New hotel rate parity and distribution issues for 2023 and how to fix them
The last few years have been a time of immense change and challenges for the hospitality industry, yet one challenge that hotels continue to grapple with is rate parity.
During, and in the immediate period following the pandemic, any booking was a good booking and many hotels prioritized generating business and revenue in the short term; rate parity was less of a focus.
That is no longer the case.
When it comes to rate parity, and specifically undermining rate parity, the endless game of whack-a-mole has become a whole lot more complicated.
As businesses contend with maintaining the fine balance between incentivising direct bookings and ensuring their room rates are consistent across their distribution channels, the distribution landscape has become a lot less transparent.
In short, issues around parity have become even more difficult to track. In this blog, we’ll bring some of these trends to the surface.
Meta Sources and distribution health in hotel revenue management
‘Bait-and-switch' is intended behavior designed to lure in a potential customer with an attractive, yet misleading, money-saving opportunity.
It is a valid parity issue since the bait-and-switch rates that are presented to potential guests drive business away from the brand, due to the fact that different prices are shown on different channels.
When searching for accommodation on a metasearch engine, the potential guest is presented with a rate lower than the rate for the same package found on other Online Travel Agencies (OTAs) or brand.com.
Seeing the cheaper rate piques the guest's interest and they may click through to investigate further. However, once they arrive at the booking page, they then discover that the rate has increased and is now equal to, or even higher than the rate on the hotel's own website.
So how does this happen?
Given that the root cause is often through non-contracted OTAs, this may occur in several ways.
One of the primary reasons for lower prices being available on non-contracted channels is due to wholesale rate leakage. Wholesale rates that are meant for business-to-business transactions resulting in a lower rate than what is available on the hotel's official website.
Caching is another common way for bait and switch to take place. Either the guest will reach a point in their booking journey where they discover that the rate has expired, and a new, higher rate appears, or they will be advised that the hotel or room type they had wanted is sold out and no longer available to be booked.
Another common trick is to add taxes or other fees right at the end of the buying journey, leading to the rate being in line with, or sometimes even more expensive than the rate that appears on the hotel website.
When net rates are displayed on a meta channel, they make the rates appear cheaper than the actual bookable price. Taxes get added at a later stage when the potential booker is a couple of steps further in the booking process. Again, the objective here is to drive business away from brand.com and other competing sales channels.
While bait and switch is one trend to be watchful of, another concept, which we have coined metaception, is another.
How 'metaception' hides hotel parity issues: a deceptive practice used by OTAs and metasearch sites explained
'Metaception' is essentially when an OTA functions as both a traditional OTA and a price comparison metasearch site.
As confusing as this sounds, it is designed to create smoke and mirrors and make it even harder for hotels to identify the root cause of their parity issues.
Because of the layers of deception involved, hotels may find their direct booking revenue taking a knock, without really being able to pinpoint the exact cause.
So how does it work?
A hotel distributes its inventory to a contracted wholesaler, or a bed bank, who may then resell it to another wholesaler. This wholesaler then unbundles the package rate and sells it on to an OTA. Hotels might not have contracts with metasearch sites, but their rates are still aggregated there based on customer search requests.
These rates appear on a metasearch site, listed and ranked.
The unbundled rates appear and link through to the OTA. Meanwhile, the rates on the hotel's own website are as per the image.
On seeing a cheaper rate, the prospective booker clicks on the link, directing them to another website, which opens up as another metasearch site.
Either the cheaper rate is on this site, and is bookable there, in which case it functions as an OTA, or the cheaper rate will appear again and the guest will be redirected to a major OTA.
In both outcomes, these bad players are incentivized. When the metasearch site functions as both an OTA and a metasearch, they can earn money off the click and the booking. They either benefit from the cheaper rates or they get paid for the redirect.
While guests may benefit from the ability to find a good deal on these metasearch sites, hotels are often left as the only losers in this scenario.
OTAs get more business and metasearch sites earn money from the click, but hotels may see a drop in their distribution health if they are unaware of the discounted rates being offered on these sites, which ultimately affects their profitability.
The multiple layers of deception mean that it’s difficult for hotels to discover. They could be losing money through either a wholesale leakage, or they are unaware that their contracted OTAs may be violating the contract. It becomes an appealing way for contracted OTAs to undercut them by hiding a discounted rate rather than being caught promoting it on their own site.
To combat this issue, Google and TripAdvisor have price accuracy policies, which require metasearch sites to display accurate pricing information for hotels. However, misleading practices still exist, as was pointed out by Expedia who recently urged Google to ensure a fair marketplace by eliminating these kinds of tactics.
While Google made some improvements, the issue still persists. Hotels can also take screenshots of any discrepancies they find and bring them to the attention of the metasearch site in question.
How AB testing, OTA promotions are making it harder for hotels to maintain rate parity
Managing parity has become even harder in the wake of the pandemic. Different kinds of discounted rates and policies, designed to drive bookings, have paved the way for OTAs with more muscle.
While there are many benefits for hotels, this unequal power has raised concerns among hoteliers, particularly in terms of managing rate distribution.
An example of this is Booking Sponsored Benefits, an advanced payment program offered by Booking.com, which allows guests to access exclusive benefits, including discounts when they prepay for their stay.
The loyalty program aims to incentivize guests to book directly through the platform while providing them with added value.
Based on machine learning, the OTA displays a lower rate to the guest in order to incentivize them to make the booking. The benefit eats into the OTA's commission but has the effect of driving more traffic through their platform and maintaining loyalty to their brand.
While the Sponsored Benefits program offers perks like increased visibility and potential bookings to hoteliers, it also poses some rate distribution management challenges as it means that rates are displayed, under the program, at a lower rate than anywhere else.
As a result, maintaining price parity across all channels becomes even harder to enforce, potentially leading to conflicts with other distribution partners. It also means that any of your marketing spend is not as effective on metasearch sites, where you will likely receive a lower volume of clicks.
It also has the effect of driving traffic away from your website, lowering your direct booking volume, and therefore affecting your distribution costs.
What distribution strategy can hoteliers use to manage rate parity issues?
In conclusion, the evolving trends in the distribution landscape have led hotel brands and chains to adopt a more integrated approach between marketing and distribution.
Hoteliers are becoming increasingly strategic about their investments in SEO campaigns, particularly when rate parity issues arise. They recognise that paying for top rankings on search engines like Google may not yield desired results if their rates are not competitive.
As a result, hotels are now pausing their campaigns on specific dates until rate parity issues are resolved, ensuring that their marketing investments effectively drive bookings and revenue. Tools like Market Insight can help hoteliers understand where demand is coming from, and when, so that you can implement a more strategic marketing investment.
When dealing with parity issues, it is important to have in place an action plan so that you can take greater control over your distribution success.
The cornerstone of a successful parity strategy is a data-centric approach, with a channel manager as a starting point, which will help you to identify problem areas and address them with contracted OTAs in real time.
Next, concentrate on meta-search engines and smaller non-contracted channels. Conduct test bookings on problematic channels to identify wholesale rate leaks. Monitor them closely, and address any issues with offending wholesalers using any evidence you have gathered.
With tools such as Rate Insight and Parity Insight, you can monitor in real time which rates are appearing on OTAs and metasearch and instantly spot any discrepancies between your brand.com and third-party channels.
After spotting parity issues, establish a clear escalation process to tackle offenders according to the parity violation severity. Then build a solid case with supporting evidence and establish an effective communication process to address offending parties.
Finally review your partnership strategies periodically to ensure they are providing a symbiotic relationship, based on collaboration rather than competition, and true value for your hotel.