Against price parity / 3

In this series of articles I have tried to destroy the myth of the parity of the final price as a positive strategy. I called into question the arguments defending it (1^st part) and I have performed a detailed analysis adding essential elements that people usually tend to not take into account (2^nd part)

In this third part I am going to present some alternative ideas, although not exactly an universal formula that will be suit all different hoteliers.

¿Parity among distributors?

Hoteliers need distributors, this relationship allows them to access those clients that the hotel by itself could not have accessed. Taking into account this positioning dimension of distributors with regards to the hotel, it seems to make sense that their work should be remunerated by the hotel and not the final customer as would happen in the situation of gross disparity, that is to say net parity.

Also, the investment in marketing needed to promote our hotel would vary from one distributor to another is different. Hence, it also seems justified that for the same price their commissions or mark-ups are different.

Another obvious reason to maintain the parity of the final price between distributors is simply to avoid conflicts with them. They would not accept it otherwise and it would make it difficult for the hotel to maintain their network of collaborators.

However, there are also arguments against parity:

• If a distributor offers advantegous conditions for reservations or high level services for the final client (see article number 2), it would seem logical that that added cost would be passed on to the client, and not to the hotel or the middleman.
• The costs vary depending on the nature of the channel: online, offline, GDS, etc. It doesn’t seem such a far-fetched idea to try to find ways to pass on to the final client all or part of the costs of the most expensive channels, as long as it’s done in a transparent way and it’s justified (for instance, the same airlines do with regard to their charges for telephone reservations).
• The parity of gross prices encourages an increase of the commissions requested by the middlemen: as they don’t have the flexibility needed to compete with their prices to the customers, they can only increase their margins by getting the provider to give them lower and lower net prices.

With these arguments in favour and against, each hotelir is free to decide on their price policy for the middlemen. I would suggest that they should try to avoid to being dogmatic, they should be practical to avoid conflicts but taking into account the many variables and should not just concentrate their efforts on the gross price as the main distribution force.

Parity between direct and distributed sales?

In the same way that we shouldn’t see distributors as enemies, I also believe that the hotel shouldn’t be afraid to compete with them, through direct sales, for the final client. Francesco Canzoniere analysed this fight in two great posts (this one and this one).

Because of this competition, the hotelier can go even further, setting as his objective to decrease slowly its dependence of distributors. Nowadays, this is already possible building an oficial website as an alternative in your direct sales channel.

Should the hotel sell cheaper in its direct online channel? My answer should be that the hotel should always try to offer the best conditions: availability, different room types, different price bands or packets, cancellations, loyalty programmes, etc. (see the 2^nd part). It’s a way to create some advantages for the hotel and at the same time to take people’s attention off the price.

Even so, can the final price for the customer be different? I think that it could also be different, as long as it can be transparent and justified (agencies and tour operators have been studying ways of doing it for years)… and only if they allow it.

In those instances when there is a high dependency on the distributors, as it is normally the case with hotels in holiday resorts, the hotel doesn’t have much margin. As the hotel gains more and more independence through direct sales, the chances to have competitive advantage over the middlemen through price also increase.

The example of NH

NH in this example is used to illustrate this case of hidden disparity, that is also creative and adapted, that I’m introducing in this post.

Searching for prices for NH Cóndor for 12th September, the final prices that we find are these:

In Venere and Booking: 109,14 €

In www.nh-hotels.com: 109,14 € or 98,22 € (with prepayment and no possible cancellation)

In www.bonhocio.com: 90,95 € (without prepayment and possible cancellation with no extra charges)

That is to say:

• NH needs the distributors (Booking and Venere) and works with them
• It offers the same prices to both of them
• In its official webpage it offers that same price, so it can’t have any problem with Booking or Venere
• However, on its official webpage it offers another price for the same product which is better but offers different conditions to justify it.
• NH has created its own alternative channel: Bonhocio, in which it offers better prices and conditions for certain dates.

Every hotel and chain has its own circumstances and strategies, that are always interesting to study and compare.  What is your experience?

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