NB: This is a guest article by Dorian Harris, founder of hotel booking site Skoosh.
It looks like the hotel industry's trusty steed, rate parity, is lumbering towards the knackers yard, trash heap, call it what you like...
Hotel revenue managers and even industry consultants, both at one time stalwarts of the practice, are all seeing that rate parity is nigh on impossible to manage and often just plainly too restrictive.
Let's presume for a moment that rate parity will end. That leaves us all with the two major questions - how will it unravel and what will life look like without it?
The first question is mind-boggling. Rate parity and, specifically its consumer arm, Best Available Rates (BAR), underpins our entire industry.
Most hotel chains and many independents proclaim to customers visiting their websites that they will not find a lower rate elsewhere. Without parity, hotels aren’t going to know other publicly available prices so are they going to risk it and still offer a guarantee regardless?
And it’s not just the front end that needs consideration. Major online travel agencies rely on rate parity and have shaped their businesses around it. Some also believed there was no need to negotiate rates automatically set at BAR, so let account handlers go.
In the event of a demise of rate parity, are they going to have to rapidly rehire or sit for a while with rates set by the hotel and perhaps eat into their margins to get back their competitive advantage?
For OTAs such as Booking.com, for which rate parity was a boon if not essential to its business model, there is no moving away from BAR rates.
It stuck with them because the customer pays at the hotel. But how is the business going to be affected when it is no longer able to guarantee the best rates?
Even the relatively small opaque market also comes into question. There’s no need to hide prices when the market is wide open again. Lastminute.com should be able to transition away from its "Top Secret Hotels" if it makes up a relatively small proportion of its offering but, in the case of Hotwire, it’s the whole business.
Will this entire sector be scrapped? And what happens next? How will the industry reshape itself?
I’ll make the following predictions:
1. Leaders
The balance of power between Booking.com and Expedia will reverse. The former, tied to BAR rates, will have no room to manoeuvre whereas Expedia will, reluctantly perhaps, eat into its margins whilst it considers other purchasing avenue.
2. Up the revolution
When the free market returns to the industry so will all the entrepreneurs, excited by the prospect of entering a huge market in which the biggest hitters no longer control the playing field.
3. New methods
Hoteliers will wake up to the fact that they will need to be far more inventive in their attempts to capture direct customers and OTAs will also have to look for new ways to appeal to customers beyond price guarantees.
Above all, with rate parity on the scrap heap, there’s an opportunity for someone to create a new business model in which the hotels and OTAs are working in the same direction.
Magnuson Hotels, for example, look like it's ahead of the game on that front, but there’s almost certainly room for more.
NB: This is a guest article by Dorian Harris, founder of hotel booking site Skoosh.
NB2:Parity image via Shutterstock.