Metasearch blues: how meta and wholesale contribute to disparity: part 2

pensione at dusk

Last week we started a discussion on metasearch, a channel that, in theory at least, is a welcome addition for hotel marketers.

Consumers love the transparency and convenience, hotels capture guest details as direct bookings, and the cost-per-click model is often cheaper than commission-driven OTAs.

But. And it’s a big one: the lower cost levels the playing field for non-contracted OTAs that undercut hotels with net rates secured from wholesales, as we went on to show in a review of the landscape in a Q&A with Lighthouse CEO, Sean Fitzpatrick. This is the real rate parity issue: non-contracted inventory ending up for sale online in retail channels, pulling bookings away from direct or contracted OTA channels while also increasing customer acquisition costs.

Today, we conclude our discussion with Sean, drilling down into strategies hoteliers can deploy to deal with metasearch and wholesalers in the new distribution landscape we find ourselves in.

Things started to get complicated towards the end of our last chat.

“Yeah, they definitely were! Supply is growing. Demand is growing. And yes, the number of channels to market is growing. Yet, even with the rising importance of channel and rate optimisation, it’s a great time to be a hotelier! The industry is enjoying a record period of growth: the US and European markets are enjoying eight and nine years of consistent RevPAR growth, respectively.

“With the market expanding healthily during a period of disruption and transformation, hoteliers need the right tools to help them stay ahead of the game. We correlate huge amounts of data to simplify a very complex and dynamic marketplace, putting the data, power, and decision-making back in the hands of the hotelier. We’re empowering hoteliers to make better decisions and maximize their revenue by connecting real-time demand data with internal supply data across multiple channels.

pensione at dusk

“Also, let’s not forget Airbnb’s OTA evolution. We now see major OTAs welcoming small boutique private properties, while Airbnb is expanding into the OTA business with their acquisition of HotelTonight, blurring traditional boundaries in the lodging market. With more channels, there’s more potential for rate disparity.”

Should hotels - especially smaller independents - abandon metasearch altogether?

“No, absolutely not. Metasearch levels the playing field and can actually be a strong driver of demand when leveraged in the right way. Independent properties don't enjoy the economies of scale of larger groups so they have to be strategic but nimble with their marketing spend.

“A hotelier’s primary objective is to find the best combination of sales and marketing activities to grow revenue and maximize profits through channels that work for that specific property. It’s an increasingly competitive and dynamic market but data can be their friend so once they devise a revenue strategy that works for their property, the tools are there to drive the outcome.

“The data and tools are available so it’s easier than ever for independent operators to figure out which channels to market are most profitable and generate the right mix of business for their property. Our users can see local demand, rates, rankings, events, and other key information, empowering them to make good revenue decisions.

“The most effective approach involves understanding market demand and competitive rates across multiple channels. These real-time insights empower hoteliers to make dynamic distribution decisions that impact actual top-line revenue. Ease of access and price transparency for consumers requires providers to have the same visibility as their prospective customers.”

parity landscape

The parity ecosystem

What are some concrete strategies hotels can use to clamp down on rogue rates?

“Whenever a hotel contracts with a distribution partner, rogue rates are a likely outcome - especially with static contracts that deeply discount rooms to wholesalers for packaged sales. Our latest Hotel Parity Report for North America revealed significant parity loss issues across 24% of major chains and 48% of independent and local chains. This issue is not going away - especially as the tide turns against forced rate parity with Most Favored Nation clauses.

“The most important strategy is to vet all contracts thoroughly, with a preference for short-term contracts that allow more dynamic control. The next step is to hold those wholesalers accountable to their contractual obligations. If they are the root cause of your disparity, a hotel should think twice about working with them.

“Remember that over 60% of the business a hotel has with a wholesaler usually comes from non-contracted OTA business, if not more. This is the reality, but one that most wholesalers don’t typically highlight. There’s an industry perception that the majority of wholesale business is offline whereas it’s often in direct competition with a hotel’s online distribution. Hoteliers must proactively manage their wholesalers to maintain a balanced distribution strategy.

“Make no mistake, it’s a fiercely competitive market: OTAs will find ways to grow their market share and their bottom lines. Price is one of the key conversion factors, and there’s less competition for supply than for customers.”

So: what to do about wholesalers?

“Without access to wholesale rates, many of the OTAs wouldn't be able to survive. These non-contracted OTAs rely on wholesale rates to generate revenue; in fact, undercutting ”best available” rates is fundamental to their business model. There's no way that these OTAs could compete with the marketing prowess of larger OTAs on search, and would also be disadvantaged when competing against “book direct” rates on metasearch.

“Non-contracted OTAs would never want to directly connect to hotels because then they would have to spend valuable marketing dollars. It’s just much easier to compete on price and attract bookings by offering the lowest rate on metasearch. The consumer looks at all the options, sees the cheapest outlier, and makes the booking. The OTA doesn’t have to spend a dollar, as the low rate says it all.

“If you don’t manage forward distribution, you risk selling blocks of rooms at favourable rates that eventually undercut your “best available” direct booking rate. This means your channels effectively compete with themselves, undermining your direct channel strategy and resulting in lost revenue.

“Some of our hotel customers are considering cutting out wholesalers altogether. While this could mean more control over your distribution strategy, it’s potentially a step too far because wholesalers are an important part of the distribution landscape. We would recommend moving to dynamic contracts that don’t guarantee specific rates or availability so you can proactively balance your channels.

“By insisting on more transparency on forward distribution and getting on the front foot with your wholesaler relationships, wholesalers can be really effective partners.”

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