Rate Parity

As a consumer, when you’re out shopping, wouldn’t it be nice to know that the TV you’re going to buy at Target is the same price at Best Buy, Wal-Mart, and every other store that carries that TV? Convenient for you yes, but what happens to the little mom and pop electronics shop that is selling the same TV? They’re losing out on revenue because they’re obligated to sell that TV at the same price, and they may not be getting business because they cannot market themselves the way big box stores can.

Think of each big-brand store above as an online distribution channel, and the mom and pop shop as an independent property. This paints a pretty simple, but accurate picture of how rate parity works.  Rate parity can be defined as maintaining consistent rates for the same products in all online distribution channels – Expedia, Orbitz, Hotwire, etc. – regardless of what commission the OTA makes.

Even with the negative reputation rate parity has, there are some positives.  We’ll dig into who likes rate parity and the importance they see it having in the industry as well as those on the opposing side, looking to get rid of it.  

For rate parity

There are two major groups in the hospitality industry that are for rate parity but have different reasons as to why they like the structure. The first group is brand hotels, as they are able to maintain channel-wide control over pricing. This helps avoid confusion over price points in the market.

The other group for rate parity is OTAs. They favor rate parity since there is no chance of underselling across brands. So if an OTA can get a traveler on their site, they know they have the lowest price in the market. This allows OTAs to drive a steady flow of traffic to properties that cannot get a steady flow of traffic on their own.

Against rate parity

Since two large industry groups are for rate parity, it doesn’t come as a surprise that independent properties are not for rate parity. Independent properties would like to be able to sell a room at a lower price than they can through a chain’s website or an OTA.

Ideally, the independent property should drive direct bookings by convincing their guests that their website is the best spot to book their vacation. If you’re not doing that, it’s time to go back to the drawing board and examine your marketing and distribution strategy. But we all know that 3rd party companies are going to generate bookings, and that’s why some independent properties have become okay with the idea of rate parity as they are still fill rooms that would otherwise be empty.

The solution

The future of rate parity is uncertain, but like many other things in the hospitality industry, the independent property learned to adapt. After all, rate parity has not prevented independent properties from building direct revenue. The way that the independent property can do this is by not worrying about what rate parity is doing to their prices, but rather think about the guest and their travel cycle. Your relationship with a potential guest can begin long before long before they are hitting the “Book Now” button.

It is important for the independent property to focus on the distribution strategy and how they are promoting themselves across all channels, especially ones that drive direct bookings and do not take earned revenue out of their pockets. Even with rate parity in place, it does not override that there are many other important decisions that drive profit. Our 7 Marketing Tips for Anyone in the Hospitality Industry and Digital Marketing Strategies for the Independent Property provide great insight on profit driving decisions.