What Is Hotel Rate Parity?

Why do different hotel booking websites show the same prices for the same rooms? Hotel rate parity is the reason. This practice ensures that room prices are consistent across all booking websites. This can be great for customers, to the extent they can be confident that the price they’re paying is the best available rate. And for hotels, it simplifies booking processes and enhances brand image and reputation.

But hotel rate parity has attracted criticism for reducing competition and raising consumer prices. And it can impede hotel revenue and profits. How can hotels make rate parity work for them and their guests? This article addresses that question.

What Is Hotel Rate Parity?

Hotel rate parity is a contractual agreement between a hotel and its distributors that makes sure prices for the same room and length of stay are the same across all public distribution channels, including travel agents, online travel agencies (OTAs), and the hotels’ own websites. Some rate parity agreements also cover private or offline channels, such as telephone and email bookings, and indirect channels, such as global distribution systems (GDSs).

For example, suppose a hotel advertises rooms through OTAs Expedia and Booking.com as well as on its own website. Hotel rate parity says that the prices advertised on all three websites must be the same.

Hotel rate parity is simple in theory, but in practice it can be hard to implement and maintain, especially when hotels and distributors operate with flexible pricing. Keeping prices in sync on all platforms can be quite a challenge. This article explains how to manage hotel rate parity to maximize bookings and revenue while minimizing costs and inconvenience.

Key Takeaways

• A rate parity agreement is a contract that ensures that the price of a product is the same wherever it’s sold.
• Rate parity agreements are common in contracts between hotels and OTAs such as Expedia and Booking.com.
• Wide rate parity agreements require room prices to be the same across all booking channels, including offline channels and indirect channels. They can prevent hotels from offering exclusive promotions and loyalty rewards to guests.
• Narrow rate parity agreements require room prices on OTA platforms and hotel websites to be the same but don’t prevent hotels from offering price promotions through offline channels or to existing customers.
• Rate parity has been criticized for reducing competition and raising consumer prices.

Hotel Rate Parity Explained

Rate parity isn’t new to the hotel industry. Long before the advent of the internet, large hotels conducted rate parity across multiple distribution channels. They did this to simplify booking processes and increase customer trust and confidence. But since the advent of online booking and the rise of OTAs, rate parity agreements have become ubiquitous. Even small hotels must engage in rate parity agreements if they want to sell rooms through OTA platforms. And with OTA bookings now making up more than half of all US hotel room bookings, it’s hard for a hotel to survive without them.

OTA platforms benefit both hotels and customers. Their enormous reach enables hotels to find potential guests in corners of the internet that otherwise would be inaccessible to them, while customers enjoy simplified and streamlined booking processes.

But using OTA platforms comes at a price. OTAs charge hotels commission on bookings made through their websites. Commission rates vary by size of hotel and location but are typically around 15%, though they can be as high as 30%. Commissions are deducted from the amount the hotel receives rather than added to the price the customer pays. For hotels, therefore, profit margins from bookings via OTA platforms are significantly lower than those from equivalent direct bookings. Customers, however, are unaware of this cost.

If hotels compensated for this by advertising lower prices on their own websites to drive up direct bookings, customers could use OTA platforms to search for and compare hotels, then book directly with the hotels at a lower price—a practice known as “channel conflict.” To prevent this, OTAs typically require hotels to sign a rate parity agreement. In return for the right to advertise through OTA platforms, hotels commit to keeping prices on their websites and other distribution channels in sync with those on the OTA platform.

Importance of Rate Parity

Rate parity agreements are enormously important in the hotel industry. Guests want to know that they’re getting the best price for their rooms, and hotels want guests to feel that they’re being treated fairly. Maintaining consistent, transparent pricing improves brand image and reputation, and satisfied customers generate those all-important repeat bookings that help stabilize hotel cash flow and revenue. Many hotels practice rate parity across their booking channels, even if they don’t use OTAs.

