There is a lot of confusion about parity performance affecting conversion rate for hoteliers.
NB: This is an article from AxisRooms
But we wanted to simplify things and help you understand the nitty-gritty elements surrounding rate parity and how parity performance can impact the conversion rate of the hotel businesses. You need to understand multiple things before we jump onto the core part.
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So, without further ado, let’s understand the basics.
What Is Rate Parity?
The agreement between the online travel agencies (OTAs) and hotels restricts the hotels from tweaking the prices on different booking mediums and showcasing different prices.
You need to use the same terms and rates for a specific room, irrespective of your selected distribution channel.
Hoteliers have the freedom to update their prices, but the change must be consistent across multiple networks, and you can’t tweak the prices directly or indirectly on specific booking channels.
It helps OTAs prevent business owners from taking away their business by pricing high prices on their platform and charging less on their direct booking websites.
It also ensures that the hoteliers don’t favor one OTA platform and hinder the market opportunity for the others.
Depending upon the country and the parties involved, the rate parity agreement differs and is broadly categorized into two.
- Wide rate parity
A wide parity restricts the hotels to not undercut the room prices set on one OTA channel. The agreement applies to other distribution channels, including the hotel’s direct booking website.
- Narrow rate parity
In Europe, the rate parity agreement has received a lot of backlash and has been banned across different countries. So the narrow rate parity clause allows hoteliers to lower their rates compared to the OTAs but not on the public platforms.
Hotel businesses can offer indirect discounts and offers using different offline channels, including telephone booking, emails, or loyalty programs. It enables hoteliers to minimize the dependency on the OTAs and create a strong, loyal customer base of their own.
It can help them save multiple-fold commission money that they pay to the OTA platforms.
Countries like Germany and Sweden have banned the rate parity clauses for some OTAs, and different big OTA players have agreed to adapt to narrow parity clauses in different countries.
Countries like France, Austria, Italy, and Belgium also have made strict changes to encounter the drawbacks of rate parity clauses and give hoteliers the freedom to decide their room prices according to their choice.
But how are rate parity clauses and news surrounding it related to the conversion rate of your hotel business?
The price of your hotel on major OTAs and your direct conversion booking channels affect the conversion rate.
A recent study conducted by Pegasus collected relevant data from different small and large properties, branded and independent spaces, casinos, and resorts, among others, and found that:
Two situations were analyzed during the research. One is when the hotel’s direct price is higher than the OTAs and the other when the hotel’s direct price is the same or lower than the OTAs.
Over 67000 availability searches around multiple hotel sizes and segments were conducted to dig deep into how is parity performance affecting conversion rate of the booking engine of a hotel brand.
As you can see in the details, when the hotel’s direct price was higher than the OTAs, the conversion rate was around 2.98%.
But when the hotel’s direct price was the same or lower than the OTAs, the conversion rate shot up to 4.66%. Here are the concluding results.
- A surge in conversion rate by 56%
When the hotel prices on their website were similar to or lower than the OTAs, they witnessed a whopping rise in the conversion rate by 56%. If the hotel prices their rooms higher than the OTAs, people prefer to choose the OTAs as their transaction medium.
Increasing the prices on the direct booking portals can cause businesses to pay higher commissions to the OTAs and decline their direct conversion rate.
- Statistical significance greater than 99%
It was found out that the statistical significance of the data was greater than 99%, and the P-value was 0.0000. Out of 16,260 visitors, only 485 converted when the hotel’s direct booking price was greater than the pricing on OTAs.
And out of 51,318, the converted customers were measured at around 2,393 when the price of the direct booking website is in parity to or lower than the room prices on OTAs.
The digitization in the hotel booking process and the rise of multiple OTAs globally have enabled customers to choose from multiple options for hotel booking.
Your guest will check on multi-channels and investigate different prices to decide.
So if you want to increase your business conversion rate, minimize the dependency on OTAs and lower the high commissions; you need to maintain a similar or lower number of your room prices across all the distribution channels.
If you take action on how is parity performance affecting conversion rate and improve it, numerous business opportunities are available that can deliver you significant results in terms of business numbers and conversion rates.
It’s time you step towards improving your parity performance.
A Dedicated Channel Manager Can Assist You
A powerful channel manager can help your business create a flawless ecosystem to manage your online distribution channels and update the dynamic prices on different OTAs and your website.
Based on the availability of the room, local market trend, and different factors, you can automate updating the prices on multiple online booking platforms to escape the hassle of manual processing.
You can shift your focus from maintaining the price to improving the productivity of your workforce and enhancing the guests’ on-site experience.
But finding the right channel manager out of hundreds available in the market is a hectic task at hand.