Smith Travel Research compiles data on occupancy, average rate, and revenue-per-available room for your hotel as compared to your competition. This will help you to develop your hotel's true position in the marketplace and to set goals for where you want to be in the market.

Not really, and not all the time. Many of my Revenue Manager friends find themselves worshipping daily at the altar of Rate Parity. This means that their core value is "RATE PARITY" and everything else falls in place after that. For example, I have seen articles written that start with the assumption that, "Of course you need to have rate parity in every distribution channel." As an expert Revenue Manager, you need to keep rate parity in perspective; it is a strategy not an absolute requirement.

First, let's define "Rate Parity." Rate parity usually shows up in the Revenue Management lexicon in two contexts, a strategic pricing principle and an OTA contract provision.

1. The first is a strategic Pricing Concept that says: "No matter where your customers choose to shop for your hotel, they will find a consistent price." Not a bad idea, if you do not want to use channels to actually differentiate your offering. Ultimately, this will support your brand by adding to your rate integrity. On the other hand, it makes less sense if you want to favor a particular channel (for example your own web site) and train guests to go there for your lowest price. Here are some points to consider:
1. Room rate is only one of the tools you have to attract and satisfy guests. (Price is only one of the four P's of marketing.) Depending on your hotel and room products and services, you may have different pricing structures and strategies. Don't just have rate parity because everyone else does or because everyone else says you need to have it!
2. Depending on your distribution channel strategy, you may not want rate parity. If you have some very strong channels you may want to reward them with a rate advantage. For example, if you get a significant amount of business from a local CVB web site, you may provide them with rate parity, but charge more in other, less valuable sites. (You can expect some of the other sites not to display your property, but your channel strategy may be more important.)
2. The second context for rate parity is in contracts with your third party online travel agents (OTAs). These OTAs seek to distribute your hotel to their audiences and in return make several demands on your hotel. One demand usually is that you provide them with rate parity. In other words, you will not undercut the price they charge (either on your own web site or on a competitive OTA). This sounds pretty straight forward, but can get complicated. Here are some points to consider:
1. Rate parity only applies to "public rates" that do not have special qualifications, like, affinity rates or limited audience rates. Examples might be special email rate offers to a non public list, like Travelzoo or your in-house special offers list. Also, opaque channel rates, like Priceline, are not subject to rate parity rules in the OTA contracts.
2. Rate parity applies to a particular room on a particular night and these rates are constantly changing. There may be lag times or human errors that result in rates being out of parity for short periods. Many easily available rate shopping tools can give reports and warnings when rates are out of parity.
3. Since the OTAs have to fit your rates into their booking engine and also accommodate all your competitors, they may not have the breadth of product offerings that you have on your own site. For example, they may not have some of your value-added package offerings. Obviously, there is no possibility for rate parity on these packages.
4. According to a recent study, most hotel shoppers go on the OTA site to screen for possible hotels and then, with a short list, go on the hotel sites for more information and to book their stay. That's why OTAs want rate parity with your site. However, you can have a super add on package that can capture these shoppers when they hit your site.
1. For example, you may have a standard room on your site and on the OTA at the rate of $100. Then, you could offer that same room type in a package, with free internet, free breakfast, a free in-room movie and a free drink at the lobby bar, all for $109; and you would still be in "rate parity."
5. Are you getting enough business from each OTA for the mark up and the parity clause to be worth it? Consider not offering rate parity if you do not need their business. The larger ones may not display you at all, but the smaller ones may want to have your property anyway. Remember, if you part ways with an OTA as a merchant model supplier, you can choose whether to pay them commissions or not, when they book through the GDS. For more information on this and similar profit enhancing strategies, subscribe to our Hotel Revenue Tools programming.
6. Since the OTAs have to fit your offering into their booking engine and also accommodate all your competitors, they may not have the breadth of product offerings that you have on your own site. If they choose not to offer some of your rooms, there is obviously no requirement for rate parity on those rooms.
7. Ironically, Rate Parity was a provision that Hotels first put into the OTA contracts to keep them from undercutting the hotel's own web site. Early on, many OTAs used to cut their own margin to offer a lower rate for your hotel than their competitor OTA websites. Also, some merchants would buy rooms far in advance and then as compression set in and all other channels were sold out, they would open up their inventory at rates 3 or 4 times the previous or typical rates. So, originally, hotels input this parity clause into OTA contracts to gain some control over their prices on the internet. Now that merchants do not actually take inventory, it might be interesting to see what would happen if hotels allowed merchants to once again charge whatever they want.