Rate parity is also important for distributor relationships. Distributors want to know that they won’t be undercut, either by the hotel itself or by other distributors. A hotel that systematically undercuts distributors or allows others to do so might not be desirable to do business with. Maintaining rate parity helps hotels build good relationships with distributors.

Rate parity comes with significant administrative overhead, and although it can generate revenue, it can also negatively affect profit margins. Nevertheless, it’s here to stay, so it’s important for hotels to develop strategies for using rate parity to their best advantage.

Two Types of Rate Parity

There are two types of rate parity: wide rate parity and narrow rate parity.

1. Wide rate parity: When there’s a wide rate parity clause in a contract with a distributor, such as a booking website, the hotel can’t offer lower prices than the price charged by the distributor. Wide rate parity applies across all sales channels, including offline and indirect channels. So hotels can’t offer exclusive discounts or promotions or have loyalty programs for regular guests.
   
   Wide rate parity clauses ensure that customers only ever see a single price for a particular room. This makes it easier for customers to compare prices across hotels. It also encourages them to look at a hotel’s whole offering rather than focus exclusively on price. Customers have confidence that the price they see is the price they’ll pay and that they’re not missing out on better deals. However, wide rate parity clauses significantly restrict customers’ ability to negotiate lower prices than those offered by distributors. And they can also mean that hotels lose control of prices. When the distributor has a dominant market position, the single price is effectively set by the distributor, not the hotels. Many countries regard this practice as anticompetitive and have therefore banned wide rate parity clauses. However, they’re legal in the US.
2. Narrow rate parity: In a narrow rate parity agreement, the hotel agrees not to advertise lower prices than distributors on its own website, but it can offer lower prices through private distribution channels, such as email and telephone marketing or customer loyalty programs. This prevents hotels from undercutting distributors online while still permitting themselves some pricing flexibility. Customers booking through distributors can remain confident that the price they see is what they’ll pay, but they may lose out on better deals available directly from the hotel, particularly if they’ve stayed at the hotel before and would have been entitled to the better pricing option.

Pros and Cons of Hotel Rate Parity

Hotel rate parity is something of a mixed blessing. It’s intended to level the playing field for customers booking through different channels, but it can reduce competition and limit choice. Here’s a rundown of the main advantages and disadvantages.

Pros of Hotel Rate Parity

Hotel rate parity can benefit hotels, consumers, and distributors in the following ways.

• Consistency for consumers: Hotel rate parity ensures consistency in pricing for consumers. Whether they book through OTA platforms or directly with the hotel, customers pay the same price for the same room, time, and length of stay. Consistent pricing tells customers that they’re being treated fairly and helps engender trust in the hotel, potentially leading to repeat bookings. Consistent pricing also discourages customers from shopping around and encourages them to book directly, particularly for repeat bookings, which means hotels save on commissions.
• Enhanced brand integrity: Maintaining consistent prices across different sales channels can enhance a hotel’s brand image and improve its reputation. Otherwise, potential guests may be discouraged from booking a room there because they won’t know if they’re getting a fair price. And guests who discover after paying that they would have obtained a lower price by booking through a different channel can feel cheated. Rate parity avoids the kind of wide variation in pricing that would make it difficult to maintain a coherent brand identity.
• Simplified revenue management: When there’s a panoply of different prices, revenue management can be complex, time-consuming, and error prone. Establishing a single pricing framework across all booking channels simplifies pricing and revenue management, improves operational efficiency, and reduces errors.
• Improved relationships with OTAs: OTAs want to be assured that hotels are dealing with them fairly. If they sense that a hotel is trying to undercut them, they might terminate the relationship. For hotels, losing OTA relationships can mean significantly curtailed bookings and lower revenues. Maintaining rate parity ensures a level playing field between OTA platforms and hotel websites, giving OTAs confidence that they’re not being undercut and helping hotels build better relationships with their OTA partners.
• Operational efficiency: Consistent pricing across all distribution channels, simplified and streamlined pricing and revenue management, and excellent relationships with distributors and guests are all sources of competitive advantage for hotels.
• Reduced risk of channel conflict: Reducing the risk of channel conflict helps maintain good relationships between hotels and distributors. Channel conflict occurs when a brand undercuts its distributors by selling directly to customers at a lower price; customers start to use the distributors as showrooms instead of sales outlets, resulting in loss of income for the distributors. Hotel rate parity doesn’t prevent hotels from selling directly to consumers, but it ensures that they don’t undercut their distributors.

