Getting the price right: knowing a distribution channel’s true worth

IN-DEPTH: Hotel companies need to work on rate parity and rate integrity to ensure a fair pricing environment for all stakeholders from customers to hotel franchisors, offline and online agencies and distribution partners. Ritesh Gupta outlines the challenges

As revenue managers struggle to maintain price consistency they are now seeking new ways to improve exposure, reach new markets and increase direct bookings. So says a recent study which highlights the impact of rate parity on hotels’ distribution and revenue strategies. The study -The Distribution Challenge 2012  - which conducted by Ecole Hôtelière de Lausanne, Switzerland and RateTiger across four key markets says hoteliers are spending more time managing rate parity and ensuring rate integrity and that is distracting them from defining more sophisticated strategies. If they spent more time on these they could reduce the cost of distribution and increase RevPAR, says Horatiu Tudori a senior lecturer in revenue management at Ecole Hôtelière de Lausanne.

Prioritise prioritise  

Rate parity has become a requirement for all hotels using online travel agencies, says Jean Francois Mourier chief of revenue management specialist, RevPar Guru.

Online travel agents (OTAs) fight for their share of consumer bookings and hotels fight to capture as many bookings as they can. “I think that due to the price transparency of all hotels online, it does make sense to maintain rate parity across all online channels,” he says. The reasoning: rate parity ensures an even playing field and protects a hotel’s relationships with its partners as no channel is being favoured.According to Mourier, in terms of maintaining rate parity in direct channels, there are big opportunities for hoteliers to capture more bookings directly from its own website by using specific strategies and automated systems. 

The Distribution Challenge 2012 study highlights the challenge of rate parity and argues OTAs are challenging hoteliers to source new revenue and booking streams. The study found that hoteliers are focusing on direct sales by developing new corporate contracts, pushing their own web sales, and maintaining faster availability and rates on non-conventional distribution channels to try to stay ahead of the game.

Being consistent  

Hotel companies use both rate parity and rate integrity while selling their hotel rooms. Rate parity can be defined as maintaining consistent rates for the same product in all online distribution channels regardless of what commission the OTA makes. The concept of rate integrity isn’t as clear cut with some arguing it is simply trust in the fair price of a room.  In general though, rate integrity isn’t something concrete; it is something the hotelier must have in mind when setting rates. “Whether it’s maintaining integrity through rate parity by justifying price discounts, avoiding price slashes, or a combination of all these practices, it is important for hoteliers to have a consistent rational rate structure,” says Mourier.

As hotels compete and try to step up their direct online booking share, it’s important to assess how rate parity and integrity impact their business. According to Vishal Jain, chief products officer at travel technology company RateGain, rate parity affects the distribution partners or channels more while rate integrity affects hotel’s brand value. He argues that parity issues with your brand site (bigger distribution partners having cheaper better-value offers than your own site) will directly affect brand trust and value but can also lead to loss of business from more profitable channels. It can also lead to decreased visibility on other channels.

“The trend that parity for hotels seems to be ‘having better deals at large OTA sites’ is something we have uncovered consistently in the parity reports we publish regularly at RateGain,” says Jain.  One reason for this could be the extensive parity tracking and automated alert systems that OTAs have successfully put in place to keep hotels on their toes; something the corporate office and brand HQ is unable to do with their own hotels. It gets even harder for those hotel companies that do not own and manage the hotels since they have even less control on the properties but the parity anomalies hurt them both financially as well as with their brand’s value.

Meanwhile rate integrity is a lot more in focus as some profitable segments of business feel that they have got the short end of the stick. Managed or negotiated demand from local businesses or the offline travel agent segment when they see last-minute mobile specials or deep discounts on private networks is an example, says Jain. This not only impacts a hotel’s relationship with that buyer segment but also its brand image. Worse still it can lead to lost business to competitors.

According to Jain new models must be experimented with. As such hotels have the challenge of not upsetting existing business while are still able to consider new channels for tapping different segments of consumers. The transparency of the web puts a lot more pressure on the hoteliers who want to experiment.

Assessing Channels Properly 

Regarding parity and rate integrity on retail pricing in both direct and indirect channels, Preferred Hotel Group’s Brij Bhushan Chachra who is director, revenue account management in India, Middle East & Africa, says each channel needs to be measured on its merits and value proposition it brings to the table.

Today each channel has different value propositions and cost structures and as businesses it is important to ensure a company maximises the same for its hotels.

When it comes to OTAs, hotel companies need to work out the total value the business gets in terms of marketing and exposure and not to forget the ‘billboard effect’. It is important for hoteliers to safeguard their channels and ensure there is value parity across the board. Chachra defines value as this: the benefit a consumer derives from a product in correlation to price paid to satisfy their individual requirements. In this context, one has to make sure that all segments are priced based on the current demand-supply situation which will yield optimal results from all the segments. There is a need to make efforts to get rid of static rates for all segments and move to dynamic pricing across the board.

 

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