Never be undercut – the dangers of rate parity agreements and how hotels can avoid them

OTAs naturally want to be able to offer the best deal to prospective customers – their business models rely on gaining commission from prospective holidaymakers who want to find the best deals all in one place. Rate parity agreements (RPAs) between OTAs and hotels were traditionally the method of choice for achieving this, preventing each party from undercutting the other. This had both advantages and drawbacks for hoteliers: while they gained the security of knowing their rooms would only be sold at a certain price they also lost the ability to offer direct rates that beat those of OTAs, since ‘most favoured nation’ clauses ensured that the OTA would always be able to sell at the best rate on offer.

Although challenges to RPAs in the US may have failed, this summer saw important legal developments in Europe which led to Booking.com and Expedia changing the terms of their agreements with UK hotels to allow hoteliers to offer lower rates via other OTAs. However, since hotels were still precluded from offering lower rates through their own websites, this change restored only limited freedom to hotels.

Hoteliers have a difficult balance to strike: OTAs remain important due to their large market share and marketing budgets, but at the same time it is essential to offer competitive rates through the direct channel. Depending on the terms of the RPA, it is possible to find creative ways to make direct booking more appealing without violating the agreement, or you can look to convince customers that the direct price can't be beaten. Convincing as many customers as possible to book direct is a vital requirement for hoteliers seeking to preserve their profit margins.

However, the end of rate parity would still present important challenges for hoteliers, especially the need to make sure the direct booking channel is up to the job of securing direct sales. Moreover, loosening RPAs to allow different rates to appear on different OTAs increases the complexity and the possibility that the hotel’s website may itself be undercut by one OTA without breaking the agreement with another. For this reason, taking an in-depth look at the prices on offer through different channels could prove to be an important tool for hotel revenue managers to ensure they aren’t being undercut elsewhere.

About The Author

Triptease empowers hotels to recapture guest relationships and increase direct bookings. Follow our blog for the latest insights and trends in the Direct Booking Movement.