IN-DEPTH: Impact of adherence to price integrity without knowing a realistic picture

Published: 05 Nov 2009

IN-DEPTH: Impact of adherence to price integrity without knowing a realistic picture

Price parity plays a key role in today’s revenue management and hotel distribution strategy.

Rate parity became a major topic of discussion when OTAs switched from GDS powered rates to merchant model, extranet powered rates. Some hoteliers acknowledge that at the end of the day, it is important for hotels to differentiate between self-owned channels and third parties and realise that if for whatever reason they need to run a promotion or a rate which is below the BAR on all other channels they should rightfully do so on their brand website.

The OTAs of course have made attempts to counter this by monitoring such disparities and imposing harsh penalties for hotels that undercut them on their own websites, they implemented new clauses into their contracts that obligated hotels to provide them with the best available rate. In fact, some hoteliers admit that the OTAs seem to have convinced the hotel industry that the burden of rate parity lies on the shoulders of the hotels, the hotel must adjust their net rates in order to ensure the competitiveness of the OTA against other agencies.

Setting rates

OTAs create trial for hotel brands by reaching brand agnostic consumers who are shopping for a vacation and may not be familiar with brands. They accomplish this in any environment, but in today’s economic climate it is critical to be represented on these channels because consumers are shopping more sites before making purchasing decisions and hoteliers want to reach the largest travel shopping audience possible.

OTAs say that they offer services to hotels that are very much tailored to market demand factors. The key factor is that price and promotions can be created, adapted, in real-time for real customers. Rates are not set seasonally, but rather daily.

Hotels that play more aggressively with OTAs and drop rates in an effort to steal market share damage the market conditions. The role of OTAs and wholesalers should not change according to economic conditions.

From an OTA’s perspective, Rob Rosenstein, president & COO, Agoda, says even in a weak economy, there are peak periods and the reverse is also true.

“In high occupancy environments, OTAs help hotels to raise prices and help them achieve specific developmental objectives. In low occupancy, OTAs offer growth and impulse-driven demand, where pricing and promotional strategy can be highly effective, with a fair degree of opacity,” said Rosenstein, who is scheduled to speak at the forthcoming Sales and Marketing in Travel Asia Pacific conference, to be held in Sydney (November 18-19).

He added, “Hotels don’t need to steal market share and risk these important relationships. Maintaining overall price parity with OTAs is a highly effective strategy for both maintaining these relationships and developing the hotel’s own online channel, which will surely be the most profitable distribution channel in the years to come. There’s enough growth in online for both channels, OTA and hotel brand website, to be successful.”

Price integrity

Hoteliers strictly say that it is not acceptable to compromise on price integrity at any level of unqualified business. In any economy there are other ways to discount and to attract additional customers that do not compromise your core pricing.

Maintaining price integrity should be a core objective of all hotels, Rosenstein told EyeforTravel's Ritesh Gupta.

“Unfortunately, for most hotels, despite the best laid plans and forecasts, competitors’ pricing and the dynamic occupancy trends will force hotels at some level to start to compromise,” pointed out Rosenstein.

Realistic targets

Rosenstein says strict adherence to price integrity targets without adaptation to the realities on the ground at the property level would be a dangerous policy and totally unnecessary considering the options available to revenue managers today.

“With today’s online distribution, rates are not published in brochures or for a season, so there is a degree of opacity in all online rates. They are available and potentially gone in an instant, only seen by the customers that hotels want to see them at the time hotels want customers to see them, and perhaps even tied to behaviours that hotels wish to encourage. Today’s revenue manger utilises the online channel and particularly promotional tools to distribute a variety of rates designed to attract additional customers. These rates are targeted, time-specific and only seen by real searching customers online – which means they fundamentally are not a challenge to published rate integrity,” added Rosenstein.

Sales and Marketing in Travel Asia Pacific

Rob Rosenstein is scheduled to speak at the forthcoming Sales and Marketing in Travel Asia Pacific conference, to be held in Sydney (November 18-19).

For more information, click here: http://events.eyefortravel.com/smapac/agenda.asp

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Contact:
Reece Gladstone
Regional Director, Asia-Pacific & Middle East
Email: reece@eyefortravel.com