It has now been five months since the now-defunct Office of Fair Trading (OFT) released its ruling on pricing practices in the UK hotel market. To recap, the result of the OFT’s investigation, spanning over three years and with implications for all parties in the UK hotel marketplace, was to permit the discounting of sale rates by any party within their own closed groups of customers.
All online travel agents are now free to discount rates using their own commission, with just a prior full-price booking and active opt-in required for the customer to gain membership of that closed group. This OTA angle received most of the attention at the time, which may have obscured that fact that hotels were also afforded the same freedom in the verdict. So, how can you, as a hotelier, take advantage of this new rule in the all-important game of rate parity?
How can hotels take advantage of the ruling?
The ruling places huge importance on the concept of the ‘closed group’, and creating such a group is key to exploiting the regulation. It is worth taking every opportunity to ask people to opt in to your closed group at a number of stages in their customer journey – from the moment they land on the homepage to the morning they check out of the hotel.
At any stage, this opt in should be as painless as possible for the customer, especially as there is no explicit threshold as to how much data you need to hold for each closed group member.
How can closed-group marketing work in practice?
Once opted in, the customer should only need to pass a simple login to access rates discounted as far as you are willing to go (bearing in mind that you have considerably more in-built margin for bookings taken on your own website against an external source).
The carrot of significantly lower rates should certainly be used to entice return bookers who first came to your hotel via an OTA, and can even attract a new email subscriber audience who have no immediate intention to book but may do in the future (with the right targeted marketing).
Already these sign-up modules are appearing on hotel websites across the UK and further afield (check out the VIP Rates function on the Prince of Wales Hotel website).
How else can closed groups be used?
Beyond these sign-up modules there is potential to combine closed group rates with other incentive initiatives to develop loyalty and rewards schemes that work on the scale of the independent hotel or small chain – until now a real challenge for all but the biggest hospitality brands. With a conversion-optimised booking engine, combined with a little creativity and coordination, a successful, cost-efficient business driver is there.
But what about the stipulation for a booker to have made a ‘prior full-price booking’?
Although explicit in the OFT ruling, all indications are that this requirement is not being adhered to. For example, Hotel Tonight offers parity-busting rates to a closed group whose membership appears to be based solely on having downloaded an app.
Moreover the application of this stipulation would almost certainly prove difficult to monitor externally, whilst it is questionable whether it is indeed in any party’s real interests to ensure its enforcement across the board.
How else can a hotel circumvent rate parity conditions on their brand website?
Although the OFT ruling does free up the pricing market to an extent, it is far from being the only way to create a price-based advantage for your own website.
Package rate products, such as rates with local attraction tickets included, tend to be exempt from parity-protecting clauses in OTA contracts – why not subsidise the package inclusions with the additional margin you will gain from having the room booking coming directly to you?
What about discounting later in the booking path, or after?
Other means to play around rate parity include discount code functionality that can reduce the final transaction price at the website’s checkout (impossible for an OTA to detect automatically). Similarly, cashback schemes are frequently used by the OTAs to reduce the overall transaction value in an indirect fashion: see Hotels.com’s use of Quidco for an example. There is no reason for a hotel or chain not to follow suit.
As with closed group discounting, the vital element here is the adaptability and customisation options of your hotel’s website and booking engine, so make sure that your technology partners have the development processes and hospitality business knowhow to integrate these features successfully.
Does the OFT ruling mark the beginning of the end for rate parity?
This is hard to tell. On the one hand, many in the industry thought the OFT would go further in their dismantling of rate parity practices – not least the original complainant, hotel booking service Skoosh. But at the same time pressure on rate parity practices is growing elsewhere in the world. In Germany, the Federal Cartel Office took action at the end of 2013 against the country’s biggest hospitality portal, HRS, for its use of ‘best price’ clauses in its supplier contracts. And in the digital world, in August last year Amazon agreed to drop its price parity policy that aimed to stop its Marketplace vendors from selling their goods cheaper on other channels.
What is beyond doubt is that there is a growing concern amongst hoteliers at the rising cost of customer acquisition, with OTA distribution and mirror marketing practices playing their part in driving up costs. It is far from inconceivable that the resultant souring of the OTA image amongst hotels might soon lead to a further breakdown in the contractual framework for rate parity.
It is against this backdrop of possible further flexibility in pricing that the hotels with the best loyalty and reward offerings, supported by the most agile technology, are set to flourish.
Written by Frank Reeves, CEO, Avvio, and Paul Barton, Product Director, Avvio.
About Avvio
Since 2002, Avvio has applied a rigorous scientific approach to conversion and usability, constantly pushing the boundaries of hotel booking engine technology to increase revenues for clients via the primary, most cost-effective channel – the hotel’s own website.
Avvio’s on-going development of unique innovations in booking engine software and web-analytics guarantees unprecedented website conversion rates, which when coupled with their performance based services in online marketing, social media and website design, firmly positions your hotel to compete effectively in an increasingly competitive online space.
To compliment Avvio’s technology solutions and services, they support all clients with an in-house team of conversion and revenue experts who monitor and optimise each area of their hotel’s direct online business strategy. This focused approach to account management ensures your hotel benefits from first mover advantage within the industry and a holistic approach to growing and maximising your online revenues.
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