Rate Parity issues on extreme, evident from Booking.basic
These are the desperate times of hotels as rate parity issues are on their pinnacle. And it is clearly evident from booking.basic and behavior of other OTAs too.
The issue is not only about the rate parity or the behavior of OTAs but the while distribution channel needs to be addressed.
So let us discuss what rate parity is, why the scenario is getting worse and what should hotels do to take control.
Rate Parity is the legal agreement between the OTA and the hotel which means that the hotel has to provide the same rate on all the distribution channels for a particular room.
It ensures the consistency of rates on the distribution channels regardless of the OTA commission.
Rate Parity is becoming dangerous for Hotels as it curbs the profit margins for them.
In one of its blog, trivago explained two categories of Rate Parity.
Wide rate parity
Wide rate parity is the more restrictive form of parity agreement. In such clauses, a hotel agrees not to undercut the room prices that the OTA charges for their hotel. This agreement generally applies to all distribution channels, including other OTAs and the hotel’s own website.
Narrow rate parity
Narrow rate parity developed in response to an intervention from regulators in Europe. Such clauses generally allow hotels to offer lower rates to other OTAs, but not publicly online through their own websites. Narrow rate parity clauses also generally don’t restrict the hotel from offering lower direct rates when it’s through indirect or offline channels, such as email or telephone bookings, or to guests in their loyalty programs.
Now the question is how rate parity is dangerous for Hotels
OTAs want rate parity so that the hotels cannot sell inventories at a cheaper rate on any other platform. As this will decrease their chances of getting bookings.
From OTAs point of view, this seems legit. OTAs want when a customer visits their website he finds the best possible rate on it. If the customer finds out that the same room is present in lesser price on the hotel’s website then he will obviously book it from there.
And this will be detrimental for OTAs.
But Hotel’s vision is completely opposite to it. Hotels say that OTAs want to kill their chances of getting any direct bookings.
The main drawback comes for Hotel an OTA increases its commission.
When an OTA raise his commission then the margin if Hotel diminishes as the rate goes rarely up due to rate parity. If a hotel tries to raise the price then it will have to update it on all the channels. Which makes it very difficult.
And that is why hotels have continuously opposed the rate parity.
What’s booking.basic
Booking.com is one of the largest OTAs. It rolled out booking.basic feature first in Asia and then in Europe.
Booking.basic is an accommodation tier in which appears in the hotel listing if booking.com has got the cheapest rate for a room type.
Through the booking.basic booking.com is basically offering the third party rate which is non-refundable. This rate is cheaper from any rate listed for that hotel on that page.
The customers get to know the third party only when he has paid for the booking. Now this third party no relation with the hotel.
As booking.com mentioned in their privacy statement
We may enable you to book Booking.Basic. Booking.Basic entails that your reservation is facilitated by Trip Provider different from the booked accommodation. As part of the reservation process, we will be required to share some of your personal data that is relevant for the reservation with this business partner. If Booking.Basic is used, please review the information provided in the book process or consult your reservation confirmation for more information about the Trip Provider and how your personal data is further processed by them.
Through booking.basic booking.com is basically trying to ensure the rate parity. Booking.com has a metric called PQS (Price Quality Score) through this matric booking.com analyzes the ability of a hotel for offering the rate parity.
If you have less PQS then it means that your prices are offered to booking.com are not compelling.
This is just a start
Booking.com is not the only one who has started taking such steps. Other OTAs are also taking parameters to ensure that they are getting the cheapest rates or simply they are ensuring rate parity.
If we see from a broader vision then we cannot the blame OTAs solely for the whole issue. There are many reasons for giving rise to several other issues as well. One of them can be rate leakage.
So the time has come for the hoteliers to gear up for the situation. Hotels should take the help of technology and have full control over their downstream distribution.
Here is a white paper from Triptease which has discussed the whole scenario in full details.
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