Rate parity - Mystery from the world of OTAs
We believe in equality for all… prices? If you have ever worked with OTAs (online travel agency), you have probably heard the term rate parity. It is something to always watch out for, right? But what does it mean exactly, and why is there such a rule? Let’s go through the details together.
In OTAs’ legal documents, a rate parity clause means that your hotel cannot offer a lower rate for a particular room on any other online distribution channel, including the hotel’s own website. The latter requirement is included in the contract because when you sign with the agency, their commission essentially serves to cover the OTA’s marketing cost, hence they require rate parity to secure their business interests.
The question of legality
But is it legal or illegal and which countries allow it? It depends where in the world we are talking about. For instance, several EU members now prohibit all OTA parity clauses, like Belgium, France, Italy and Austria, while others only ban certain OTAs: for example Germany has banned B.com and HRS, and Sweden has banned B.com. In other major markets OTAs continue to use wide rate parity clauses without any restrictions.
Acquisition costs you - a lot!
When a guest books your room through an OTA, commissions can go up to 20% and beyond, which of course heavily affects your revenue stream. That’s why the goal is to decrease the dependency on OTAs and encourage direct reservations, as they have zero incremental cost, plus you have full control over your hotel’s bookings. In addition, an OTA site will only show limited information about your hotel, like they use an alias email address to guests instead of your direct contact details.
They are shoppin’ for your rates
OTAs use so-called rate shopper softwares to monitor whether there are lower rates of your rooms available on other online platforms, and if you get caught breaking their rules, you might be in for some serious sanctions, like lower ranking or even suspending your hotel temporarily from their site.
How to turn rate parity to your advantage
While you might have to present the same price everywhere, you can still stand out with the services you offer:
- You can define what that particular rate includes and you can attract bookings by offering more for the same rate, like free wifi, early check-in, welcome drinks, restaurant coupons.
- Offer exclusive deals through your website, like a 5% discount for anyone booking through your own booking engine.
- Provide a similar booking experience as the OTAs: make booking quick and easy, send instant confirmation.
- Tailor your promotions in a smart way by targeting certain guest segments in different ways: make personalized offers to only a particular group of people, or announce a prize contest for the first X number of bookers for example, or only for facebook followers, only for couples, and so on.
- Make sure you read the contracts between you and the OTA carefully and understand its conditions and what they require from your hotel exactly.
All the above can be easily done by using the right channel manager!