Cons of Hotel Rate Parity

Hotel rate parity has significant downsides. Whether these outweigh its advantages depends on the nature of the business and the market within which it operates. Here are some of the main disadvantages.

• Reduced pricing flexibility: Rate parity agreements reduce hotels’ ability to flex their prices. Loss of flexibility is greatest in wide rate parity agreements, where hotels must keep prices the same across all sales channels, including offline and indirect. But even with narrow rate parity agreements, hotels must keep prices advertised on their own websites in line with those on OTA websites. This makes it difficult for hotels to respond quickly to changing market conditions or pursue strategies to increase occupancy rates.
• Reduced profit margins: OTAs charge commission for hotel bookings made through their websites. Commission rates vary by size of hotel and location, but they’re typically around 15% of the advertised price, though they can be as high as 30%. The effective price paid by the customer to the hotel is thus significantly lower than it would be if the customer booked directly. Rate parity clauses that prevent hotels from increasing direct bookings by offering customers slightly lower prices if they book direct can thus significantly erode hotel profit margins.
• Legal and regulatory challenges: Hotel rate parity agreements are banned in some countries and restricted in others. This complicates the relationship between OTAs and hotels. It also affects international hotel chains that use rate parity to maintain price consistency throughout the chain.
• Dependence on OTAs: Rate parity agreements with large OTAs make it difficult for hotels to sell rooms through other channels because equal pricing means there’s no incentive for customers to look for lower prices on other channels. Hotels, therefore, become dependent on OTAs for most of their bookings. The dominance of OTAs can be detrimental to hotels and their guests, because hotels lose revenue as direct bookings dwindle and guests pay higher prices than they might if there were more price competition.
• Potential for rate parity violations: Even if a hotel intends to keep prices in sync, the overhead of monitoring prices on OTA platforms and adjusting prices on the hotel website to keep them in line is considerable. And there can be rate disparities when hotel rooms appear on third-party websites (typically, small OTAs that buy rooms in bulk from wholesale “bed banks”) over which the hotel has no control. Unintentional disparities can be heavily penalized. Many hotels use computer software to help them track prices across multiple channels to avoid unintentional disparities.
• Customer perception issues: When there’s hotel rate parity, customers have no incentive to book directly with the hotel, as it can be much more convenient for them to book from an OTA platform. As a result, direct bookings tend to fall. It can also be hard to generate repeat bookings if the rate parity agreement prevents the hotel from offering loyalty discounts or special promotions to previous guests.

Controversies around Rate Parity

Partly as a result of the rise of OTAs, rate parity has become controversial. There are movements to clamp down on rate parity, particularly in Europe. Here are the main issues.

• Legal and regulatory scrutiny: Hotel rate parity has attracted criticism from legal experts and antitrust regulators because it’s often seen as anticompetitive. Competition law in the US and Europe identifies three anticompetitive practices: agreements among companies that restrict market competition; abuse of market players’ dominant position to the detriment of consumers; and mergers and acquisitions that erode market competition. Critics of hotel rate parity say it can lead to all three.
  
