Price Parity – Making it Work for Your Small Business

What exactly is it?

Google it and you’ll find a wealth of information with sometimes confusing or even conflicting explanations. Put simply however, rate parity is an agreement allowed by law that says that a hotel must offer the same or better rates in all the distribution channels or online travel agencies (OTA’s) it uses to sell it’s rooms.

This is a pretty controversial topic, largely because small businesses find it very difficult to compete with these OTA’s for their own business. While France, Italy, Austria and Belgium have banned rate parity clauses completely, the rest of the EU is still a long way from outlawing the practise in it’s entirety. Since other countries like the US and Latin America seem further away than ever from regulating the system, there is a need for hoteliers to look for ways to capitalise on the opportunities whilst minimising the negative aspects of this pricing strategy.

The Pro’s

Believe it or not, rate parity can actually be of benefit to your business in the following ways.

  • Price transparency – you can maintain guest’s confidence as they have the assurance of knowing rates will be the same across all the channels.
  • Marketing strategy – previously we discussed The Billboard Effect and the advertising benefits received from collaborating with the industry’s major players.
  • Partner protection – as all channels offer the same rate the business relationship between the hotel and its channels is protected.

The Con’s

  • prevents the hotels from offering their guests the best deal
  • rate disparity means that for a variety of reasons some OTA’s offer cheaper deals than are available on the hotels own website.
  • The commission charged by these channels is unregulated and can be cripplingly high 

What to do About it

As we’ve discussed price parity has both advantages and disadvantages. So make the most of your situation by following this simple advice.

  • take back control of your inventory by deciding which rooms will be offered in each channel.
  • Determine which are the most beneficial channels for your hotel, we touched on this in our distribution strategy post.
  • Price parity doesn’t restrict a hotel from offering added value to their rates. Add on’s like late check out, discount on the next stay or free parking will make the customer think twice before booking through another channel.
  • Use a channel manager to track inventory and to help prevent rate disparity.