Price disparities


Reading Time: 3 mins. 24/01/2018

One of the most common situations is to find a wide variety of offers for the same hotel product, which is known as price disparity. Controlling the rates offered on the Internet is essential to boost direct sales.
One of the most common situations is to find a wide variety of offers for the same hotel product, which is known as price disparity. Proof of this is the rise of specially designed metasearch engines to find the best price for the same hotel room. What many don’t know is that a large part of these offers have not even been made by the hotel.


 

These happens mainly because the hotelier doesn’t have control over the commissions applied by intermediaries, who can decide to reduce their commission and reduce the price. This ends up creating a situation where the price strategy designed by the hotelier is altered by unauthorized third-parties.
 
There is no point in having contracts over agreed BAR rates on which a commission is paid, because the hotelier cannot know what price the user has paid for his hotel room and if the intermediary decides to 'sacrifice' part of that commission, he is already offering a lower price than agreed.

In this way, instead of selling at an agreed sales price of 100€ with a commission of 15€, they reduce the price to 90€ earning 5€ per stay increasing the possibilities to sell more rooms. Here the hotelier cannot do anything since the agreement is that 85€ will be received per stay sold.


As we have said in our previous pill ‘The business mix: finding the ideal balance’, having the control over the rates that are offered of our products is essential to boost direct sales. Otherwise we can see ourselves in cases like the one above and offer the same product at different prices, with the negative effect that this entails:
  • We transmit a bad image of the brand since we offer different prices for the same product
  • We reduce the hotel's profitability since the channels with lower profitability for the hotelier are most likely to sell more.
  • We might attract clients that don’t belong to the hotel’s target.
  • We reduce the chance of getting customer loyalty since the chances to sell through the direct channel are minimum
  • Distorts all the revenue management work carried out by altering the applied business mix strategy.
 
First step to avoid this is to choose the OTAs that work with direct payment from client to hotel, since this allows the hotelier to control the final price and then pay the agreed commission.
 
Another important point to control over the distribution prices is to simplify as much as possible this distribution. Selling through many channels and markets doesn’t mean we will attract more sales. It is convenient to select those channels that are most interesting in terms of profitability and discard those whose sales are residual
 
This will facilitate a greater control over the distribution strategy, setting up carefully the distribution channels in order to maximize results while minimizing costs associated to third parties at the same time.
 
This is why a distribution strategy focused on direct sales must be designed with more favorable prices and conditions than in the OTAs, achieving greater independence and increasing the profitability of the business.
 
A good Distribution and Price Management strategy allows to increase the hotel’s profitability and build loyalty with your customers. For this reason, you should avoid others trying to build loyalty with your products while they increase their benefits.