hoteliers have used alternative methods to incentivise direct bookings. These methods, which vary depending on the specificities of the hotel’s agreements made with OTA partners, may include the following:
- Publishing direct website rates alongside the OTA rates on metasearch sites. While the hotel’s official website rates and the rates advertised by OTAs remain in parity, travellers can choose to complete their booking on the hotel’s website. On trivago, for example, the expert feature Rate Connect places a hotel’s official website rates in a blue box at the top of the list of deals on their hotel profile, where it will have greater visibility and resonate with the travellers who prefer to book direct.
- Packaging additional amenities such as free Wi-Fi or a complimentary breakfast to increase the value for the traveller who books directly, and advertising these deals on their hotel profiles In such cases the hotel’s rates are not lower than the OTAs’, but the perceived value of the guest experience they are able to offer at the hotel is visibly higher.
- Promoting private rates through customer loyalty programs, direct marketing email campaigns, or register-only travel providers. With this approach, hotels encourage both direct bookings and brand loyalty.
- Listing certain room types exclusively on the hotel website, so that those room rates are not subject to rate parity agreements with OTAs.[1] It’s the hotels with optimized, integrated booking engines that are in the best position to employ this method.
