Room Rate Disparity

By Cihan Cobanoglu | April 01, 2007

When one of my graduate students asked for advice on a thesis topic last November, I suggested hotel room rate parity: the uniformity (or lack there of) of room rates based on the date of and method used for booking. This was just following a meeting of the American Hotel & Lodging Association (AH&LA) E-Business Committee at the International Hotel, Motel & Restaurant Show, where committee members agreed that hotel room distribution is still in a state of disarray and room rate parity continues to be a challenge for hoteliers. My student accepted the suggestion and we started work immediately.

The research
We began by randomly selecting 10 different AAA-rated hotels, each with a rating of five or three diamonds, from 10 cities (New York City, Los Angeles, Miami, San Diego, Orlando, Phoenix, Washington D.C., San Francisco, Philadelphia and Atlanta) based on occupancy rate. The final list included 100 hotels. We then collected room rate data from seven different distribution channels (three direct and four indirect channels) from these hotels for an overnight stay on Jan 31, 2007, based on four different date points: 21 days in advance (January 7), 14 days in advance (January 14), seven days in advance (January 21) and the day of arrival (January 31).

For the direct distribution channels, we called the hotels directly, called their central reservation hotline (1-800 number) and visited the hotels' Web sites. Some of the hotels transferred us to the central reservation office even though we called the hotel directly. For the indirect channels, we got room rates online from Expedia, Orbitz, Travelweb and Travelocity.

Our goal was to detect if the room rates were consistent among direct channels, indirect channels, and between direct and indirect channels. Many hotel chains are advertising a "Best Rate Guarantee" for booking via direct channels -- the intent of this research was determine if the hotels were able to make good on this promise.

The analysis
What we found did not surprise us and supported what the AH&LA E-Business Committee diagnosed. The numbers revealed that "Best Rate Guaranteed" is not necessarily holding up to its promise. Indirect channels beat the direct channel prices in each of the room rate collection points. The data also shows that the demand for a night's stay on January 31 was not as high as the hotels expected it would be, therefore prices dropped as the check-in date approached.

What does this mean to the industry overall? If we average all price points for direct and indirect channels, the average room rate for direct channels is $354.33 and $303.20 for indirect channels -- a difference of $53.13. Anecdotal evidence has long suggested this disparity, even before research proved that room rate parity is indeed a significant problem.

These numbers are statistically significant, suggesting that the hotel industry needs to react soon and address this disparity to maintain the viability of direct booking and to make good on any guarantees regarding room rates.

This data also supports the role of the Open Travel Alliance in successfully managing distribution channels, and is evidence of the importance of integration to produce a single image inventory system.

Cihan Cobanoglu, Ph.D., CHTP, is assistant professor of hospitality information technology at the University of Delaware. Share your questions and comments with Dr. Cobanoglu online at htmagazine.com or email him directly at cihan@udel.edu .

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