Rate Parity – Shaken but Not Stirred ?

rate-parity-shaken-but-not-stirred

Shaken but Not Stirred

An article from Tnooz last week stimulated excitement across the hotel industry that Rate Parity – invented by the hotel industry but now seen by many as an evil – was on it’s last legs. Rate Parity is generally built into online travel agents’ (OTA) agreements with hotels as a condition to be observed by the hotel – essentially ensuring that the hotel must enable each OTA to sell at as low a rate as every other OTA as well as the hotel’s own web site.  This is seen by some as acting against consumers’ best interests by preventing competition on price between the hotel and its OTA partners.

After 3 years of investigation by the U.K.’s Office of Fair Trading (OFT) into alleged breaches of competition law that stemmed from the campaign by Dorian Harris, CEO of discounting site Skoosh and was finally highlighted publicly by a Daily Telegraph article on 21st April 2011, a class action initiated in California initiated August 2012 in for alleged breaches of anti-trust violations of retail price management agreements had been followed just 2 weeks ago by German regulators attacking HRS for “violating German and European competition law”.

The debate surrounding what many had seen as the “imminent” demise of Rate Parity had stimulated much discussion over how hotels and OTA’s would work together after the practice had been killed off.  However, rumours of Rate Parity’s death may have been greatly exaggerated (to paraphrase a mis-quotation of Mark Twain).  What did the OFT announcement last week really mean ?  Essentially three things:

1.  OTAs are free to offer reductions off the hotel’s Best Available Rate (BAR), “for example by way of discounts, vouchers, rewards and/or cash back, funded by their commission revenue or margin” to ‘closed user groups’, the only condition to which is the consumer having joined the group and having made one previous booking through the OTA.  Booking.com had anticipated this announcement with its Booking Genius programme, which “invites” hotels (not Booking.com themselves) to give a 10% reduction on their rates to anybody who has created an account on Booking.com – basically, anyone who has made a reservation at any hotel, anywhere, through that channel.  Booking.com point out (behind the scenes) that hotels who do commit to this programme will be more visible on their site than those that do not.

2.  OTA’s are free to publicise the availability of discounts “in a clear and transparent manner” with the exception that they may not reveal the specific level of discount at any IHG hotel (IHG are also subject to investigation by the OFT as well as Expedia and Booking.com) to anyone not a member of the closed user group.  Any other non-IHG hotel can also prevent an OTA from publicising the specific level of discount.

3.  Lastly, that, if an OTA and any hotel (IHG or otherwise) have entered into an agreement that allows the hotel to match any reduction offered by the OTA to other consumers (outside the OTA’s closed user group) the commitments above cannot prevent the hotel from enforcing that right.

I separated out the last item because that may appear to be the death knell of Rate Parity except for one small detail:  a contract has to exist between the OTA and the hotel to allow the hotel to match the OTA’s reduction for this right to be enforceable.  Good luck to hotels outside the major chains getting the OTA’s to agree to such clauses in their contracts and, in any case, given the looseness of the closed user group (at least in Booking.com’s case) all this really amounts to is Discount Parity – Rate Parity at a levelled reduction from BAR.  Hotels are not suddenly freed to offer rates below those of the OTA’s on their own web sites nor are they enabled to allow Skoosh or any similar site to discount rates with them below the level offered by mainstream OTA’s.  The penalty for doing either of these things remains, as ever, termination of their agreements with OTA’s, which hotels tend to view as the greater of two evils.

With an interim OFT conclusion so far from what he had hoped for, Dorian Harris’s reaction to the OFT update, which now opens up for public consultation, in discussion with SmartOtels, was “It’s a shocker! 3 years of investigation and one giant step back for the travelling public”.

What’s you view ?  Have the OFT let consumers down ?  Should we look to the German and the U.S. authorities to kill off Rate Parity or is Rate Parity, for you, the best way to keep your rates fair to consumers ?  Will hotels simply turn in growing numbers to other ways of making their own web site value proposition better than the OTA’s or does this agreement simply ensure the continued domination of OTA’s for most hotels ?  Please leave your comment below.

Disclosure:  SmartOtels have a record of increasing direct business for a London serviced apartments client at 60% year on year to 65% of total business in 2013 whilst partnering well with large and small OTA’s. We believe that, in most markets, there is an important role for OTA’s in bringing business to a hotel which it may well not otherwise get at a cost much lower than would arise for the hotel trying to attract that business direct.  We believe that there is life during and after Rate Parity – hotels and OTA’s will always find ways to work together, so long as both parties recognise what they each bring to the table.

For more information, contact:

Matthew Brooks                                                Joaquin Cababie

matthew@smartotels.co.uk                               joaquin@smartotels.co.uk

07808 068 282                                                 0778 925 1395

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2 thoughts on “Rate Parity – Shaken but Not Stirred ?

  1. Pingback: Rate Parity - Shaken but Not Stirred ? | Revenu...

  2. Pingback: Update on the OFT investigation into restrictive Pricing practices – Rate Parity | Driving Revenues from Revenue by Design

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