The Curious Case of Hotel Room Pricing

In this article we will unlock some of the secrets behind hotel room prices and destroy ‘facts’ around finding best hotel deals online. 💁

So what really changed between 2016 and 2017?

In absence of any major differentiation, large players were able to capture the lions share of the market by massive advertising and buzz marketing, thus wiping out majority of competition.
However, it did not get easier to find cheapest hotel deals. Most of the sites visited by travel purchasers had very little (if any) differences in the all-inclusive rates. Visiting 40 sites started adding less and less value for users. We are still far away from finding competitive rates, and in the process, still continue to burn our pockets!

Hotels pay these sites up to a 30 percent commission, so most are able to offer a cheaper rate if you just ask. Direct calling removes the existing intermediaries and saves money.

However, as illustrated below, hotel websites do not show such cheaper rates communicated on a direct call. Prices on direct hotel websites are often not a lot different than what is available on OTAs like Booking and Expedia, as illustrated below:

Why can’t on-call discounted rates be displayed on hotel websites?

The answer to this question lies in a legal arrangement between hotels and their distribution partners — commonly known as “Rate parity”.

In a nutshell, rate parity is an arrangement wherein independent hotels are bound by a contract to maintain the same selling price for their rooms across all distribution channels.

Take this highly-rated Hilton property in London, as an example for rate parity:

In most European countries, until recently, the competition watchdogs maintained a neutral position. They were of the view that the rate-parity and ‘MFN’ clauses (which prevent a hotel from offering a cheaper rate on the hotel’s own website), does not adversely affect competition and are rather necessary to ensure the benefits and authenticity of online platforms. Thus it was seen as a safeguard of the interests of Online agents and platforms.
Recently, however, rate parity clauses are increasingly becoming a suspect and many European countries have downright outlawed them.

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