Capitalising On Changes In Contractual Rate Parity
France’s landmark Macron Law, passed in July, prohibits online travel agents (OTAs) from writing rate parity clauses into contracts with their hotels, giving French hoteliers full freedom to offer lower rates on their own websites or to other OTAs. Crucially, the bill also prohibits OTAs from offering prices lower than those supplied by the hotel, so OTAs cannot sacrifice part of their own margin to secure a lower cost sale in competition with the hotel’s website. While rate parity changes are not applicable everywhere, the law has re-opened the debate on rate parity and how hotels balance business with OTAs.
Predictably, dire warnings on the fall of rate parity have come from the OTAs themselves, who predict a price war between small independent hotels (who will now be unprotected and unrepresented online) and the large branded chains - as if the OTAs were the guardians of the small hotel in the pricing landscape!
The highly specific French law comes on foot of legal challenging of aspects of rate parity in other countries and recent anti-competition investigations in various EU countries. France’s move is the most straightforward and clear. The hundreds of hotels that Bookassist works with in France are overwhelming in favour of the move - but capitalising on rate freedom is not as simple as it may sound.
As it stands, France is the only country to specifically give hotels full freedom to alter rate in whichever way they wish. But Europe-wide, Booking.com and Expedia are now no longer able to write contractual clauses prohibiting hotels from giving lowering room rates to other OTAs. The new contracts cannot prohibit hotels from offering lower rates to their corporate or loyalty club members (non-public rates), and to the general public through offline channels.
Rate Parity Impact
It was, ironically, the hotel industry itself that pushed for rate parity in the early days as hotels sought to ensure contractually that OTAs would not undercut their own website prices. In turn, OTAs accepted this, provided hotels agreed not to allow other OTAs to undercut their pricing and retained parity across all OTAs. The concept became engrained in the industry but OTAs were quick to capitalise on their best price position through massive advertising, brand development, and more recently private clubs for their customers. They built their brands on promising best price, giving little reason to consumers to bother going to hotel websites. The margins realised by OTAs grew at multiples of the hotel industry margin growth as a whole, and a shifting of the power balance resulted.
But how rate parity affects a hotel today depends on their strategy – whether they are distributing widely and want to keep uniform rates (or indeed vary rates) across multiple OTAs, or whether their strategy is to limit distribution to a manageable few and target direct business to their website. Those strategies also depend in turn on the size and location of the hotel, since larger hotels need more specific distribution and rate management policies than smaller ones who have less rooms to fill. But, for the smaller independent hotel, in particular those seeking to drive more direct bookings to their own website, the fall of rate parity can be a very good thing indeed, provided the hotel truly knows how to manage their rate distribution.
The Meta Search Mirror
The focus on OTAs has side-stepped some of the looming problems arising on rate issues today. Control of selling-rates is more and more difficult. Meta search holds up a mirror to your hotel’s distribution strategy online, and when you examine a hotel on meta search to see how their rate and availability stacks up, it’s often not a very flattering picture. Many hotels seem to have lost control of rate online, without even knowing it in many cases.
FIT rates for example, that are supposed to remain wholesale or offline, are regularly appearing on meta search sites at below the intended public rate, where wholesalers privately sacrifice part of their commission to get the sale. Often hotels have no idea how to track or control this, or may not even be aware it is happening. (Other than making a booking themselves to determine where exactly the rate has originated from.) Discussions we have had with our client hotels in Italy, France and the Czech Republic recently indicate that this problem far outstrips the OTA management issue for many hotels and is the real rate erosion problem faced by many.
Hotels must revisit their FIT contracts and determine exactly which of those are playing by the contractual rules - delivering real value offline and not just undercutting the hotel on obscure websites. There are certainly some players who are bending the rules to the detriment of hotels’ direct business. Hotels need to be forceful in stopping that practice.
Meta search is only going to grow. The massive investment by TripAdvisor shows that there is appetite for a third way between hotels and OTAs, with 235,000 of hotels on TripAdvisor now bookable on that site as of July. Google Hotel Finder has also announced a revamp as it pushes towards making all hotels bookable from search. The opportunity for hotels in meta search will become stronger as time goes on. It has not yet delivered massively for direct-to-hotel business, but at Bookassist the booking value generated on all our meta search integration channels is showing clear progress. It is critical that hotels get their direct business on to meta search and begin to play with and understand how each platform works, as they all differ so much. Meta is often the simplest way to see how hotels’ distribution strategies are working (or not), since so many hotels still (inexplicably!) appear with better availability and lower rates on other channels compared to their own website. With hundreds of Bookassist hotel clients availing of our direct meta search connectivity to Google, Trivago, and TripAdvisor, our strategic knowledge continues to rapidly grow and can be shared among our clients bringing to them the benefit of scale.
How Do Hotels Capitalise And Drive More Direct Bookings?
Stay Competitive - Controling rate is more difficult than it sounds and the consequences of getting it wrong can be large. Using OTAs appropriately is crucial for their reach, but simply altering your OTA price upward so that your hotel website is cheaper will not work. OTA listings ordered by price will obviously disadvantage hotels who up their OTA price with respect to their previous offering, regardless of contractual terms. Hotels needs to be careful to remain competitive here if they are to continue to use the OTA advantage of widespread exposure.
Value - The key is to deliver better package value on your own website for the same price. There are many ways hotels have successfully done this, from offering preferential room upgrades, to free in-house services for direct guests versus third party guests, to promotional codes off future bookings.
Data - Projecting value is the key element to allow the prospective online purchaser to make an informed decision, while proper use of guest data in the form of pre-arrival upselling and highly targeted post-stay offers will derive best future value from the acquisition cost of that first booking. Remember, OTAs are now generating more and more business from their private clubs because they know how to use personal data. Hotels can and should be doing this too with a clear strategy to collect customer data, proper segmentation of their customer data and targeted email and social media exclusive offers to segments that are highly relevant and compelling.
Loyalty – As with my comments on data above, develop a loyalty programme to maximise the return on your efforts. Customers love the exclusivity of being a member (of anything!) provided you show how well they are treated in return.
Website Quality – Even with price parity or better value, you are competing for the mindset of the online customer when you pitch your own hotel website against the OTA website. OTA websites are conversion machines. Top quality hotel websites, designed for conversion (such as those produced by Bookassist for our hotel partners) are critical if hotels are to compete. But hotels too often take the same approach to web design as they take to decorating their hotel and end up compromising website design for the sake of their own aesthetic view. Hotel management must get away from reacting personally or emotionally to website design and realise that the objective scientific approach to conversion optimisation is what counts. Take the advice of expert companies in this area like Bookassist, resist interference and let them do their job to build your online business.
Mobile – The growth in mobile continues and so much browsing now comes from cross platform access, where people jump between devices as they do their research. Not being on top of mobile is a big mistake. Even if you are not getting significant mobile bookings, the availability of your information on mobile is a critical part of the decision matrix process leading to conversion on other platforms.
Even with all of the above, it’s critical to remember that a driving force of online sales on any platform is the reputation of the hotel and staff. Thankfully, there is nothing new for hotels to learn in order to get this one right and boost their reputation online – good old fashioned quality of service, personal interaction, and engaging with guests online and offline in as helpful a way as possible. The best way to win the online reputation status you want is to deserve it.
Dr Des O’Mahony is CEO and Founder at Bookassist (http://www.bookassist.com), the multi-award-winning technology and digital strategy partner for hotels worldwide, and is a HSMAI “Top 20 Extraordinary Minds” recipient.