Interesting article:
Revenue managers predict end of OTAs, parity
Rate parity
If only to complicate matters further, the panelists foretold of the inevitable demise of rate parity.“It already is a thing of the past in some markets (such as Europe),” Hornick said.
Revenue managers should be able to strategically set different types of rates on different channels, Gaston said.
Ultimately, it depends on the economy, Hornick said. “If demand is soft, then rate parity will survive another round of contracting,” he said. If, however, the economy turns around, hoteliers might end the practice.
Many of Hornick’s clients are prepared to do so, he said. Almost all of them have a plan in place if the opportunity presented itself.
The onus to do so is on the major chains, the panelists agreed.
“The brands have really put a lot of marketing efforts behind parity and best rate guarantees in the (United States),” Travelocity’s Levine said.
“The argument has been more a question of whether we continue to give the OTAs the opportunity to achieve rate parity with brand.com,” Hornick said.
I think that hostels should not give up control of their rates to third parties, and should take every opportunity to kill off rate parity in the hostel industry. Just say "no", or ignore it, and definitely don't be silent about it. :)
12 years
There is absolutely no reason why the OTAs should be able to dictate the rates listed on a property's own website. The only way that we will be able to get rid of the rate parity clause, however, is if the properties refuse to accept it. It will not go away on its own.
12 years
It seems that the hotel industry may look at rate parity concerns from a different perspective than we do in some cases.
Does an obligation imposed by hotel groups preventing online agencies from selling at a price lower than that on the website act as a barrier to competition?
…
[Customers and discount websites] feel that the price freedom is being threatened. They esteem that preventing discounters from sacrificing a part of their margins for the benefit of consumers is deplorable.
The article Two conflicting logics suggests that hotel groups are imposing the parity requirements on the online booking sites to prevent them from offering a lower price to customers than they can find on the hotel’s own website.
This is in stark contrast to the issue that hostels face. In our case the booking sites are imposing rate parity rules on hostels, which deny us the ability to offer better rates on our own websites for our own services.
Obviously, the lowest available price should be on the hostel’s own website because it’s the one place where we’re not forced to pay commissions. The difference could be passed on to the customer, so it would be a win-win situation for the hostel and the guest.
12 years
That quote is a lot of business jargon which assumes we know exactly the meaning of lots of terms and concepts. It's greek to me. What does rate parity mean? I infer that it means charging exactly the same for a given type of bed wherever it is advertised, is that right?
What is an OTA?
12 years
You’re right. Rate Parity is a requirement that says prices can’t be lower in one place than they are in another. Hostelworld, Hostelbookers, and Booking.com all require rate parity from hostels, meaning that we cannot offer lower rates on any other site (including the hostel’s own webpage) than we offer through them. To see the exact wording from their contracts, look here.
OTA is short for Online Travel Agency (what we commonly refer to as the booking sites – Expedia, Travelocity, Hostelworld, Hostelbookers, etc.)
12 years
Thanks Brian. Clearly 'rate parity' represents almost bullying by the booking sites. The booking sites seem to be gradually tightening the screws to manipulate the whole booking system.
12 years
Given the general hostility to extensive yield management around these parts, I'm surprised this is much of an issue - personally I dont think guests should be penalised for the way in which the make a bookings, so I've always had rate parity across all sites.
12 years
I think most of us would (and do) offer the same prices across the board too. If we did want to offer a different rate to customers who book on our own site, that should be our prerogative though. The rate parity clause denies us that option.
It also becomes an issue when some booking sites charge a higher commission than others but require rate parity all the same. Even a difference of 5% can be significant to our total revenue at the end of the month.
12 years
Airlines are fighting against rate parity as well, and some of them came up with a good way to get around it:
Contracts with the online travel agencies prohibit airlines from offering lower fares on their sites. Instead, airlines such as JetBlue Airways Corp., Spirit Airlines Inc. and Virgin America often provide discount codes in emails to their frequent fliers or through Facebook and Twitter.
This is a wonderful idea! You could also simply post the codes directly on your website next to your rates. The standard rate would be equal to the booking sites, and with the promotion code customers could get an automatic discount or bonus as a reward for booking directly with your hostel.
Frontier Airlines goes so far as to penalize passengers for booking elsewhere. For example, customers who book through any other site will be denied seat assignments until they arrive for check-in, they’ll receive fewer frequent flyer miles, and they’ll be charged higher fees:
Fees for changing itineraries, going standby, travelling as an unaccompanied minor or bringing a pet onboard will be $50 higher for those booking elsewhere.
Frontier also encourages them to book through their own site by lowering the number of frequent flyer miles needed for a free flight.
The airlines face a delicate balance. The online travel agencies account for the lion's share of ticket sales. But the airlines want to trim the fees that eat into their profit margins.
The same relationship exists between hostels and the booking sites in our industry.
Besides the discounts, the airlines say their sites offer passengers a better experience, providing up-to-date seat maps, details about in-flight entertainment and more seamless booking.
We have the same opportunity to provide more and better information on our websites, like our complete bed availability, listings of local events, transportation, touristic info, and insider tips. We have to be conscious of these things, because this is the best reason for our guests to look for our websites in the first place.
While travellers save money, they also must do without the convenience of one-stop shopping.
Sacrificing convenience to save money is nothing new for backpackers. How often do they take 8-hour trains to save $10 on a 4-hour trip? How many of them live off of a steady diet of rice and pasta to stretch their budgets just a little further? They take great pride in their ruthless economizing. It’s practically the foundation of backpacking.
Read the whole article here.
Eventually I foresee a class action lawsuit by travel service providers against the booking sites to abolish the rate parity clause (or at least the requirements regarding our own websites). It may not result in anyone actually lowering the rates on their sites, but it would be an important step in the right direction to take back control of our industry.
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