Final Conclusion:

Rate parity is important for most properties most of the time. It helps avoid confusion over your price point in the market and it is a requirement to do business with a few large distribution channel players. In down markets, many properties can't break even without the steady flow of traffic from Expedia, Orbitz, and Travelocity and their subsidiaries. If your property is one of them, that is another strong reason to practice rate parity. But, if neither of these conditions exists, remember your Mother's advice and don't offer rate parity just because "Everyone else is doing it!"

Almost every revenue management question can be answered first with just two words, "It depends." But that would be the easy way out. So, we should look at the issues involved in "it depends." In this case, failure to match may cause a loss of market share for as long as the rate difference exists; but matching will reduce your revenue also. Thus, the factors that need to be considered are:

1. Where are you in the transient booking curve? For example, is this the week when 80% of the bookings are made for the days in question? If so, that is a vote for matching the rate. If not, then consider leaving the discrepancy alone and try to rely on your reputation and image for a few bookings at your current, higher rate.
2. Is the rate difference large enough to cause guests to defect to the competition? (In other words, how price competitive is your market?) If people view all the properties equally and will move for a $1 difference in room rate, then you are in a very price competitive market. But remember, there are always some guests looking for features other than price, and you might pick a few of them up at a higher rate. The larger the reduction, the more business you need to pick up to make it worthwhile to match.
3. Can you use your loyalty program to pick up generate added rooms? If you are worried about losing your loyalty members to this rate, then match it just for them or offer them bonus points to book at the current rate.
4. If you must gain back share try the opaque trio: Hotwire, Priceline, and OTA Package Rate promotional reductions. You can use them to pick up occupancy without lowering your published rate. However, make sure the OTA you give this rate to will promote and really feature your package.
5. Make sure you talk to guests to see how much they shopped before they purchased, try to estimate what % are not price sensitive and see if there are enough of them at the higher rate to make up for the lost market share. Remember, a five percent reduction in rate will only be effective if it generates more than 5% more rooms sold.
6. As a last resort, match the rate but only in the segments where it is offered. And try to add some terms and to help "fence" the rate (like only on certain room types or days of the week or only with a nonrefundable deposit).

In general, consider lots of other alternatives and see how the market really reacts before just making the knee jerk reaction to match the lower rate.

Common Myth: By law, all Travel agents are due 10% Commission.

Travel agents are important channel partners because they can reach disparate market segments and can translate your hotel offerings for their local markets around the country and world. But travel agents are not legally due 10% commissions, or any commissions for that matter. While some chains may have established a standard commission rate and a commission paying policy, there is no law saying the policy or the rate can' be changed. For example, as Marriott tried several years ago, it may make more sense to pay a higher commission rate to agents who really promote your property and provide you a higher market share. And, perhaps you should pay less than 10% to agents who only book your hotel when nothing else is available. (Admittedly, implementing this is not cheap or risk free).

The 10% figure started back in the seventies and eighties before automation. At that time, travel agents had to rely on the Hotel Travel Index, a tome larger than the NYC Telephone Book that contained the features of most hotels and all the contact numbers to make a reservation. Travel agents had to scan through multiple small print pages to find hotels and then make countless long distance phone calls to make a booking. Those processes alone probably justified a 10% commission. Today however, that same reservation is made via GDS or internet with little manpower or telecom costs, so why is the commission still 10%? More importantly, from a cost standpoint, why are some online travel agents being paid much more than 10%. (Hint, the commission rate is determined by market power, not costs.)

Travel agents are not agents of the guest because hotels are paying them and therefore they are subject to hotels' rules to earn their commission. When the airlines were deregulated and had to stop appointing agents jointly through IATA and ARC, the hotel industry simply "appointed" all current IATA and ARC agents. Nonetheless, if you find a travel agent that is not representing you properly, just repeal their appointment and stop paying commissions to them, Also, your sales office should know who all your large producers actually are. You probably have some large travel agent producers whom you do not call on or recognize. Hint: in the best case, they are simply online travel agents who purchased an IATA number; in the worst case, they are an employee embezzling by putting their own IATA number on bookings in your system.

So what should you do?

1. Make sure your sales people understand the relationship and provide direction to your travel agents.
2. Ensure that Travel agents know your property well enough to properly sell it.
3. Make sure that you keep good track of your supporting agents and thank them for their business and make sure you are getting your money's worth for your commissions. Remind them you pay commissions to reward their behavior.
4. Arm your Leisure Sales Managers with selective negotiating powers. For example, it might make sense to increase commission rate by 1% to 11% for a travel agent who doubles your revenue.>
5. If you want to lower a historical commission rate, make sure you give adequate notice.