Rate Parity & Leakage
Hotel Chains, Hotels, Supply
Rate parity consists in maintaining the same publicly available rates across all distribution channels. When rates are misused or distributed in the wrong channel, we talk about rate leakage.
Rate parity is one of the biggest subject in distribution. It is the revenue management team nightmare and impacts directly revenue optimization. Over the past decade, the practice was to offer differentiated discounts on BAR rates to different type of distributors (OTA, Wholesalers, TO, etc.), segmenting mostly between the B2B and the B2C environment. With time, OTAs have now all adopted a B2B model to get the juicy discount into their B2C distribution, thus making this segment approach useless to control rates. On top of that, OTAs algorythms will track now special public prices to align to the cheapest rate available.
Chaos is all around...
Where to start?
Reselling is probably accounted for 95% of rate leakage. This reselling operates in a B2B environment generating exponential traffic and price war. No matter where the rates are to start with, reselling makes it impossible to control. Adding the fact that everyone is nowadays connected to everyone thanks to switches or platforms that promote API exchange, most hotel chains get to see a small part of the iceberg.
What can you do?
Limit the distribution chain with the wholesalers. Select 3 or 4, no more to work with maybe 6 if you need to cover more markets.
Align rates for all. Distributing a different rate to a B2B than a B2C is non-sense today. Get the same discount to all but with limited availability.
Force revenue management into a rate availability logic. The more rooms available to sell, the more discounts available. Last minute bookings are made to offer less discount. Check how much bookings have a big discount on BAR but a booking window of less than a week.
Limit static rates allotment. Nothing worst than a static rate entered into a platform manually and then distributed through APIs all over the world. If a partner can distribute a static rate through API, it means they could distribute dynamically. Cut that threat.
Set-up proper rate rules. Package rates must have a minimum stay of 2 nights, ideally 3 or 4. If you can´t control rules by system, it is probably a bad idea.
Sign a transparent distributor and use it to migrate static to dynamics, avoid reselling and get visibility on your network. Careful, transparency is worthless if distributed to a reseller.
Incentive transparent distribution always. Offer special rates to restricted audiences that can garantee a healthy distribution. Most of all partners that do not compete with your brand.com website versus OTAs.
Control the bullies. Most rate parity happens because you have concentrated your sales on complementary partners only. Use competition between them to avoid having to comply to one single rule of distribution.
Turn off the vicious circle of the differentiated discount that provokes others to enter rate leakage.
All these measures should help you to control better your distribution. If you are missing most of those it is probably because your distribution strategy is too old fashioned. And remember, the devil is in the detail!