  To the extent that hotel rate parity agreements limit hotels’ ability to set rates based on supply and demand, they can restrict competition. Additionally, large OTAs that use rate parity agreements as a condition of advertising on their platforms may unfairly discriminate against hotels that don’t wish—or can’t afford—to sign such agreements, reinforcing their dominant market positions and thus limiting the choices available to consumers. OTA mergers and acquisitions, meanwhile, are extremely common. Between 2013 and 2017, Expedia, Tripadvisor, Ctrip (aka Trip.com), and Priceline were involved in as many as 25 private acquisitions, reducing the number of industry players. In the US, the OTA marketplace is now dominated by two large players: Booking Holdings and Expedia.
  
  While U.S. critics argue that hotel rate parity agreements breach antitrust law, the Supreme Court dismissed the only case brought so far because the plaintiffs couldn’t prove there was collusion in setting prices. At present, therefore, hotel rate parity agreements are unrestricted in the US. The EU distinguishes between wide and narrow rate parity agreements, banning the former but allowing the latter as part of a block exemption to competition law. The UK has a block exemption similar to that of the EU.
  
  Several EU countries, however, have passed local legislation banning narrow parity rate agreements, which override the EU’s block exemption. Additionally, the EU has designated Booking.com as a “gatekeeper” under its Digital Markets Act, which forced the OTA to end all rate parity agreements in the EU by October 2024. Beyond the EU, Australia and New Zealand ban OTAs from using wide rate parity, though they permit narrow rate parity. India has banned its two largest OTAs from using rate parity agreements.
• Impact on small and independent hotels: Hotel rate parity agreements have been criticized for benefiting OTAs and large hotels at the expense of small and independent hotels. Price consistency across distributional channels is an important part of the brand image of large hotels and chains, and although hotel rate parity shrinks their profit margins, higher revenues from increased room occupancy can more than compensate. But for small and independent hotels, increased room occupancy may not be sufficient to make up for lower profit margins, while loss of price flexibility can mean an inability to respond to local market conditions. And small hotels lack the marketing budgets that would enable them to drive traffic to their own websites against the allure of the big OTA platforms. Large hotels and chains also tend to be better able than small and independent hotels to monitor price changes across distribution channels, thus avoiding penalties for disparities. And they’re also better able to handle OTA price cutting.
• Consumer choice and pricing transparency: Hotel rate parity increases price transparency for consumers. If prices don’t vary among booking channels, customers can more easily compare prices offered by different hotels and can also select hotels based on other features, such as location and amenities.
  
  However, the price offered is only the best available because the rate parity agreement penalizes hotels that offer customers different prices. In the absence of a rate parity agreement, the price advertised on the hotel’s website would be based solely on the hotel’s own cost of sales and might, as a result, be significantly lower than the price offered on the OTA platform. But when there’s a rate parity agreement in place, the hotel must ensure that the price on its website is the same as that on the OTA platform, regardless of its own cost of sales.
  
  Additionally, because rate parity agreements ensure that prices are the same across different distribution channels, hotels can lose the ability to attract customers through discounts and special promotions. Rate parity agreements thereby reduce consumer choice.
• Challenges in enforcement and compliance: Ideally, rate parity agreements should work for all parties. But, in practice, the playing field is uneven. OTAs penalize hotels for rate disparities, whether intended or unintended, typically by dropping them down the search rankings. And OTAs can undercut prices on hotel websites by reducing their own commission rates, and hotels have little power to penalize them because the cost to a hotel of removing itself from an OTA platform, even temporarily, is usually significantly more than the cost to the OTA of losing the commission earned from its sales.
  
  Wholesalers, also known as “bed banks,” buy hotel rooms in bulk and then sell them, usually to smaller, lesser-known OTAs that advertise the rooms for a small markup over the wholesale price. The prices on these noncontracted OTA platforms can be significantly lower than prices advertised on the hotel’s own website.
  
  Dynamic pricing creates another compliance challenge. When prices fluctuate in response to market conditions, it can be difficult to keep all the sites on which they’re advertised in sync. Constantly monitoring prices to be sure that they’re the same on all channels can entail a considerable overhead cost for hotel administration.
  
