OTA PRICE QUALITY WARS AND RATE PARITY

This has become quite a volatile topic throughout 2019, which we now call OTA Price Quality Wars.

So, it begs the question.

“Is practising rate parity still best practice in today’s climate?”

Firstly, just want to state that we have always advised and recommended that you should be practicing rate parity. But the idea is that what rate you offer on your website you should mirror on all OTA channels, so no matter where the booker looks, they see the same rates being offered and it builds trust in the market.

Sure there is a temptation to recoup some of the commissions being paid to OTA’s by adding a premium to rates, but the simple fact has been that rate parity works. Even companies such as Triptease who are direct booking advocates, profess that by practising rate parity, Hotels can expect to see an increase in overall bookings by up to 30%.

Breaking Ranks – Not a New Problem

However, there has for some time been a number of, what we’d call, ‘rogue’ websites who find a way to undercut your public rates and therefore disrupts this rate parity approach. So, this is not a new problem and has been going on for some time.

You see, for years the OTA’s have demanded (contractually even) that you offer rate parity, meaning you must offer your best available rate to them at all times.

They request and even demand rate parity.

So when an OTA decides to break ranks and undercut the other OTA’s, it becomes somewhat hypocritical. 

So, what’s changed?

In recent months the big boys have now joined the party. Meaning the duopoly of Booking.com(Priceline) and Expedia have found a way to “justify” undercutting each other. When I say ‘justify’ I mean they have found loopholes in contracts and gone out and made it public that they now reserve the right to undercut the public rate that you are giving to them.

What was that I said? They are changing the price of your room without your consent, would be a more straight forward statement.

How have they done this?

1. Expedia announced back in Mar 2019, that they will no longer penalise Hotels who do not practice Rate Parity anymore. What this opens the door for, is for them to now reduce your rates as they see fit to remain competitive. So, if they find they are being beaten (from a price perspective) in the market place (let’s say booking.com has you listed $5 cheaper), they may adjust your price. The mechanism they use is what they call your “Price Quality Score” which uses an algorithm to deliver a score out of 100 as to the current competitiveness of your rates with them. If your ‘Price Quality Score’ drops below 70, that is the trigger for them to begin undercutting by eating into their own commission to remain price competitive. So it doesn’t actually cost you, however, it does cause other issues with other OTA’s.
2. Booking.com have started undercutting by using Wholesale rates with a Markup
3. Plus Booking.com have responded by introducing “Booking.Basic” to also eat into their own commission using a ‘prepayment benefit’.

The Trap!

So who cares if they want to eat into their own commission right? Wrong!

We, as hoteliers can get stuck in the middle. Someone undercuts, so Expedia lowers your ‘price quality score’ and so decide to undercut the already undercut rate, then BDC follows suit, offering their prepayment benefit. And round and round it can go.

How to wrestle back control?

1. There are some rogue websites/OTA’s out there (I won’t mention any names), that source rates from who knows where sometimes, and they also implement their own specials, often using vouchers to offer competitive rates. For these guys, might switching them off for a while.
2. Diligent communication with Market Managers of your bigger more reliable OTA partners, stating you are having issues, and ask for specific advice and examples that you can take action upon.
3. For Booking.com you can opt to turn off your Prepayment option, this actually stops Booking.Basic being a possibility. So you would need to get rid of all you pre-paid rate plans.
4. YES, Rate Parity is still relevant but we recommend only practising on the external public channels.

However, Gloves Are Off!

Because of these actions, you may now want to begin to offer a better rate on your own website, especially if you are a smaller player as you are unlikely to get shopped very often by an OTA, and it would be great to attract some more direct bookings. Because of the fact that we know around 50% of bookers who visit an OTA will visit your website to check for the best deal. It is here where we can take some ground.