Without Price Parity — How Will the Hotel Industry be Affected?

The price parity principle that the hotel industry has long relied on may no longer work.

Hotel revenue managers and industry consultants, who once championed rate parity, now say it is increasingly difficult to enforce and too restrictive.

Assuming that the hotel industry will no longer use the price parity principle, we will be faced with two main questions: First, why will the hotel industry no longer use this principle? Second, what changes will occur in the industry without this principle?

The first question is very complicated. The principle of price consistency is the foundation of the entire industry, especially the Best Available Rates (BAR) provided to consumers.

Most hotel chains, as well as many independent hotels, advertise to website visitors that they offer the lowest price. If this principle is no longer in place, and hotels have no idea of ​​the available prices displayed on other platforms, will they risk continuing to offer the lowest price guarantee?

It’s not just hotel suppliers that need to consider this. OTAs have also been relying on this principle to grow their business, and some OTAs have fired some hotel contract managers because they believe they don’t need to bargain for automatically set BARs.

If the industry moves away from rate parity, will OTAs need to hire new people to negotiate prices with hotels, or will they maintain the prices set by hotels for a period of time, potentially reducing their profit margins and affecting their competitive advantage?

For example, even though price parity is not essential to the OTA’s business model, it still benefits the model and the site will continue to use BAR.

This is because customers will pay that price at the hotel, but if Booking.com cannot offer the lowest price guarantee, how will its business be affected?

What about the relatively small market for fuzzy bookings? When the market is fully open, fuzzy booking sites won’t need to hide prices. If Lastminute.com’s “Top Secret Hotels” product is only a small part of its business, then it can stop offering it, but this model is Hotwire’s entire business.

If the rate parity principle is no longer in place, will the entire fuzzy booking world fall apart? How will the industry change in the near future? How will the hotel industry readjust?

Here are some of my predictions:

1. Market leader

The situation of Booking.com and Expedia being evenly matched will change radically. The former's business is tied to BAR, so it will not be able to make major adjustments to its business; for the latter, although it is not so willing, its profit margins will be lowered.

2. Disruptive Change

When the market in the hotel industry returns to a fully open state, all entrepreneurs will re-enter the market. The situation where large companies monopolize the industry no longer exists, so they will be excited about entering this huge market.

3. New Methods

Hoteliers will realize that they will need to become more creative to attract more direct booking customers, and OTAs will have to find new ways to attract customers beyond price guarantees.

Most importantly, if the hotel industry moves away from rate parity, some companies will have the opportunity to create a new business model that gets hotels and OTAs moving their businesses in the same direction.

Magnuson Hotels appears to be ahead of other companies in this regard, but they still have a long way to go to create a new model.

via: traveldaily