Opportunities to implement a more balanced distribution strategy

Since 1 July 2024, Booking.com has made a major change to their contracts with hotels. The so-called parity obligations, also known as price guarantee or rate parity, have been removed. At first glance, this seems like a technical change, but what are the potential and potentially far-reaching implications for the hotel industry? Roan van Marrewijk of Revenue Management firm IFHG shines his light on this.

Parity obligations require hotels to offer the same room rates and availability on all online platforms, including Booking.com, other online travel agencies (OTAs), and their own websites. This policy was introduced to prevent customers from finding lower prices on other websites, which should create a level playing field for all parties involved. In practice, however, this often resulted in hotels being less flexible in their pricing strategies and becoming more dependent on the big OTAs, which often charge significant commissions.

Booking.com's decision to remove parity obligations brings significant changes. It gives hotels the freedom to adopt more flexible pricing strategies, without the obligation to offer the same rates on all platforms or fear of reduced visibility. This means hotels can offer lower prices on their own websites than on Booking.com or other OTAs, making direct bookings more attractive.

In addition, this development gives hotels more control over their brand and customer relationships. Direct bookings allow hotels to build a direct relationship with their guests, which can lead not only to better customer experiences, but also to more loyalty and repeat bookings.

We do not expect an immediate end to (unintentional) price differences. OTAs will still do everything they can to generate bookings for the hotel by sacrificing their own commission. Thus, the hotel receives the same price for the booking, but the OTA receives less commission and the guest pays a lower price. The hotel feels nothing of this, but of course it can cause confusion in the hunt for more direct bookings. If you really want Booking.com to stop offering lower prices, turn off payments options on Booking.com and VCC capabilities.

For guests, the removal of parity obligations is likely to result in a more diversified pricing landscape. Conscious consumers may get more value out of their booking due to these changes. This can have both advantages and disadvantages. On the one hand, guests can find lower prices by searching properly; on the other hand, the booking process may become more complex and time-consuming.

However, if hotels get it right, they can make direct bookings more attractive by offering not only lower prices, but also additional benefits not available through OTAs. This can improve the direct booking experience for guests, encouraging them to book directly with the hotel more often.

Hotels can adopt several strategies to make the most of the new situation. Here are some suggestions:

Optimise your own website: Make sure the booking experience on your own website is smooth and user-friendly. Consider investing in a well-functioning booking system and an attractive presentation of your offer.

Offer exclusive benefits: Think discounts, free upgrades, or flexible terms for guests who book direct. This can be a strong incentive for customers to prefer direct bookings.

Name discounts concretely: Take advantage of the new flexibility to name concretely how much discount guests get if they book directly versus OTAs.

Removing parity requirements is unlikely to result in reduced reliance on OTAs, or at least that is not our expectation. However, it does present opportunities to implement a more balanced distribution strategy. After all, OTAs remain crucial for hotel visibility, as many guests start their search for the perfect hotel online. These changes give hotels more freedom in mapping out their pricing strategy, which can lead to higher margins per distribution channel.