  Governments and courts are now stepping in to ensure that OTAs don’t abuse their market position. And hotels are also becoming savvier, investing in monitoring software and rate shopping tools to keep abreast of price changes and find creative ways to increase direct bookings without breaking the rules.
• Economic impact on hotels: Hotels tend to suffer in economic downturns, as people postpone or delay travel plans and businesses dial back conference expenditures. Prices fall as hotels compete fiercely for business. Many hotels find themselves relying more on OTAs and other distributors to generate enough bookings to stay alive. In response, distributors tend to tighten their terms of business.
  
  Conversely, when the economy is growing and hotel bookings are plentiful, hotels become less reliant on OTAs and can start pushing back on terms they consider overly restrictive. In 2004, when the economy was recovering from recession, one of the largest hotel chains accused Expedia of “confusing and unclear” marketing practices and banned it from accessing its inventory. But in 2007, as another recession approached, the hotel chain lifted the ban and entered into a rate parity agreement with both Expedia and Booking.com.
• Evolving booking behavior: As hotel booking moves online and conventional channels decline, customers are becoming savvier. Search engines and OTAs make comparing the features and facilities offered by hotels easier.
  
  An important new trend, especially for the youngest travelers, is social media. Among Generation Zers, born 1997 and later, 90% use social media to find sources for booking travel and accommodations.

Strategies for Effective Hotel Rate Parity Management

Since rate parity is ubiquitous, hotels need to find ways to make it work for them. Developing a comprehensive strategy is crucial, one that includes pricing and inventory management approaches that meet the needs of distributors and customers and is aligned with revenue and profit targets. The strategy should be transparent, clearly communicated, and enforceable. Below are some of the key elements of an effective rate parity strategy.

Using Technology

Using channel management software to keep prices across all contracted distribution channels consistent is a prerequisite for an effective rate parity strategy. It’s also wise to use rate shopping tools to monitor channels to detect accidental price discrepancies.

Hotels should also invest in quality websites that provide more information about hotels and their surroundings than is available on OTA websites. How a website looks and feels tells customers a lot about the hotel, so it’s important that the website be attractive, welcoming, and easy to navigate. To make booking directly from the website easy, include a slick, streamlined booking engine that provides instant confirmation and an interactive chat service to answer questions. To increase online visibility, consider listing on metasearch websites, such as Tripadvisor and Google Hotel Ads, that pull together and display prices from various sources, including OTAs and hotel websites. Hotel websites appear alongside OTA listings, helping to drive traffic toward them without breaking rate parity agreements.

Another technology imperative for hotels is customer relationship management (CRM) software that collects and organizes guest data, so that hotels can offer guests personalized perks and services and (within the limits permitted by rate parity agreements) devise marketing campaigns, loyalty rewards, and special offers to encourage repeat bookings.

Collaborating With OTAs

When there’s a strong working relationship between hotels and OTAs, price disparities can be quickly resolved and restrictive terms can be renegotiated. It’s important that OTAs see hotels as valuable long-term partners rather than just as a source of cash flow. When hotels and distributors trust each other, they’re less likely to engage in unfair practices, such as unilateral discounting on their own channels, and more likely to support each other for their and their customers’ long-term benefit.

Implementing Dynamic Pricing Strategies

Dynamic pricing aims to ensure that prices closely reflect demand so as to maximize revenue. Instead of setting a fixed price, hotels change room prices in response to market conditions. All hotels do this to some extent. For example, hotels typically charge much more for rooms during busy holiday periods than during slow periods. Business hotels tend to charge more for weekday bookings than for weekends. But some hotels take this practice further, varying prices daily or even intradaily. For example, a hotel may cut its prices for bookings in the morning, when people are at work and website traffic is slow, and increase them in the evening.

