Is it time to return to rate disparity?

In looking back at 2014, it seems that a major topic at all hotel industry conferences was the seemingly ever-increasing costs of customer acquisition. Numerous conference presentations, webinars and dozens of hotel industry articles focused on how the hotel industry has been out-maneuvered by online travel agencies that provide an easier-to-access marketplace and arguably a better digital experience over many hotel websites.

Perhaps 2015 will present the perfect opportunity for hoteliers to return to the era of “rate disparity,” or at least to “selective” rate disparity. First, let’s take a look back at the history of rate parity.

Rate parity history

Prior to 1990 it was commonplace for hoteliers to charge a diversity of rates for the same room category for the same dates according to the distribution channel. Hoteliers frequently offered lower rates by phone and higher rates in their global distribution systems used at that time only by travel agents, which helped offset what many then felt were “hefty” commissions. I can still remember how my GMs used to grumble when they would have to sign all of those travel agent commission checks, especially when they shot up from 10% to 15%—which most would consider to be a bargain these days.

(Maybe it was better back then when managers had to physically sign a check because it made them aware of distribution costs when it went out the door more like a “rebate.”)

Back then reservations agents were routinely trained to use a “fade” or “fallback” rate to save the booking whenever callers objected to the initial rate offered.

Then around 1990 the media and travel writers started to publicize the fact that there was a significant difference in the rates for the same room. I recall well that USA Today had a huge front-page headline reading something along the lines of: “One room, three rates!” with an article that followed telling how different rates were quoted by the hotel, the 800-number agents and the travel agent, as if they were uncovering some type of scandal. Travelers back then tended to perceive that there was a set rate for each room, such as the ones published in the “rate card” inserts included in the rack brochures. It seemed like an unfriendly customer service tactic to charge anything but that.

Hoteliers responded by going to the BAR—”Best Available Rate” guarantees that touted their rate parity policies as being a good thing for guest service.

Then once the OTAs got into the game, many hoteliers let BAR rate go by the wayside and started offering lower rates on OTA channels to attract demand when it was desperately needed, such as the months following the 9/11 attacks. Of course it didn’t take a hotel’s existing guests too long to learn that they could find an even better deal by booking their favorite hotels elsewhere.

Finally, the OTAs outsmarted hoteliers by starting to include clauses in their contracts preventing hoteliers from offering lower rates to another OTA and on their own websites. This helped them lock-in their own relationships with the consumers.

A change coming?

All this might be starting to change in 2015. For one, the negotiations going in between the European Commission and OTAs such as Booking.com are reported to be causing them to scrap practices preventing hotels from giving discounts to rivals, although so far it appears that they can have clauses preventing them from offering lower rates at their own proprietary websites. These new playing rules might eventually migrate to the United States and other markets.

In the meantime, even hoteliers who have signed OTA agreements not to offer lower rates directly have found workarounds by offering different terms and/or different rate options. For example, many have offered online options with different terms at their websites, such as Advance Purchase rate options— although this practice might be restricted by some OTA agreements. Others have offered rate options that are only slightly higher but include breakfast, parking, Internet fees and/or hotel fees.

Simultaneous to all of these changes, many consumers are returning to the practice of calling the hotel directly in an effort to negotiate. Perhaps having been “trained” over time by airline models, consumers understand all too well that the rates paid for the same room vary according to how and when it was booked.

Frontline reservations and front-desk agents tell me they often hear guests trying to negotiate, and that many even throw out their own rate as if playing “Let’s Make A Deal!” Some even say, “If you don’t sell it to me for what I’m offering, it will go empty and you won’t make anything.”

A return to selective rate disparity

All of this makes 2015 the perfect time to return to “selective” rate disparity as part of an overall channel conversion strategy to drive more direct bookings.

Marketing managers, make sure your hotel’s website prominently displays the 800 number. If you have on-site agents, make sure the website says something like: “Contact our on-site agents directly for the best/exclusive/special rates and offers.”

Revenue managers, read those OTA agreements carefully and find a way to play within the rules but to still offer rate options to attract direct online bookings, even if the direct offer needs to be at a slightly higher rate. Look at your inventory of rooms and operational conditions and consider the best book-direct incentives for your property such as those mentioned above, and/or by offering other services and amenities such as:

• a choice of early check-in or late check-out;
• a preferential room type or location;
• complimentary Internet; and/or
• free parking.

Reservations and guest services managers, train your agents to do all they can to convince callers to book directly. Remind them that chances are the caller has already been shopping online and we need to get them to stop shopping and start booking by clearly presenting the additional value-added benefits of the book-direct offer.

Train your agents to simply tell the callers they will “check further…” for a lower rate and/or a better rate option or a rate with an extra service. Then when they return to the call they should start by saying, “If I can get you this (rate, rate option, or extra service) can we lock this in for you now with a credit card?”

These techniques create a sense of urgency and present the availability of the special deal as being a unique offer.