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What is Rate Parity in the Hotel Industry?

>>What is Rate Parity in the Hotel Industry?
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What is Rate Parity in the Hotel Industry?2019-03-30T21:04:49-07:00

Anyone who has shopped for and booked a hotel room through an OTA ( online travel agency) has experienced rate parity. The concept has been banned in several foreign countries but flourishes in the US. What is rate parity, and how does it impact both the travel broker and the hotel? More to the point, how does rate parity affect the customer?

Related resource: 50 Most Affordable Small Colleges for Hospitality Administration and Management

Defining Rate Parity

Rate parity is a contract between an online travel broker and a hotel, or hotel chain, that ensures rates for a hotel room are the same no matter where they are booked. A room booked directly through the hotel will cost the same as one purchased through Expedia, Travelocity or another OTA. The hotel sells more rooms by agreeing to let the broker advertise and sell online. For this advantage, they pay a commission to the broker.

Effect on the OTA

Put simply, rate parity is good for business. The broker makes money selling the rooms “on consignment.” The hotels can’t offer cheaper rates on their own websites. Consumers find it easier and believe they are getting a better deal through the OTA. Additionally, they can see comparative prices for the same type of room on the OTA sites. If a hotel offers a discounted rate through its own sites, the OTA raises commission rates.

Effect on the Hotel

Rate Parity keeps hotels from offering special deals and discounts. It also allows the OTA to make a profit from a sale even if the property does not. For instance, hotels can raise room rates, but they must do so “across the board.” If the hotel announces a room for $100, the OTA can offer it for $90 and, with the commission, still make a profit. However, that fact fails to take brand loyalty into account. People who have stayed at one hotel brand and had an enjoyable experience are likely to book the same brand for their next stay simply because they feel they can rely on things like cleanliness, services, and amenities. An article in Forbes Magazine addresses that issue. The article points out that a five percent increase in customer retention can lead to a 75 percent increase in profit. Not only do consumers look at the rate, they consider things like the convenience of on-site gyms and pools, restaurants and proximity to shopping. That hot, warm cookie offered to guests in the evening makes a hotel experience memorable as well. Rate parity does allow for some “closed group” exceptions, and hotels are taking advantage of this by establishing loyalty clubs that reward guests for repeated stays.

The question is whether consumers choose rate over brand loyalty. The OTA wields a lot of power, which is why some countries are banning them as a form of monopoly. Many consumers will even form a brand loyalty to one OTA over another. People who book a hotel room through an OTA really don’t care about amenities if their stay is a one-time event. Those who travel frequently, however, respond to services, attitudes, and amenities. Those are the guests who will make repeat visits to memorable hotels no matter what rate is shown on the OTA websites. Whether the most valued issue is price or a memorable stay, rate parity is a widely contested issue for the hospitality industry.