Maintaining rate parity can be a considerable headache for hotels that use dynamic pricing, especially if they also use multiple distribution channels. Using channel management software to update prices across all channels in real time is essential. But even with automated price updates across channels, there’s a risk of accidental parity breaches, because some channels take longer to update than others. Therefore, it’s vital to monitor for disparities and promptly address them. Collaborating closely with OTAs helps keep them aware of the dynamic pricing strategy and encourages them to take a relaxed view of temporary price disparities.

Enhancing Direct Booking Channels

Although rate parity agreements rule out price discounts for direct bookings, hotels can use nonfinancial incentives to encourage guests to book directly. Those include free Wi-Fi, parking, breakfast, and tickets to local attractions; exclusive use of certain facilities; and personalized services such as chauffeured parking or a butler.

If rate parity agreements permit, hotels can also offer previous guests exclusive promotions or loyalty rewards to encourage them to make repeat bookings via the hotel website, email, or telephone rather than through OTAs. Hotels can also reserve some rooms to sell exclusively through their own channels. However, because most consumers use OTAs to search for rooms, there’s a risk that these rooms could remain unsold.

Training Staff and Maintaining Transparent Communication

In most cases, rate parity is a contractual agreement, so a hotel is legally obliged to maintain it. Front-line and administrative employees need to understand the rules of rate parity and the limits that it places on marketing and sales strategies. Employees who understand the rules are more likely to be rigorous about observing them, and those who understand their responsibilities are more likely to be diligent about executing them.

Regular Audits and Reviews

Like all business strategies, executing a rate parity strategy requires consistent enforcement, as well as updates from time to time. Instituting regular audits increases the chances that procedures will be followed and that any administrative deficiencies will be identified and remediated. Periodic reviews of the rate parity strategy will enable management to respond to the needs of distributors and customers while keeping the strategy aligned with the hotel’s long-term business objectives.

Manage Your Hotel Pricing Easily With NetSuite

Rate parity challenges hotels to maintain consistent pricing while responding quickly to changes in demand and offering an excellent customer experience. Using NetSuite’s pricing management software, hotels can easily manage, control, and update pricing across all distribution channels. And with NetSuite’s integrated hospitality management suite incorporating CRM and guest services, hotels can obtain the insights they need to target marketing campaigns, promotions, and additional services.

Hotel rate parity is here to stay, so it’s important for hotels to make it work for them. Effective rate parity management doesn’t just mean maintaining price consistency across multiple channels. It also means getting to know customers better, because a hotel that really understands its customers is best positioned to offer the enhanced customer experience that will attract those all-important direct bookings. Key to a successful hotel rate parity strategy is clever use of technology, rigorous control of pricing and inventory, creative marketing, and, above all, building excellent relationships with distributors and guests.

Hotel Rate Parity FAQs

Why is rate parity an important issue for today’s hoteliers?

Rate parity is important for hoteliers to the extent that the practice simplifies booking processes and enhances brand image and reputation. In most cases, it’s also a requirement of contracts between hotels and their OTA and other distribution partners.

What is price rate parity?

Price rate parity means that the price of a room will be the same wherever it’s advertised. So, a room advertised on Expedia and Booking.com will be the same price as it is on the hotel’s own website.

What is a rate parity policy?

A rate parity policy is adopted by OTAs to make sure that they’re not undercut by hotels offering lower prices on their own websites. Some hotels also adopt a rate parity policy across their own booking channels (website, telephone, walk-ins) to streamline booking processes and maintain customer satisfaction.

What are the benefits of rate parity?

Because rate parity ensures that customers see the same price, regardless of where a room is advertised, customers are better able to compare prices among different hotels and make decisions based on factors other than price. For hotels, rate parity can enhance brand image and reputation and simplify booking processes.

Is rate parity good or bad?

Hotel rate parity can be seen as both beneficial and detrimental, depending on the perspective. It promotes fairness and consistency in pricing across all booking channels, which can enhance customer trust and prevent price wars. However, it may also limit hotels’ ability to offer competitive pricing or exclusive deals, potentially reducing their revenue and marketing flexibility.