Distribution and rate parity or disparity

Created by Katrín Magnúsdóttir, Modified on Thu, 28 Sep, 2023 at 1:04 PM by Katrín Magnúsdóttir

OTAs, Wholesalers, Tour operators, Tour agents. Undercutting, reselling and price discrepancy. 

Before internet took place in everyday living, wholesalers and bedbanks were the main distribution tool for hotel rooms. You would sell your rooms for a specific fixed price to a wholesaler, and they would sell them on to travel agencies, where the agent would sell the room to your guest, who paid for the room somewhat higher than the amount you sold the room for to the wholesaler initially. All resellers in the game would take a small profit in building the price up. 


Then the OTAs, or Online Travel Agencies, started taking an ever-increasing share in the travel industry. The names you will most likely recognise are the giants Booking.com, Expedia and Agoda. Guests turned towards creating their own holiday plans online instead of having a packaged pre-set itinerary booked at an agency, and OTAs enabled that by offering a huge visibility platform for the hotels that sign with them. At the same time, Wholesalers, Tour operators and Tour agencies started losing their impact in the market, many big names disappearing from the hospitality vocabulary for ever. 


And while the OTA contracts are based on 2 models, merchant (such as Expedia) - , and agency (Booking.com) models, they only sell the availability you send them in real time, for prices you send them (to both you send the gross rate and they will take their agreed commission out of that amount) in real time. Sounds pretty good, right? No calculations nor negotiations of inventory per B2B - promising an allotment or fixed rates for 1-2 years in advance. Online visibility and great marketing, dynamic pricing and free inventory. Why not just price yourself accordingly with the demand, supply and occupancy and current market movements among others? What is better than increasing revenues in line with external and internal elements, optimising your ADR and occupancy?  

Ranking on OTAs became a focus to most hotel managers and property owners. And of course different versions of ranking appeared too. Anyone would make a guess on how it works, to have the OTA tell them different. In reality, your accommodation would probably not reach the same online visibility by paying for Google Ads or doing other marketing investments. But what did it do for your hotel website, if you make a simple Google search for it? Rarely would your own website be so high on top. Is it realistic to get the AdWords clause into the contract with them? Maybe for a large international hotel chain it is.  

The OTA giants have a far bigger visibility in any search results, plus the sponsored google ads that they do will constantly be placed on top. And a single hotel will not be competing with those marketing investments. So simply enough, a contract with an OTA will bring you visibility, hopefully conversion too. But how you use that is on you. Don´t let your official website disappear from the search, and make your website user friendly, have a good booking engine and good layout that will scream "Book me". Use the OTAs as a display tool, but convert every guest that comes to check the hotel´s website. 


The next milestone in online sales of hotel rooms is expansion from hotels´ website and OTAs, to Metasearches, such as Tripadvisor, Google and many others. They show a comparison of prices for your hotel room across online sales channels, and potentially your website too. Should that not help you get the guest directly? What if you just lower your price and have the best offer? 

Well, you signed the rate parity clause with the OTAs, promising them equal rates across all online channels. That means your direct price should be the same as the price you send to Agoda, Booking.com or Expedia, otherwise they have the right to match that price for the same conditions and dates. 

Some countries went to the extent of fighting this on a larger scale by banning parity clauses and allowing hotels to offer a lower price directly. In other countries some hotels decided to ignore the rules and just offer the lowest price on their own website, while others decided to be more discreet and just add value to the room. Some would only sell limited number of room types, or only some rate plans with specific conditions. And there are plenty of other creative and out-of-the-box solutions. 


Regardless of what your way of tackling parity clause was, there came the lowest ever prices that you would not think of selling for online. Your lowest net rates showed up online and are now being compared to your direct prices, as well as the OTA prices. 

Metasearches opened a completely new door for non-contracted, little-known or even unknown OTAs, as they would take your offline rates (bought from your contracted B2B - with a minimum added margin), and sell them online. 

Wholesalers, Tour agencies and other offline channels would take your contracted rate and sell it to the guest, often in a package. That gave you space as a hotelier to sell for a lower rate without damaging your brand, and by controlling the periods when and in which quantity you sell those rooms to B2B partners, helping you add business to your hotel in the times of low demand. 


But when they started competing with the online world and fighting to survive, they went sideways by offering your contracted rates to 3rd party resellers, and through who knows how many resellers it reached an OTA such as Amoma or any other name that you never made a contract with. They would often add a minimum margin on the net rate. You would receive the reservation from your contracted partner, without ever knowing that guest booked online, the price that was supposed to be opaque, a part of package. And without being aware that the guest saw your direct price on your own website being significantly higher. This alone damages your brand, customer trust and loyalty, and keeps your sales on lower revenues than they potentially would be. 


And then comes the response from the giants. One joins the non-contracted OTAs strategy of reselling. Another already selling your opaque rates as a part of their packages, starts offering those rates in their online sales. Or simply giving up on a part of their commission (so called undercutting) just to be able to offer a better rate than their competitor. And the last giant joins them with all that, and a creative more. 


You will notice Expedia offering same room with same conditions, for 2 different prices. The lower price is if Expedia collect option. The higher price is if it is Hotel collect option. It is all about them keeping that guest on their platform, and rather than allowing the competitor platform taking the guest, they will give up a part of their commission. This is where you make decisions, and set your sales in line with your strategy in each OTA´s extranet. 

Booking.com showed up with Basic Rates. They kept off the responsibility, not giving up on the room booked, keeping it non refundable, and far cheaper than any rate you ever mapped with them. That was just a room they bought from one of the 3rd party resellers. They needed the win on lowest rate.  

Along with the giants, there are some other channels, having both dynamic and contract rates with your hotel. Are they offering your net rates to wrong channels? 

Are you noticing a lot of price differences when searching for any random dates on a metasearch? 

Focus on you KPIs, have all contracts revised and make sure to know what each channel is doing in regards to your hotel´s sales. You don´t need to be working with countless channels, if most of them do not bring any business. Find the best performing ones and prioritise your focus. 

Was this article helpful?

That’s Great!

Thank you for your feedback

Sorry! We couldn't be helpful

Thank you for your feedback

Let us know how can we improve this article!

Select at least one of the reasons
CAPTCHA verification is required.

Feedback sent

We appreciate your effort and will try to fix the article