Against price parity /2

A few months ago, in the first part of this article, I doubted that price parity could provide any value whatsoever to the final customer, as it is normally believed in the hotel business.

In this second part, I will explore another aspect of the issue that tends to be ignored, and because of this, it leads to mistaken ideas based on the lack of a wider and prejudice free analysis: The price to the customer is just one of the parts that makes up the whole value of the proposal to the user. Around it, there are some factors, conditions and proposals that condition and the user’s choice when he compares the channels looking a bit more in depth and not limiting the search to just the mere price.

The parity is a topic that has been generating some debate, with some interesting bits of information like the post by Juan García Cuenca, or that by Rafael Martínez.

The definition of price parity says that the hotelier must make sure the consumer can obtain the same price from any of the distribution channels, in the same moment and under the same circumstances.

In the case of hotels, these circumstances around the price are more important than in other products and sectors. Choosing and reserving a hotel requires more effort and time than other purchases. The user thinks he must take into consideration circumstances that are more variable than in other type of purchase, there are more variables to consider and they can change in between channels and moments in time. Hence, it is really absurd to simply the issue as just a matter of offering the same price.

Some of these variables are related to the transaction:

• Payment type: In the hotel, prepaid as hotel vouchers…
• Cancellations policies: Different distributors have different policies; some of them may even choose theirs to stand out from the rest.
• Telephone customer service: Some have it, some don’t.

Other group of conditions would alter the final price, even if the hotelier doesn’t realize or doesn’t think about it.

• Administration or booking fees: Some of the agents add them to the price presented by the hotel. A very nice way of working around the rule of price parity.
• Discounts: more or less hidden in flight packages.
• Discounts: when accumulating points for previous bookings as part of the distributor’s fidelity programme.
• Charges for telephone booking, that we may find straightaway if the hotels follow on the footsteps of airlines.

Availability:

• Access to different types of rooms or packages, they aren’t always the same in different channels.
• Access to different types of rooms or packages, it may not coincide with your channel.
• Access to the last available rooms, in some channels, because of availability privileges (“they have space”). There is no other bigger difference than the fact that one price may be available for a channel and not for another, just because one has availability and the other doesn’t. Why don’t people talk more about “availability parity”?

In practice, these conditions don’t always have to be so different in between channels that they represent a comparative difference for the client. No channel can offer all the best conditions at the same time, so they are useless as comparative elements.

That’s because the middlemen also get their benefits for applying conditions that would be beneficial for them: the reservations that are paid in advanced mean a constant flow of money for them. The administration fee is some extra commission for them. A fidelity programme means a portfolio of potential customers, etc.

The different agents are looking to get the perfect balance between selling the hotel product with their own conditions in order to get the best value for them, and on the other hand, they want these conditions to be attractive and competitive for the end user.

We all know that buying a product in certain department stores may be more expensive, even so, we still buy there because the price difference is compensated by other added values provided by the store: convenience, easy return policy, post-sale customer service, etc. All of these features will add value and make it relative compared to other stores.

Talking about price parity in hotels, while ignoring the conditions built around these prices, would create an incomplete image of reality.

As this equivalent conditions don’t really happen on the market and there is no controlling force that would make it happen, concentrating all the efforts around price is a short-sighted way of looking at the whole picture that consequently will end up providing us with mistaking conclusions, far from the reality of the client.

I’d even go as far as to say that the obsession for price equality between channels has become something quite negative in the sector for two reasons:

1. Too much attention has been concentrated on the price: By ignoring other factors, they have reduced the value exchanged to the minimum and this has encouraged the sector to turn the hotel product into another commodity by focusing all the attention on the price as the only factor of differentiation.
2. It has suffocated the competition between distribution channels by limiting the creation of proposals of value to the customer with the corset of price parity. These proposals could help our hotel to offer different booking opportunities.

The different manners in which our hotel markets itself should be varied and transparent and should complement each other. The different distributors would have different ingredients to prepare their proposals. The success of each distributor would depend on finding the right combination that would be attractive for the client. The price is just one of the ingredients in the mix.

The right value for the user is not price parity, but transparency and coherence. As hoteliers are unable to present those with clear policies that are well structured, daring and imaginative, they use parity as the drug to suffocate the competition between channels.

The good news for the hotelier is that, if he opens the competition between his distributors deregulating the conditions, including the price, he will then find himself in the best position to offer the most favourable proposition through its direct online distribution channel, his official website, as long as he knows it and he exploits this fact, but this will be the topic of a third instalment.

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