Don’t touch my Price Parity!

The problem raised by the Minister for the Economy (see below) can be read on two levels. The first concerns what professionals call tariff parity. The second is the problem of recruiting and retaining customers.

Le ministre de l’économie, Arnaud Montebourg, a annoncé, mardi 27 mai, assigner en justice, dénonçant l’illégalité de certaines clauses tarifaires.
Le ministère note que les clauses dans les contrats réalisés par la société « interdisent notamment de proposer des tarifs plus attractifs que ceux qu’il propose sur son site ». (…) Les hôteliers perdent ainsi une opportunité de concurrencer Booking et de reprendre le contrôle de la relation avec le client », ce qui « nuit à la fois à la compétitivité du secteur hôtelier (…) et aux consommateurs ».

This approach had already been taken with Expedia in November 2013.

The Price Parity

In order to control their pricing policy, hoteliers need to ensure that the final sale price to the customer is identical, whatever the sales channel. This makes it possible to:

  • Avoid artificially introducing false competition for customers (as it is ultimately the same product that is being offered for sale)
  • Prevent distributors from cannibalising the market by distorting competition, i.e. artificially attracting a hotelier’s customers by undercutting its prices rather than offering a better service,
  • To ensure, in return, that the hotelier will not be unfair to his distributor by undercutting prices on his website while prohibiting his Distributor from doing the same (reciprocity of approach).

The Price Parity, a sound approach that is generally well accepted in the market.

This price control policy must be decided by the hotelier and accepted by its Distributor. If a hotelier has an unbalanced Distribution policy, giving too much space to one of its Distributors, negotiations become complicated and the Distributor imposes its own rules. The problem is not rate parity per se, but the imprudence of some hoteliers who become dependent on a single Distribution Partner. This partner becomes unavoidable, and therefore greedy. And they end up being cumbersome and suffocating, imposing their own rules on the hotelier: preferential rates, high commission rates, « Last Room Availability »  (total access to the hotelier’s stock, right down to the last available room).

Recruitment and retention

There have always been intermediaries between a host and a customer: tour operators, travel agencies, CEs, distributors, pure players, etc. They come and go, and depending on the period and their ability to take the right technological turns, certain players emerge and dominate the market. For a while.

For hoteliers, the challenge is to use these intermediaries to reach a wide audience and recruit new customers.

There are two possible scenarios for the future:

  • Either the intermediary has added value for the hotelier because it is able to reach specific customer segments or because it is based in an area that is inaccessible to the hotelier, in which case the relationship can continue on a win-win basis (non-critical segments for the hotelier),
  • Or the intermediary is on the same ground as the hotelier (critical segments for the hotelier), in which case it is in the intermediary’s interest to build customer loyalty so that next time they book directly, without an intermediary. This starts with an impeccable on-site welcome.

In the latter case, all the well-honed mechanisms of Direct Marketing and CRM need to be deployed (collecting emails on site, building loyalty, sending newsletters, sending catalogues, targeted promotional offers, etc.).

We are now moving away from the world of Distribution and into that of Direct Marketing.

The hegemony of a Distribution Partner is not inevitable. Diversify your distribution and build customer loyalty. You’ll see, you’ll run better and faster on 4 legs than on one.

Keyword : Price Parity, Arnaud Montebourg, Minister for the Economy, Hotels, Distribution