Are you wondering what the best strategy is for determining your rates and selling rooms while keeping both your customers and business partners happy?
Rate parity and rate integrity both have their pros and cons, but they can also work together as a strategy to set rates that will generate revenue.
In order to understand how each of these strategies work, both separately and together, let's take a look at what they mean and how hotel owners can use them to their advantage.
Rate parity is when hoteliers maintain consistent rates across all online distribution channels (such as Expedia and Orbitz) regardless of what the online travel agency (OTA) makes. This strategy allows for an even playing field across all channels, keeping your partners happy because you are not favoring one channel over another.
Since OTAs are significantly pulling in more bookings for hotels than traditional brand distribution channels, rate parity can be a good thing to strive for. In fact, OTA bookings increased by 9.7 percent in the second quarter of 2015, while bookings through hotel websites increased by only 5.8 percent.
In becoming more appealing to consumers, OTAs are becoming much more powerful with their market share. Rate parity eliminates the threat of your hotel being cut to the bottom since both sides are maintaining consistent prices.
Sometimes you're tempted to mess around with your rates for a channel that yields a better return. But when you don't offer the same promotions, discounts or rates to the lower producing channels, you risk putting your hotel toward the bottom of the list for related searches. Maintaining consistent rates gives your hotel a good presence across all channels.
Benefits of implementing rate parity
Global Distribution System (GDS) channels scope out hotel websites and OTAs for rate parity. If a GDS sees that a hotel is not giving the same rates across all channels, it will take away the hotel's "Price Assurance" tag.
Travel agents and customers won't even glance at your hotel if it is not showing "Price Assurance".
Using this strategy can allow you to evaluate your partnership with an OTA as well. You can measure how the channels are working for you, how much revenue they're generating for you and whether you should continue to do business with your OTA.
Rate parity is not a rule
Rate parity is a strategy to selling rooms, but it is not a rule for hoteliers. The main goal of rate parity is to please the distributors. But you also have the flexibility to play with this a bit if you choose to.
You might not want to use rate parity if you have some strong channels within your distribution channel strategy. If you get a lot of business from a specific channel, you may want to reward them with a rate discount.
This may keep other sites from displaying your property, but can help you get even more business from this channel that you already know is successful.
Rate integrity isn't always as clear and straight-forward as rate parity seems to be. The word "integrity," of course, is known for having a sense of honesty and authenticity in your motivations and actions. But rate integrity can be viewed differently from hotelier to hotelier.
While rate integrity can simply mean that the hotelier is simply setting what he or she sees to be the fair price for a room, many hoteliers see differently what makes a fair room rate. Rate integrity, however, is when the hotel owner believes their hotel's room rate fairly represents the cleanliness, location, customer service, and amenities offered by the property.
Yet, rate integrity is also seen as an hotelier rationalizing price discounts to show that the hotel isn't dropping rates without a good reason. An example of this is when a customer gets a discount because he has a membership card or has met another qualifying standard.
Stay consistent with the market
Basic rate integrity is setting your prices according to the market conditions. If there is a strong demand for hotel rooms, raise your rates appropriately and drop them when the demand is low. Be careful not to drop them too low and hurt your hotel's image.
Rate integrity is also seen as keeping your prices rational in relationship to the best available rate (BAR). If your rate is above the BAR, there should be an added value in play. When rates are below the BAR, that should be due to factors such as minimum length of stay or advanced purchasing options.
Rate integrity is not a rule either
Since rate integrity isn't a clear-cut rule either, it is up to the hotelier to show integrity when setting their rates. Practice the strategy of rate integrity by justifying your price discounts and avoiding slashing prices. Develop a rational rate structure to use consistently in your business plan.
How Rate Parity and Rate Integrity Work Together
While they seem to be two different concepts, rate parity and rate integrity tend to come together in hotel business strategy. When you practice rate parity and maintain consistent pricing across all of your channels, you are also practicing rate integrity. You are ensuring a fair playing field across your online travel agencies and distribution partners while also being fair to the customer.
Using the two strategies together is sure to keep everyone happy, from your hotel franchisors to your customers. Your customers are especially happy because they know they are getting a fair price. They won't be afraid to book and worry that they're missing out on a better rate.
Finding the right balance between these strategies is not an easy task. A fair way to go about both rate parity and rate integrity is to keep your rates consistent among all channels and establish a rate structure that fits the value your hotel offers and meets the demands of the market.
Work with a personal expert in revenue strategy to take this further. Our 360 Revenue Management service will give you creative revenue generating techniques optimizing all of your distribution channels. Contact us today and we'll help you take your revenue to the next level.