Monday, May 23, 2011

Scutinising Motel Tariff

For accommodation providers, the seemingly simple task of managing yield through different distribution channels ain't what it used to be. Media are slamming operators that are applying dynamic tariff over peak periods, consumer law regulators are increasing their scrutiny while Online Travel Agencies are demanding rate parity.

Accommodation pricing seems to be a regular topic of fascination in the media as the Rugby World Cup looms. The value of accommodation that may or not be packaged with Rugby World Cup fixtures are openly debated by media from the curbside of hapless accommodation properties that have the cheek to apply dynamic pricing according to demand and supply.

While the value of what accommodation providers are providing will be judged sight-unseen from a reporter's keyboard, the Commerce Commission will also be applying the blowtorch to operators by using their interpretation of the Fair Trading Act and The Commerce Act. Interestingly accommodation listings on Online Travel Agents (OTAs) will be getting some special attention to ensure that there is no evidence of "misleading or deceptive conduct, false representations and unfair practices in trade."

While the media love to paint a picture of unscrupulous accommodation providers manipulating innocent consumers en masse (in particular during the RWC), in reality operators have a vested interest in keeping high levels of guest satisfaction. Accommodation providers that endure the daily scrutiny of the travelling public are well aware that consumers now have the tools of a new digital age at their fingertips to tell the world if they are not completely satisfied. From what we can observe this self-regulation works extremely well!

Interestingly there are trends elsewhere in the world that may have an affect on how accommodation providers apply tariff via different distribution channels. The Office of Fair Trading in the UK has recently started an investigation into alleged price-fixing by hotels and travel agents. The article HERE seems to question an accommodation provider's right to dictate what tariff is applied to rooms sold by 3rd party agents. This practice is commonly referred to as “rate parity.” The Office of Fair Trading's final ruling could be a game-changer and curb this widely used and accepted practice in the accommodation industry.

So should an accommodation provider have control over their pricing and offer rooms at identical (or minimum) prices via different agents? Is this really price fixing?? Surely there is a big difference between a single supplier dictating rate parity and suppliers colluding with their competitors to set tariff. It will be interesting to see what the courts decide...

In Australia we see that Expedia are getting tough by demanding rate parity with their accommodation suppliers that were offering deals on's recent heavily promoted  three day sale. Non-compliance from Expedia's suppliers have resulted in offending property's inventory listings pulled from the Expedia website. is Australasia's biggest accommodation retailer and like most other OTAs they demand pricing/deal exclusivity as a condition of properties listing room inventory on their website. As an example,'s supplier agreement states:
"The Booking Price and each other term of offer on the Sites will be at least as favourable to users of the Sites as offered on other online channels (including your own website) for the same Accommodation and period"
So basically an accommodation provider that lists inventory on and takes advantage of their marketing investment must agree not to advertise a better online offer. And this is why most accommodation providers, while applying dynamic pricing according to demand will operate a policy of rate parity with its 3rd party suppliers that will often include the tariff displayed on their own corporate website.

We have had discussions with several Kiwi moteliers over the last few weeks that claim "randomly selected" their property for a mystery shopping call. This involved a representative from telephoning the accommodation provider posing as a prospective guest.

If the property offers the mystery shopper a rate cheaper than the rate they have advertised on, an email from the Wotif Group Product Audit Team is generated that contains the following familiar paragraph:
"We value our partnership very highly and continue to provide exposure to more online consumers than any other website in Australia and New Zealand for your free listing and the free promotional spots we offer. As we provide the connection between you and our customers, we need to be able to give them the best possible price, which is why we ask you to provide us with your best rates which must be at least as favourable as the rates you would offer a customer direct."
So does this mean that are now demanding that their suppliers shouldn't be offering better offers offline as well?

While many operators balk at OTAs dictating online pricing, in our humble opinion OTAs  insinuating that they can dictate off-line tariff as well is definitely going too far.

After past impressive growth figures, most OTAs now flat-lining. They are aware that travel has been squeezed, the growth in online bookings has subdued, competition has increased and the cost of doing business has risen along with the necessity to invest more in advertising. OTAs are increasingly aware of the "Billboard Effect" that their websites are creating and are not happy to bleed market share, particularly by guests booking direct with the accommodation provider!

Times may be tough, however we suggest that OTAs putting pressure on their suppliers and pushing the boundaries of rate parity may not return long term benefits for them.

Meanwhile, accommodation providers that are stuck in the middle of all of this will be wondering who will be coming after them next?

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