Rate parity or price parity is a legal agreement that takes place between the hotel and the OTAs. In this agreement, all the platforms have to provide the same rates on the booking platforms as well on the hotel’s own website.
However, these specific terms related to the rate parity agreement might vary depending on the country and parties involved. You can bifurcate it into wide rate parity and narrow rate parity.
Wide parity rate
It is a more restrictive form of parity agreement. In a clause like this, the hotel needs to agree NOT to undercut the room prices that the OTA has charged them. Furthermore, this agreement is generally applied to all the distribution channels, which includes other OTAs and the hotel’s very own website.
Narrow parity rate
Then comes the narrow rate parity, which came into practice after the intervention from regulators in Europe. In a clause like this, it generally allows hotels to offer lower rates to other OTAs, not through publicly online but via their own websites.
Narrow rate parity clauses don’t restrict hotels from offering lower direct rates no matter what medium it can either be through indirect or direct channels, like telephone or email bookings or with the help of loyalty programs.
Now let us try to understand some of the challenges faced by small hotels because of rate parity.
Every penny counts in a small hotel. While it is fair for OTAs to ask for commissions as they are promoting your hotel in front of thousands of people every day. But by paying a commission on top of your lowest possible rate cuts right into the revenue you would have earned if they had booked directly.
There are days when excluding an entire room type from the OTA is the only solution small hotels can think of. Small hotels, however, try their best to match the rates that are being displayed by OTAs but can at times backfire as OTAs might change their rates based on factors such as device and location. So OTAs usually deliver reservations to hotels at a net rate, which means they have the power of reducing prices below minimum contracted margins by cutting short the commission margins.
Below lies a few ways one can tackle these hurdles-
Try to improve the booking process
One needs to make sure that ease of booking directly with the hotels should be as smooth as booking through an OTA. Make it a point that it is easy for your customers to understand what rooms are available and at what rate, and there must be no doubt in their head while booking a room with you.
Encourage Direct Booking
Hotels need to encourage direct bookings without using any campaigns and pricing tactics. Another thing to keep in mind is that even while you are running discounted promotions, you have to inform the respective OTAs you are listed on.
The next step can be to partner with channel managers
In the end, a key takeaway from this can be - to improve the communication between the two, hotels and OTAs. With travel shopping via online agencies becoming the norm now, especially in the last minute segment and moreover because of the frequent usage of smartphones, small hotels need to find a balance.