Rate Parity ...What...Why...How...When?

Read through some interesting articles on Rate Parity lately and saw a lot of different stuff on the net. So a quick summary on what's this all about:

Rate parity shows up in the Revenue Management lexicon in two contexts, a strategic pricing principle and an OTA contract provision.

The first is a strategic Pricing concept that says: "No matter where your customers choose to shop for your hotel, they will find a consistent price." Not a bad idea, if you do not want to use channels to actually differentiate your offering. Ultimately, this will support your brand by adding to your rate integrity. On the other hand, it makes less sense if you want to favor a particular channel (for example your own web site) and train guests to go there for your lowest price.

The second context for rate parity is in contracts with your third party online travel agents (OTA´s). These OTA´s seek to distribute your hotel to their audiences and in return make several demands on your hotel, one of which is that you provide them with rate parity. In other words, you will not undercut the price they charge (either on your own web site or on a competitive OTA). This sounds pretty straightforward, but can get complicated.

Rate parity is important for most properties most of the time. It helps avoid confusion over your price point in the market and it is a requirement to do business with a few large distribution channel players. In down markets, many properties can´t even break even without the steady flow of traffic from Expedia, Booking.com, etc  and their subsidiaries (Remember the consolidation happening in this space!!). If your property is one of them, that is another strong reason to practice rate parity. But if neither of these conditions exists, remember this piece of advice and don't offer rate parity just because "Everyone else is doing it!

It's high time that the hotels or hotel companies should start proactively investing in identifying Rate Parity.  These reports are great tools to flag out the number of times your hotels are cheaper on a OTA (Certified or Non Certified) compared to brand website.

Rate parity has a direct impact on Loyalty Members as well. You can offer special discounted rates to your loyal members. But if the member can see cheaper rates on other websites for your hotels, it just makes the loyalty program almost meaningless..Remember it's not just a plain google search anymore. The Meta Search sites are trying to grab the top space as well which means the customer now can see a quick scan of rates across various websites in one go.

This is a strategic threat and the hotel company's MAIN issue is the rate leakage through Wholesale (MAINLY STATIC RATES).. The direction is to take a hard look at the Static Wholesale rates across the business and phase them out where possible.. 

As soon as the 'rate' in rate parity hits the distributor or merchant, all hell breaks loose. A rate parity agreement in the wholesale market is a cartel which the hotel industry should treat with the contempt it deserves.  Take the current TV advert for Trivago - 'same hotel, same room, two different prices', and the example given is £117 and £73 - really? £44 of a difference - wow - rate parity is really working!

And the first step can be to know what's in your WHOLESALE & OTA Rate Contract!! 

And next you can look at this to know more.