After pressure on Booking.com from regulators in Sweden, France and Italy, the OTA has offered to soften the long-maligned rate parity clause in contracts with hotels.
The replacements will be dubbed "narrow price parity" agreements, and would require hotels only to offer Booking.com the same rates that hotels offer to consumers on their own websites. This would not then extend to other OTAs, meaning that a hotel could enter into an independent agreement with a competing OTA to offer a better price to that specific set of consumers.
However, this wouldn't leave the hoteliers in a comfortable position because it would not only undercut any business from Booking.com's customers but also undercut the pricing power from a hotel's own website.
This is not ideal, as it emphasizes the value of shopping with an OTA and could very well siphon off direct-to-hotel booking business; training the consumer to perceive higher value for a third-party intermediary is never good business in the longer term. It also would begin playing favorites with other OTAs, and that might not sit well overall for a hotel attempting to offer a comprehensive pricing scheme.
True elimination of rate parity would allow hotels to set their own prices at any outlet they choose - including their own. This would mean that the hotel could undercut prices it gives to OTA to reflect commissions paid, and basically train the consumer to visit a hotel website first for the best deal.
Such pricing flexibility would not be acceptable to OTAs, and so Booking.com is pushing to step ahead of European rate parity investigations to appease authorities without losing rate parity completely.
While the Booking.com offer only eases rate parity, it does offer the chance for hotels to perhaps negotiate lower commissions in exchange for more favorable pricing. This would likely only appeal to hotels who do not rely on a healthy brand.com booking business, and are willing to sacrifice Booking.com as a booking channel.
No word yet on how "narrow parity" will affect hotel contracts with competing online travel agencies; certainly, the writing is on the wall for iron-clad rate parity clauses that limit the pricing flexibility of European hotels. Expedia is part of a German investigation of "most favored nation" clauses as well, so there's certainly going to be industry-wide pressure to weaken or eliminate rate parity clauses in OTA contracts.
The precedent is also not a good one for any future rate parity challenges in other markets where hoteliers are unhappy with parity limitations.
The company notes as much in the SEC filing, stating that there is no way to tell how this will impact the business:
The Company is currently unable to predict the outcome of the market test of the proposed commitments offered in France, Italy and Sweden or the impact the proposed commitments in France, Italy and Sweden will have on the on-going investigations in other European countries or how the Company’s business may be affected by the proposed commitments if accepted.
Ultimately, the company would like to see one solution implemented continent-wide, to avoid a patchwork ruling that increases compliance costs.
Booking.com is hopeful that the proposed commitments will pave the way for an industry wide solution to the on-going investigations across Europe.
Booking.com's stock is taking a hit alongside the news - the stock is down over 2% in midday trading.
NB: Competing prices image courtesy Shutterstock.