Pricing Strategies for Hotels

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In small hotels, every dollar counts. While it’s fair for OTAs to ask for commission for promoting you to thousands of people every day, paying commission on top of your lowest possible rate cuts into revenue you would have earned had these people booked directly. The challenge is encouraging direct bookings without using campaigns and pricing tactics.

Small hotels are between a rock and a hard place, as the saying goes. On one hand, you don’t have the marketing budget to achieve the kind of reach that your OTA partners do. They bring you business. On the other hand, you want to drive more direct bookings.

What is rate parity?

Rate parity is a legal agreement between hotels and online travel agencies (OTAs) in which the hotel guarantees to use the same rate and terms for a specific room type, regardless of the distribution channel. The price of the room can regularly change – which means the exact rate is flexible – but it must always remain the same across all distribution channels, both direct and indirect.

There are two broad categories: wide rate parity and narrow rate parity.

Wide rate parity

Wide rate parity is the more restrictive form of parity agreement. In such clauses, a hotel agrees not to undercut the room prices that the OTA charges for their hotel. This agreement generally applies to all distribution channels, including other OTAs and the hotel’s own website.

Narrow rate parity

Narrow rate parity developed in response to an intervention from regulators in Europe. Such clauses generally allow hotels to offer lower rates to other OTAs, but not publicly online through their own websites. Narrow rate parity clauses also generally don’t restrict the hotel from offering lower direct rates when it’s through indirect or offline channels, such as email or telephone bookings, or to guests in their loyalty programs.

When OTA channels aren’t directly linked to a small hotel’s PMS system through a channel manager, rate parity is even more difficult to manage. Small hoteliers have to log into multiple systems to update their rates. What can you do to respond to rate parity challenges?

You can enhance your offering by adding elements like free parking, wifi, and tickets to a local event. Your OTA may be selling the room at a discounted price, but with your full price, there are extras that are more valuable than the discount your guest would be getting if they booked with the OTA.

While you can’t publicly advertise lower room rates, you’re allowed to do so to a limited audience. This means that to drive direct bookings you can offer deals to: Facebook fans, Twitter followers, Your email database, Phone enquiries. Remember to invite people to join these audiences through calls to action on your website. Tell them they can get special discounts and promotions unavailable elsewhere.

Partnering with a good channel manager will allow you to easily push the most up to date room rates (and inventory) to all of your connected OTAs. For example, AirRentalz can connect you to thousands of people through their marketing programs designed to drive direct bookings to hoteliers.