With the right approach and the right pricing strategy, rate parity can actually be a great opportunity to enhance your guest experience and generate increased ancillary revenue streams for your hotel.
Rate parity can be a difficult concept to understand and even harder to manage. So much so that many hotel revenue managers often wrongly assume that it is a bad thing. However, with the right approach and the right pricing strategy, rate parity can actually be a great opportunity to enhance your guest experience and generate increased ancillary revenue streams for your hotel.
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Let’s explore what rate parity is and what you need to take into account when you design your pricing strategy.
What is rate parity?
In the hotel industry, rate parity is an agreement between hotels and online travel agents (OTAs) to ensure that prices for a room remain consistent across all distribution channels, including a hotel’s own website. This agreement might be a legal requirement, as is the case in the UK where OTAs are not allowed to use misleading practices such as discounts or hidden fees to increase the price of a booking or enforced by a particular OTA to prevent hotels and other distribution channels from undercutting them.
Generally speaking, there are two types of rate parity agreements:
- Wide rate parity. This is the most restrictive type where hotels are not permitted to undercut the room rates advertised by OTAs.
- Narrow rate parity. Where hotels are able to offer OTAs discounted prices provided they don’t do it publicly. Hotels are also able to undercut OTAs if a booking is made through a loyalty program or reservation is confirmed offline (telephone or email bookings).
The type of rate parity agreement that you have to comply with will depend on where your hotel is based, and which OTAs you choose to work with.
Why you should account for rate parity in your hotel pricing strategy
Maintaining rate parity is important because it provides consumers with transparency: they know that they will pay the same price regardless of which online site they use to confirm a booking. However, rate parity can impact a hotel’s revenue management model unless they take it into account when they design their pricing strategies. The good news, though, is that with the right approach, rate parity can actually provide your hotel with a number of benefits, especially when it comes to narrow rate parity.
Here are a few reasons why you should account for rate parity in your hotel pricing strategy and how, with the right approach, you can overcome the challenges of rate parity and boost your direct sales.
You get more control over your distribution channels
Whether you rely on attribute-based pricing or demand-based pricing, it’s important to find a good balance between direct bookings and bookings processed through OTAs. OTAs offer a number of benefits including increased reach and consumer trust. But direct bookings are always best because you get far more insight into your reservations. You also get direct contact with your guests before they arrive so you can work on personalising and improving their booking experience. Plus, direct bookings are far more sustainable as you don’t have to pay any third-party commissions.
The biggest benefit of rate parity in this regard is that you get more control over all your distribution channels. You get the assurance that they are not going to undercut your prices, so you can focus instead on promoting the benefits of direct bookings to guests via email and through your loyalty programs.