Essay Example on Hotels' Rate Parity: Achieving Brand Loyalty With Strategic Pricing

Introduction

The best way for hotel chains and individual hotels to build their brand and maintain customer loyalty is through formulating rate parity into their pricing strategy. The revenue management team should recognize the benefits of rate parity and incorporate it into their strategic management (Guha, 2016). Rate parity is setting the same price across all distribution channels for the hotel rooms (Haynes and Egan, 2015). Hotels use these distribution channels for advertising their rooms and services, and these channels include the hotel's brand website, online travel agencies, and social media platforms among others (Inversini and Masiero, 2014). Consistency is achieved by maintaining rate parity across all these channels. The online travel agencies must provide the same rate across all the booking platforms and the hotel's website (Haynes and Egan, 2015). Hotels should have the same prices for a room no matter where the customers choose to book them from or regardless of the commission paid to the online travel agencies. Rate parity also ensures that a level playing ground is created across all distribution channels and seeks to protect the relationship and loyalty between hotels and customers because no channel will be preferred over the other (Jiang, 2014). The purpose of rate parity is to build transparency in pricing strategies and boosts the confidence of clients. This paper thus seeks to discuss the benefits of rate parity to both the guests and the hotel industry.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

Rate parity focuses on the hotel management practice, and it helps avoid the discrepancies witnessed in pricing strategy across the distribution channels by minimizing the customers' confusion of the hotels' pricing practices (Johansen and Verge, 2016). Rate parity is, however, a difficult concept to maintain across all distribution channels, but with the rise and demand of hotels, it is essential especially for the hotel franchisors to maintain same price (Jiang, 2014). The hotel industry was scared of the evil motives by the online travel agencies (OTA) and undercutting practices and sought to rely on rate parity as a remedy. Nowadays, OTAs insist on having rate parity in their agreements to sustain their business because customers are likely to take advantage of the lower rate presented by the third party website (Dong and Ling, 2015). The hotels fight the disparity in prices through the 'best rate guarantee' programs that seek to formulate better rates compared to the third-party websites, and tend to shift the booking practices back to the hotel's websites (Dong and Ling, 2015). Hotels receive better revenues when clients book directly from their websites. With the growth and advancement of technology, clients have better tools to compare the rates between distribution channels and thus it is essential to maintain rate transparency (Eriksson and Fagerstrom, 2018).

Benefits of Rate Parity to the Hotel Industry

Rate parity has several benefits to hotels some of which include creating brand equity by ensuring that the rates are similar across all distribution channels and that no cheaper rates exist on different markets (Talon-Ballestero et al., 2014). The revenue management is better placed to manage the pricing strategies and the rate matrix across channels (Talon-Ballestero et al., 2014). Price parity enables hotels to create customer confidence by eliminating the random price shifts experienced in the market to avoid confusion. Rate parity is also associated with creating a stable structure for the hotel industry by removing undercutting practices among the competing hotels (McGuire, 2015). The robust structure helps creates an effective revenue management strategies. Rate parity gives the OTAs and hotels equal opportunities to acquire booking from clients.

Disadvantages of Rate Parity in the Hotel Industry

There have been several debates over the importance of rate parity with pundits claiming that it does not serve the best interest of the hotel's properties (Colangelo, 2017). The fact that hotels need to have rate parity to work with OTAs is also frustrating to most hotels. Rate parity is said to limit the pricing management of most hotels (Colangelo, 2017). Hotels also engage in rate parity because of the pressure from OTAs to include parity in their agreements. Matching the rates across all the distribution channels is time-consuming and very hectic practice. The OTAs systems vary from hotels systems and thus make it hard for revenue managers to monitor the rates across the channels (Yang and Leung, 2018). Some OTAs charge high commissions making the hotel industry receive very minimal profits, and this creates a lot of problems because the hotel industry is losing the market share to OTAs.

Hotels should formulate high prices for indirect channels because they are expensive compared to direct channels, but because of the existence of rate parity, it is impossible (Verge, 2018). Hotels also suffer severe penalties in circumstances where one channel reveals preferential rate. Hotels have however invented means of working around rate parity to minimize the adverse impacts such as offering opaque rates to their customers that include discounted rates aimed at eliminating unsold inventory (Tappata and Cossa, 2014). Hotels may also give similar rates but include value-adding services in the form of free meals.

Rate parity also creates a lot of loss for the hotel industry because they are not in a position to display discounts on their brand websites without revealing them to the OTAs (Mantovani et al., 2018). Without discounts, it is significantly difficult for hoteliers to attract more customers and customers tend to shift to OTAs because they feel they can get better deals at the same prices (Ezrachi, 2015). Rate parity also lowers the number of direct bookings, and thus hotels are forced to pay commissions to OTAs to market and advertise their services and hotel rooms (Oskam and Zandberg, 2016). Direct bookings always result in high profits, but with the existence of rate parity, customers prefer to book from other channels (Tan and Dwyer, 2014). Customers build trust with OTAs lowering the loyalty and relationship with hotels making the hotel industry to lose control over their business in the distribution channels (Tan and Dwyer, 2014).

