While “rate parity” might sound like a complicated idea, it’s something that we are all familiar with.
NB: This is an article from gcommerce
For hotels, it is simply maintaining consistent rates across distribution channels. Sometimes it is a good strategy for hotel’s NOT to be in rate parity; you have an upcoming period with low reservations, run a flash sale through Online Travel Agencies (OTAs) and hopefully you can get some last-minute bookings through a variety of channels that would be impossible for you to advertise on without their network.
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However, for most hotels at most times, driving direct reservations through the official website is a main priority. If this is the case for your hotel, then you want to focus efforts to ensure that your hotel is within rate parity and users are not able to get a different rate elsewhere.
Example of Hotel in Rate Parity
Example of Hotel out of Rate Parity
Why is Rate Parity Important for Hotels?
A study conducted in the US found that 85% of consumers listed price as the most important factor in where and when they make a purchase. Reliability, choice and convenience were the other factors that helped determine a particular purchase decision.
If you think about your own shopping habits, there have probably been times you have been confronted with a purchase decision at a supermarket or a mall. You see two very similar items, you expect to get the same “value” out of both of those items, so you end up choosing the one that is lower in price.
Hotels are a bit different. The reliability, choice and convenience certainly play a larger role than compared to the purchase on a loaf of bread. However, the end product is usually exactly the same, a night in a hotel room. This is where hotels need to distinguish themselves with the advantage of delivering a quality guest experience, building on a rewards or frequent traveler program for repeat guests and providing incentives to book direct. However, there are still consumers out there that will choose to book through an OTA or similar channel simply because the price is cheaper.
How can hotels can help protect against consumers that are price comparing? If your hotel is in rate parity, and potential guests are not able to book a lower rate outside of your hotel, then there are no price incentives to drive them to book through an outside channel.
Why Rate Parity is Important in Digital Marketing?
It is estimated that the average guest at your hotel will visit your website about 5 times prior to booking a room. During that time, they are likely visiting social media sites, reading reviews, researching their vacation, etc. We call the process from research to reservation, the “booking funnel” and a proper digital marketing strategy will target different areas of the funnel to help guide a user to a direct booking on your website. If your hotel is not in rate parity, this could be impacting several different areas of your hotel’s booking funnel and digital marketing strategy.
We have observed GCommerce clients whose annual Organic Traffic rates decline as much as 22% when they are not in rate parity. During that time, the properties saw a marked increase in the percentage of revenue from OTA contributions. Considering that Organic Traffic is “free” (you don’t necessarily pay-per-click or for impressions), this is a huge decline in direct revenue for the property and in turn we had to increase digital marketing costs to make up for that decline in Organic Traffic.
Your hotel’s digital marketing strategy might be utilizing Display or Facebook Prospecting Ads. This is a great way to get in front of new customers and help grow the brand awareness for your property. You could be spending very efficiently and targeting the exact right audience, however, as those same individuals that interact with a Display or Facebook ad continue on their booking journey, it is very likely we will lose some of them to OTAs, especially if they are incentivized by a lower rate.
This is kind of a “double-whammy” where your hotel could be paying money to help bring potential guests into your sales funnel with digital ads, only to also pay a percent commission on those bookings when those users are inevitably enticed to book with a lower rate on an OTA.
When Is It OK To Be Out Of Rate Parity?
Much like all online businesses, OTAs are in a very competitive field battling for the same consumer dollars that you are. They organize hotel results on their sites based on price and rate parity as they are also trying to provide the best booking experience for their guest.
Understanding the market that you are in (bigger markets = more competition) and understanding your hotel’s needs can help you appear higher in OTA results for specific dates than your competitors. Taking this information into account, along with need periods from the hotel, being out of rate parity can actually be an effective strategy to drive short term bookings. However, due to the cost of acquisition on an OTA commission in comparison to the cost of acquisition on a direct booking, this is not an effective long-term strategy that we would recommend to clients, although it can be impactful at times.
How To Build A Balanced Digital Marketing Strategy Around Direct Bookings
While the OTAs can certainly be a powerful tool to utilize at times, at GCommerce, we recommend a balanced digital marketing strategy that focuses on direct bookings. Incentivizing guests to book direct is about more than just having the best, or an equal rate, it’s about well-adjusted strategies that help build brand recognition and customer loyalty. Your hotel digital marketing strategies should be focused on the potential audience in your sales funnel, focusing on the long-term sustainable competitive advantages that provide your guests with the value and experience they are looking for during their stay. At times, it may be necessary to provide better rates for OTAs, but the vast majority of the time, your hotel should be focused on increasing the digital marketing tactics that help increase the contribution of direct bookings and rate parity is a key aspect of such strategies.