By Max Starkov
Background
There has been a lot of talk in the press and discussion forums about the “fall” of rate parity in Europe and its implications.
Most of the new rules and proclamations in Europe thus far concern Most Favorite Nation (MFN) clauses in the hotel-OTA agreements. In the case of France, a new “rate parity” law was adopted in August, which directly affected the rate parity clauses in the hotel-OTA agreements in this country, and most probably will have Pan-European repercussions as well.
I believe one of the reason for the confusion about what exactly is happening and has happened in Europe is that the analysts and editors are mixing two completely separate issues: Most Favorite Nation (MFN) and Rate Parity.
Most Favorite Nation: this is historically the contractual requirement by Booking.com in Europe that a hotel cannot give a lower rate to another OTA. This MFN requirement does not exist here in the U.S. and Booking.com and Expedia both take advantage of various exclusive deals a hotel extends to them based on the property’s business needs. The 24-hour exclusive sales on Expedia fall into this category.
Rate Parity traditionally means maintaining the same publicly available rate for the same room/same stay across all public distribution channels. Rate Parity is not a new online policy specifically designed for the OTAs. It existed long before the “commercial internet” came into being and there was only one reason for its existence: it made revenue management and management of distribution channels much easier. All major hotel chains and smart hoteliers applied rate parity across all offline distribution channels: voice, walk-ins, GDS/brick-and-mortar travel agents, etc. With the advent of the online channel, this business policy was applied to the hotel website and the OTAs as well.
Rate parity in the OTA–hotel relationship means the OTA has access to any publicly available rate a hotel might have. Rate parity does not preclude one OTA or Flash Sales Site to get special lower rates for a private sale: this is why Groupon Gateways, Expedia Gateways, JetSetters.com, etc. are still in existence today. The fact that this offer is extended only to a “private membership club” is what circumvents the requirements of rate parity.
So what actually happened in Europe?
As a result of industry pressure, legal challenges and anti-trust laws, Booking.com “voluntarily” dropped the MFN requirement from its contracts with hoteliers. This past summer, rate parity was de facto abolished in France as a result of the most anti-rate parity government legal action yet. So in theory, any French hotel can now sell at whatever rates they want, unencumbered by the OTA rate parity restrictions. Only time will tell whether similar rate parity legislation will be adopted in other countries of the European Union or across the Atlantic.
Is hospitality ready for the end of the Rate Parity Era?
Some hoteliers argue that the industry would be better off without rate parity because hoteliers would be able to sell at whatever rates they want, free from the OTA rate parity restrictions. In other words, the abolishment of rate parity would be a good thing for the industry.
Unfortunately I find these arguments rather naïve, especially coming from hoteliers who consistently under-invest in the direct online channel, and in their digital marketing and technology.
Let’s imagine for a moment that rate parity magically disappears and the hotel has the right to advertise and sell whatever rates they want. Let’s say the property comes up with a 10% off promotion on the property website. How will they promote and sell such a “below OTA rate” if their digital marketing efforts are severely under-funded and their “digital marketing house” is not in order?
Who will even notice such a promotion if their property website is a tired and obsolete 5-year old website with:
- No merchandising functionality
- Stale content
- No SEO
- Unsophisticated SEM / Paid Search
- No Google Display Network (GDN) retargeting
- No content personalization
- No Reservation Abandonment tools
- No dynamic rate marketing
- Superficial social media presence
- No email marketing strategy
- No multichannel marketing strategy
Under these circumstances, how are they going to sell a below rate-parity promotion and who is going to even see this promotion?
So when would the abolishment of rate parity be a good thing?
The continuing OTA consolidation and threat of rate parity removal in Europe erodes hotelier’s negotiating and marketing power and gives serious competitive advantage to the OTAs. While out-spending the OTAs is out of the question, hoteliers can still outsmart the OTAs. How can they do this? By utilizing their digital marketing resources in the most innovative and efficient fashion, investing in the right digital technology and best practices, and by staying laser-focused on their most lucrative market segments and feeder markets.
We are entering a new era of online distribution and digital marketing in which just having a website, a few paid search campaigns and occasional email marketing initiatives no longer allows hoteliers to achieve any level of real success and only deepens their dependence on the OTAs, with or without rate parity provisions.
Now is the time to invest in the right digital technology and marketing techniques, adopt optimum digital marketing budgets that will allow hoteliers to boost their direct online channel presence, and implement a full-blown merchandising strategy to engage users and drive direct bookings. Only under these circumstances would the abolishment of rate parity be a good thing.
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