Booking.basic and the rate parity – What you should do
Online distribution in the hotel industry is a very important topic, because an important portion of all bookings are made online - and the trend is rising. However, Internet sales are not free either and are associated with certain distribution costs. Thus, the desired result of a hotelier is not always having all rooms booked, but rather the situation that a higher profit comes at the end. For this reason, the implementation of a solid economic rate and the commissions to be paid play an essential role.
Rate parity, also known as best price clause, is a contractual agreement between hotels and online travel agencies. The hotelier undertakes to sell his rooms on all distribution channels at the same conditions and at the same price or even at a lower price than of the OTAs. The clause is highly controversial and varies from country to country. Some authorities have restricted or banned rate parity.
In Italy, France and Belgium, for example, the best price clause has been banned by law. As a result, OTAs no longer have the right to claim the distribution of the lowest price. Since the end of 2016, Austria has had a general ban on the best price clause. This gives hotels more freedom in their own online distribution and they can decide for themselves which prices are offered through which distribution channels.
In Germany, too, the giants Booking.com and HRS were prohibited by syndicate decision from further demanding the best price clause. Booking.com, however, had then successfully lodged an appeal with the Higher Regional Court. On the 4th June 2019, the Higher Regional Court in Düsseldorf decided that the rate parity clause was necessary and thus proved the online travel agent right. The German Hotel Association (IHA) is disappointed by this decision. Whether the legal opinion will gain validity and how exactly it will continue has not yet been decided.
In order to increase direct bookings and avoid high commissions, it was quite uncomplicated for hoteliers to offer a lower price on their own website after the rate parity fell. But now Booking.com wants to gain a competitive advantage again and reacts with the new product "Booking.basic.
Everyone is talking about Booking.basic. The new feature of the OTA giant has now arrived in the DACH market. The usage is very controversial as well as the legal situation. In principle, the procedure is nothing new, for example Expedia uses "Expedia EAN" or HRS "HRS Multi-Source". What is new now is that the OTA market leader does use this concept, but it does not inform the hotels and does not offer the possibility of opting out.
With Booking.basic and the Sponsored Discount, Booking.com tries to avoid the forbidden best price clause in order to gain a competitive advantage. In addition, the OTA platform awards a so-called Price Quality Score, which is roughly calculated by comparing prices between Booking.com, the hotel website and other portals. According to experts, Booking.basic and other models are activated as soon as this Price Quality Score is below 70 points.
The Booking.basic feature works as follows:
the OTA market leader uses a so-called "Rate-Shopper" to constantly search through the offered rates on all channels. If a cheaper price offer is found on another platform such as Booking.com, this cheapest option (e.g. from Expedia, TUI...) ends up in the offer of Booking.basic. This rate is marked with the slogan "save more with just the basics" and can be seen in the regular Booking.com user interface. Typical features of a Booking.basic offer are, for example, conditions such as advance payments of the full price and no cancellation options.
The customer books the offer from Booking.basic, which is confirmed or rejected by Booking.com after 15 minutes. The clauses of Booking.basic state that the rate can change at any time before a fixed booking is made, as it comes from a "partner". The truth behind this is that Booking.basic makes a booking on behalf of the guest via another provider (e.g. Expedia, TUI…).
When checking in at the hotel reception or asking questions in advance, there is often confusion, because the customer is convinced that he has completed his booking directly via Booking.com. In the back office, however, the reservation was received directly via the aforementioned "partner" of Booking.basic, as it was actually made there (only not directly by the customer himself).
Especially small and medium-sized hotels can very easily reach target groups through Booking.com, which they would not be able to reach through their own marketing measures. Nevertheless, even smaller companies pay a high commission for the use of the sales service.
So, what is the right way to deal with it?
The OTA market leader unfortunately did not consider necessary to inform hoteliers about the introduction of Booking.basic. Moreover, there is no opt-out option, i.e. the possibility to opt out of it. How should the hotelier react?
Here our suggestions:
The most important thing is to keep track of your channels and the room prices offered. All rates that can be booked online can be booked by the guest at any time and directly via the respective channel.
Unlike the Sponsored Discount or the Early Payment Benefit, Booking.basic clearly only allows you to book rates that have been set somewhere by the hotel. Although the best price clause can’t no longer be applied by law, the hotelier himself should make sure to maintain a certain parity on the OTAs used – in this way a Channel Manager can help in this.
In order to promote direct bookings, non-monetary benefits can be offered to the guest, which, on the contrary, no OTA can offer. Many hotels already offer a free Internet ticket or an additional activity for direct bookings.
Our Revenue Manager Christoph Peiniger gives his piece of advice: "Put the contracts with travel providers/wholesalers to the test. Since it is often the provider who has the rate sovereignty, it is one of the most common sources Booking.basic can access."
"Selling with price parity is easier said than done - Booking.basic is the punishment for missing price parity", explains Ms. Gabriele Schulze, expert for distribution, online marketing and revenue management in the hotel industry.
"There are many hotels that sell cheaper through their own websites than through online travel agents. At the latest, when they market these lower prices in meta search engines such as Tripadvisor or Google HPA with a direct booking link, Booking perceives this as competitive offers and lowers the so-called price-performance index. If this is less than 70 out of 100 points, Booking tries to make its own site competitive again. Unfortunately, it can also affect hotels that want to sell at par value. Both Booking and Expedia supply numerous booking platforms with prices and availability with which the hotel has no direct contract. These often apply a sponsored discount and deliver these lower prices to the meta search engines. Sometimes only a test booking helps to find out who the actual price and availability supplier is. Typical examples are Zenhotels (supplied by Expedia), Amoma or RoomsXXL. This very complex work should make itself each hotel and the selling partners, who are responsible for the forwarding these selling ways” recommends Ms. Schulze. Further Tipps of Ms. Schulze you will find on the website marketing4results.
From our partner Marco Riederer, head of the Revenue Management & e-Commerce department at Prodinger Tourism Consulting, we received the following recommendation: "An effective method of Revenue Management is to control availability on the different channels instead of prices. It is therefore essential to re-examine contracts with tour operators and, ideally, to prohibit the resale of contingents. A further consideration would be to offer the cheapest room categories only for direct bookings and not to pass them on to third parties at all. In this way, I reserve myself the right to assign the most favourable rooms only in the direct sale!”
We asked one of our customers, located in Mallorca about this topic. His opinion on the handling of Booking.basic is as follows: "In order not to be listed on Booking.basic, I adjust my rates on all other pages accordingly. For us it is not a problem, since we have sold our accommodations on all channels at the same price so far. Since about 85% of our annual bookings are made via Booking.com, I create special offers directly there".
Consider the introduction of Booking.basic as a good opportunity to question your own pricing strategy and to optimize it. Make sure that all offers are economically viable for the hotel, no matter where and when they are published.
Optimize your prices together with RateBoard and request your online demo here!
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