World Panel
Viewpoint18 November 2019

Is Rate Parity Good Or Bad For Hoteliers?

Digital Marketing in Hospitality

— 9 experts shared their view

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This viewpoint was created by
Max Starkov, Adjunct Professor NYU Tisch Center for Hospitality and Hospitality & Online Travel Tech Consultant
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Mark Fancourt
Co-Founder at TRAVHOTECH

In general I view Rate Parity as a level of equivalency to price fixing. Price fixing is not generally viewed as a good thing. Following the basic rules of markets the most attractive price of a product is from the producer of that product. In our case the producer of the room product is the hospitality industry. 

All other parties further up/down the distribution channel depending upon how one views it, are some level of middleman player. It follows that the middleman will have costs of their own to bear on top of the cost price of the product from the product producer. This is where their opportunity to make a profit is available.

Why, in hospitality, is the producer of the product forced to find ways and means to differentiate their own core product they produce through loyalty, additional services, inclusions, incentives and other basic cost impacts, to make the product attractive for the end customer? The same customer who is ultimately their direct customer, consuming their product. All so that it is 'fair' to other parties who want to sell the product that they do not own or produce. In my view it's a backward model.

Constant dialogue in industry discusses the balance of direct bookings vs. third party electronic or largely referred to OTA's. If the lowest price of a product is from the producer and for the most part buyers generally seek the lowest price for the same product, it follows that the majority of bookings would be directly with the producer. In our case hospitality organisations. Third party distribution channels certainly don't want that.

In the bricks and mortar world of the Travel Agent, the business model was to provide reach into far flung locations around the world through direct travel agent rate setting (10% commission on revenue booked) or through a wholesaler model where products were packaged inclusive of room products with volume rates and fixed hidden cost price based upon volume of production.

The electronic business model of today has done great things for travel and hospitality as industries in terms of exposure and custom. However I'm not convinced that the process of aggregating and consolidating other peoples products is worth significantly more than it was under a traditional model.

People will always need somewhere to stay. People do not always need someone in the middle to present it to them. Does the third party distribution industry need hospitality or does hospitality need third party distribution? The commercial relationship and pricing should reflect that reality. I believe we are seeing a shift in the model now.

What is constant is that the guest can't sleep on an electronic transaction. Joseph and Mary were walk-ins.

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