Rate Parity and Cold Tussle Around It

Hotels and OTAs will have to co-exist symbiotically

With the advent of digitization and explosion of e-commerce, 80% of travel bookings are now done online. A major chunk of these hotel online bookings is done through hundreds of OTAs swarming online. OTAs rank higher on a search engine and have greater visibility and reach. This is the reason why hotels rely on OTAs to distribute their inventory in a matter of seconds.

However, in return, hotels have to share big chunks of their revenue with OTAs in the form of commissions. Firstly, they have to shed commissions as heavy as 10% to 30% for every booking, which OTAs pull for them, and secondly, they have to sign a non-compete agreement widely known as Rate Parity agreement. This presents every OTA with equal opportunity to attract a prospective customer and earn commissions on hotel bookings.

Hotels have been extremely dependent on OTAs to sell their inventory, but the concept of rate parity in a way bars the hotels from competing in the market. Rate parity agreements also in a way neutralize all the efforts made by hotels to promote themselves through other marketing channels since they cannot offer discounted rates even on their websites where the customer may flock in search of better deals.

The arrangement looks fair enough and necessary on the part of OTAs, but turns hard-hitting for the hotels since not all OTAs charge the same commission. Some OTAs charge more than the others do, but since the room price remains same; it is only hotels that have to share their valuable revenues.

There have been constant voices from different hotel trade associations across the globe against the existence and practice of rate parity agreements. Hotels argue that there are different types of customers in their industry and they have every right to treat them distinctively. Well, in spite of these concerns, hotels and OTAs in a way complement each other and have to coexist in the tourism ecosystem.

However, hotels can adopt some tactics to tackle rate parity agreements and increase conversions on their website for direct bookings.

Exclusive Packages: One way can be to offer additional perks and indirect discounts like a complimentary meal, free sightseeing, DJ night, wine tasting sessions, bonfire etc. These kinds of benefits and discounts can be clubbed into packages, which are exclusively offered on hotel websites. These practices and tactics do not violate rate parity agreement and cannot be challenged by OTAs or similar entities.

Customized Offers: Another way hotels can increase direct bookings can be by aggressively following past customers and serving them ads with exclusive customized offers. Targeting past customers offers a two-way advantage for hotels as it is not only proving to be cost effective but also saves OTA commissions.

Loyalty Programs: Hotel Guest Loyalty Programs are another way to attract repeat customers bypassing the OTA window. Loyalty programs offer two fold benefits by getting repeat revenue at lesser cost and boosting the brand value at the same time.

Booking Friendly Website: In the modern digital arena, a brand website serves as a distinguished web address where the visitors can peep into your services and offerings without physically experiencing the property. Brands need to make sure their website is as exquisite as their property and presents an amplified experience of the property. The website should have one finger distant CTAs in case a visitor makes mind to make a booking. On top of this, the website pages should be strictly optimized to rank on appropriate keywords and at least outrank OTAs on brand’s own keywords.

Content Marketing: Content marketing can be a differentiator in creating an exclusive and a dignified brand presence on the web. The hotel industry is all about beauty, comfort, exotic vistas, delicious food and excellent amenities. Hotels can create videos of exotic sightseeing around their location and market their property along. They can also shoot high-resolution video of their property and exhibiting the amenities and services offered by them. They can also create helpful blogs like best mode of travel, must visit places and must try cuisines of the destination.

All these measures can help hotels create their own identity and loyal customers in the long run. Nevertheless, they still have to work together with OTAs get quick bookings and exhaust their inventory timely and regularly. Hotels are opting competitive online distribution tools for effectively circulating their rooms online without breaching rate parity agreements. However, hotels can keep experimenting different strategies that organically increase conversions on their website by utilizing the loop holes of the agreement. Hotels should have a clear hold on their customer base and should come up with packages and offers that strike through customer preferences and compel them to convert on the hotel website.