Pros and Cons of Rate Parity to Customers

New revenue management focuses on the customer-centric approach which emphasizes on creating a balance between the price and perceived customer values. Rate parity enhances hotels to eliminate customers' perceived notion of unfair pricing practices by ensuring that the rates are similar across all the distribution channels (McGuire, 2015). Rate parity ensures that customers pay the same prices no matter the channels they choose to use. Rate parity makes the life of customers easier because they do not have to navigate through a lot of reservation channels to book a room (McGuire, 2015). Customers are known for comparing information that lessens the bridge between their travel expenses and expectations. Rate parity reduces the inconsistencies across distribution channels to avoid the confusion caused by consumers' behavior of navigating across numerous channels (O'Connor, 2016). Without price parity, there would be price dispersion across channels that would build the urge for customers to search for better and cheaper prices across the channels. When different channels for the same rooms offer customers different rates, they always lose confidence and loyalty and feel cheated (Kim et al., 2014). Rate parity thus creates rate integrity that results in high confidence for customers when booking hotel rooms.

Conclusion

In conclusion, there is no doubt that rate parity plays an essential role in the hotel industry considering the benefits it has on both the guests and the hoteliers. The requirement of rate parity in OTAs agreements has enhanced smooth cooperation between the distribution channels. However, revenue management is facing a lot of challenges in maintaining and keeping up with the requirements of rate parity. The existence of third-party websites and tour operators who are selling rooms at a lower price to OTAs make regulating rate parity difficult. The future of rate parity is hard to tell because it is expected that it will undergo some changes; for instance, the rate parity agreements may allow hotels to use different prices in specific channels. There are also debates about eliminating rate parity to enable fair competition in the market, and that makes it's future debatable. Rate parity is however embraced because of the working relationship it creates between hotels and OTAs which has resulted in OTAs minimizing violations penalty. However, the hotel industry should evaluate the distribution channels and settle on what works for them, and narrow on the channels that are valuable to the business.

References

Colangelo, M., 2017. Parity clauses and competition law in digital marketplaces: the case of online hotel booking. Journal of European Competition Law & Practice, 8(1), pp.3-14. https://doi.org/10.1093/jeclap/lpw046

Dong, Y. and Ling, L., 2015. Hotel overbooking and cooperation with third-party websites. Sustainability, 7(9), pp.11696-11712. www.mdpi.com/journal/sustainability

Eriksson, N. and Fagerstrom, A., 2018. The relative impact of Wi-Fi service on young consumers' hotel booking online. Journal of Hospitality & Tourism Research, 42(7), pp.1152-1169. https://doi.org/10.1177/1096348017696844

Ezrachi, A., 2015. The competitive effects of parity clauses on online commerce. European Competition Journal, 11(2-3), pp.488-519. https://www.tandfonline.com/doi/full/10.1080/17441056.2016.1148870

Guha Thakurta, P., 2016. Revenue management: the ever changing landscape and the need to innovate. Worldwide Hospitality and Tourism Themes, 8(4), pp.461-468. https://doi.org/10.1108/WHATT-05-2016-0024

Haynes, N. and Egan, D., 2015. The Future Impact of Changes in Rate Parity Agreements on Hotel Chains: The long-term implications of the removal of rate parity agreements between hotels and online travel agents using closed consumer group booking models. Journal of Travel & Tourism Marketing, 32(7), pp.923-933. http://shura.shu.ac.uk/11590/

Inversini, A. and Masiero, L., 2014. Selling rooms online: the use of social media and online travel agents. International Journal of Contemporary Hospitality Management, 26(2), pp.272-292. http://eprints.bournemouth.ac.uk/21436/1/eDistribution_SocialMedia_OpenAccess.pdf

Jiang, L., 2014. Revenue management in a multi-channel environment: the effect of pricing strategies on perceived fairness. https://digitalscholarship.unlv.edu/cgi/viewcontent.cgi?referer=https://scholar.google.com/&httpsredir=1&article=3097&context=thesesdissertations

Johansen, B.O. and Verge, T., 2016. Platform price parity clauses with direct sales. IDEI working. https://pdfs.semanticscholar.org/1856/a9577cb216d3bcb2b666ec88f281c1adeaeb.pdf

Kim, W.G., Cho, M., Kim, D. and Shin, G.C., 2014. The effect of price dispersion on hotel performance. Tourism Economics, 20(6), pp.1159-1179. https://journals.sagepub.com/doi/10.5367/te.2013.0343

Mantovani, A., Piga, C. and Reggiani, C., 2018. On the economic effects of price parity clauses-What do we know three years later?. Journal of European Competition Law & Practice, 9(10), pp.650-654. https://doi.org/10.1093/jeclap/lpy028

McGuire, K.A., 2015. Hotel pricing in a social world: driving value in the digital economy. John Wiley & Sons.

O'Connor, P., 2016. Distribution channel management in hotel chains (pp. 251-261). New York, NY: Routledge.

Oskam, J. and Zandberg, T., 2016. Who will sell your rooms? Hotel distribution scenarios. J...