Against price parity / 1

Clients do not mind to find different prices for the same hotel in different channels. Distributors and hoteliers have gladly accepted the rule of price parity, because both of them benefit from hiding their net prices from the clients.

What is parity?

The rule of price parity says that a client must always find the same price for the same room in all the different distribution channels that he could use to book the hotel. The argument this is based on is that clients must be protected. Apparently, when the more homogeneous are the prices of a hotel, more will the customer trust that the hotel is consistent in its policies.

… but the clients are NOT worried about this

Almost every product has a different price in different shops. Nobody finds this strange. In the case of hotels, this is even less weird, because this is one of the services that offers more flexible prices and adapted to the market, even with different payment types, return or cancelling conditions, etc.

If it were true that the different prices among channels would give our hotel a bad image, why would not we also worry about the negative impact that price disparity would have? Applying yield management strategies makes prices vary much more than any small variation that existed between channels. Also we do not explain our clients the reasons for the fluctuations. Sometimes they are really surprised when the price of a room doubles in a day, they do not understand the reasoning behind it. No other product would vary so much. Only airlines apply a flexible price policy, but this has been accepted by clients, although this is not something that would immediately happen with hotels.

For hoteliers there is only a problem if their prices vary between channels, which doesn’t really affect consumers because they are used to this from other sectors. However, we don’t really see the need to explain the differences and that’s what could really confused the customers who are not so used to them.

To prove the point that clients’ worries are different to ours, it’s enough to have a look at what they say on sites such as  Tripadvisor. Because of my work, I check hundreds of these comments every week: it is quite common to find comments of confused customers with regard to prices that change quickly, especially when they are seen as abusive. There is not the same feeling when this variation happens between channels. I haven’t yet come across a single client’s comment complaining about this fact. Is there anybody who knows of a comment like this?

Clients aren’t as ignorant as we think, or at least they are less and less, or it’s just that clients who use the Internet to compare price aren’t, these clients are also the ones that are more exposed to our parity policy. They know how to compare channels and make their decisions and they have tools that are getting better and better. In any case, if they needed to be protected, it would be from the prices that vary quickly rather than different prices in different channels.

The real reasons for its popularity

Price parity helps the distribution interests of the hotel as well as distributors with higher costs than for the hotel, that in this way make sure that they get better prices. Isabelle Gorgue, Manager of Direct Distribution of Hesperia Hotels, published some days ago an article in which she explained the problems she had had with a tour operator that hadn’t kept to the conditions of the contract that stipulated the final price.

There are several reasons for the success of parity:

• The commitment to guaranteed minimum price that middlemen have been demanding from hotels recently. The only way for a hotel to accept a minimum price contract with all its distributors at the same time is offering the same price to all of them. It’s very easy for both parties.
• Channels with flexible prices (GDS, Booking, Venere, Lastminute, HRS…) work with gross prices. The hotelier updates them every day while considering how much he wants to sell for. It’s much easier for him to charge the same final prices to all of them, otherwise he would have to spend more time calculating.
• The lack of capability of most hoteliers to design a strong distribution and price policy which is also transparent, flexible and it’s communicated appropriately to the clients, the same way it’s been done by airlines. Apparently, in this situation the best thing is just having one-fits-all. Parity is much easier to apply than a more elaborated and complex policy, and it also makes the hotelier believe that he’s doing something good for the customer.
• The hoteliers’ weakness to establish strategies that benefit some channels more than others. Most hotels aren’t in a position to face distributors that demand abusive conditions, that don’t bring any value into the system and that are the ones to maintain the dominant position on the market.
• In this way, we will not have to answer uncomfortable questions. As long as the final customer sees the same price in every channel, he will not realize what’s behind the curtains; we won’t have to explain anything when he asks why could he find cheaper prices elsewhere. Parity can be used so clients don’t realize how much commission each channel gets. This fear shows that hoteliers haven’t been able to apply a flexible price policy the same way airlines have done. Would you lose trust on the airline because the passenger sitting next to you paid less than you for his ticket? Airlines aren’t scared of this situation: however hoteliers will throw their hands up in horror.

There is an alternative to gross pricing parity. It’s good for hoteliers and end users. This one will be in the end the policy that will take over in future, because it makes use of all the potential of Internet and its revolutionary capability to transform the market, but this alternative will be the topic of a different article.

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