Aug
21
News today that a class action has been raised in the US against just about everybody who owns or sells a lot of hotel rooms made me smile.
It illustrates how silly the whole OTA sales model became under "rate parity".
Rate parity agreements must have made sense to someone at some point, but they've never made sense to me. I started my hotel career in an era when the internet didn't exist and we choked at the prospect of paying a travel agent anything more than 8% commission. Travel trade net rates were used frequently, but as a hotel general manager, you were constantly trying to find new customers, interest new markets and gently drive your selling price up. That's what we were trained to do, that's what we did. Most of the time... Then the internet came along and everybody got lazy. Or were they just confused? Nah. Lazy. Hoteliers all want sales but they're rarely prepared to invest the time and effort to make them happen. In their world online sales:
- Must cost nothing
- Must involve little effort
- Must be immediately and spectacularly successful
The OTAs delivered a sales proposition that sounded like it delivered on all these things. They could sell "unsold" rooms and everyone believed that (come on guys, like you can sell a sold room...); they could remove the need for the hotelier to make much of an effort (and hoteliers just LOVED that); and finally they could demonstrate quick wins, because that's what you can do when you know how the interweb works.
For hoteliers to want to abdicate their sales responsibility to a third party is one thing. However then agreeing eye-watering commission rates and guaranteeing that you won't compete on price is quite another. Because the result was that the industry did compete on price, encouraged price competition as a sales proposition and then paid the OTA's a commission to do it. It completed on price because price was the ONLY lever available to the OTA's. Then the whole thing was packaged up with rate parity agreements which prevented the hotels from selling their own rooms using special offers and undercutting the agents, despite the fact they could still reduce prices by 15% and be better off than selling the room through the agent. So in times of low demand, hotel prices are artificially set 15 - 20% higher than they would naturally be, because there's a 3rd party who has rigged the market to be able to take their cut no matter what. And the hotel industry lets them do it.
Sure, it's price fixing. But it's very silly price fixing.
It illustrates how silly the whole OTA sales model became under "rate parity".
Rate parity agreements must have made sense to someone at some point, but they've never made sense to me. I started my hotel career in an era when the internet didn't exist and we choked at the prospect of paying a travel agent anything more than 8% commission. Travel trade net rates were used frequently, but as a hotel general manager, you were constantly trying to find new customers, interest new markets and gently drive your selling price up. That's what we were trained to do, that's what we did. Most of the time... Then the internet came along and everybody got lazy. Or were they just confused? Nah. Lazy. Hoteliers all want sales but they're rarely prepared to invest the time and effort to make them happen. In their world online sales:
- Must cost nothing
- Must involve little effort
- Must be immediately and spectacularly successful
The OTAs delivered a sales proposition that sounded like it delivered on all these things. They could sell "unsold" rooms and everyone believed that (come on guys, like you can sell a sold room...); they could remove the need for the hotelier to make much of an effort (and hoteliers just LOVED that); and finally they could demonstrate quick wins, because that's what you can do when you know how the interweb works.
For hoteliers to want to abdicate their sales responsibility to a third party is one thing. However then agreeing eye-watering commission rates and guaranteeing that you won't compete on price is quite another. Because the result was that the industry did compete on price, encouraged price competition as a sales proposition and then paid the OTA's a commission to do it. It completed on price because price was the ONLY lever available to the OTA's. Then the whole thing was packaged up with rate parity agreements which prevented the hotels from selling their own rooms using special offers and undercutting the agents, despite the fact they could still reduce prices by 15% and be better off than selling the room through the agent. So in times of low demand, hotel prices are artificially set 15 - 20% higher than they would naturally be, because there's a 3rd party who has rigged the market to be able to take their cut no matter what. And the hotel industry lets them do it.
Sure, it's price fixing. But it's very silly price fixing.
