What is Rate Parity and How Can you Strategize it for Your Small Hotel?
Are you a small accommodation provider? Then you will no doubt have heard of the term ‘rate parity’. But what is rate parity and how exactly does this apply to you?
Let’s first understand what is Rate Parity?
Rate parity is “maintaining consistent rates for the rooms in all online distribution channels – Expedia, Agoda, Hostelworld, etc. – regardless of what commission the OTA makes.” When you partner with an OTA, they will usually require you to agree to rate parity.
Why engage in Rate Parity?
To bookers, it’s good that your room rates are unanimous across the web. If booking with you is more expensive than with an OTA, you could quickly lose your customers. Also, hotelier’s are well aware that OTA’s spend huge on marketing, and can regularly bring you a large volume of customers. You can consider this commission as a marketing cost.
Rate parity challenges for small hotels?
In small hotels, every cent counts. While it’s fair for OTAs to ask for commission for promoting your hotel to lakhs of people every day, paying this commission on top of your lowest rate cuts into revenue you would have earned had these people booked directly. Sometimes, excluding an entire room type from the OTA is the only solution that small hotels can think of. OTAs can deliver reservations to hotels at a net rate, meaning they can and do reduce prices below minimum contracted margins by reducing their commission margins. This puts enormous pressure on small hotels to keep checking the OTAs’ rates so they can match their prices, but it’s a time consuming activity. Then comes the challenge of technology. When OTA channels aren’t directly linked to a hotel’s PMS system through a channel manager, rate parity is even more difficult to manage. Small hoteliers have to log into multiple systems to update their rates.
What can you do to encounter these challenges?
Firstly, you don’t have the marketing budget to achieve the kind of reach that your OTA’s do, who bring you business. On the other hand, you want to drive more direct bookings.
Package your rooms to make them more engaging.
You can enhance your offering by adding options like sightseeing, free wifi, or free tickets to a place of entertainment. The OTA may be selling the room at a discounted price, but with your full price there are extras that are more valuable than the discount your guest would be getting if they booked with the OTA.
Lower your rates to target a specific audience.
This means that to drive direct bookings you can offer deals to:
- Instagram followers
- Facebook fans
- Your email database
- Phone inquiries
Remember to invite people to join these audiences through calls to action on your website. Tell them they can get special discounts and promotions which they will not get elsewhere.
Get on the Meta Search Engines
Meta search engines like TripAdvisor are a great way to compete with OTAs for bookings. Through TripConnect small hotels can bid to be at the top of the search list, because using a PPC ( pay per click) , it is most likely to be cheaper than the commission paid to OTAs. Meta search engines are increasingly popular. Not only can they compare and search properties, but they can choose the channel they want to use to book these properties.
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