7 Habits for Effective Wholesaler Relationships
Rogue rates are hard to track down. The only reliable way to identify the source is to make a test booking and then bring it up with the offending wholesaler. Inevitably, there are apologies given and promises made. Yet, the rogue rate reappears in a few weeks - and the process starts again. Rate parity is an endless game of cat and mouse.
The growth of metasearch has magnified this problem. As Google completes its hotel portal, there’s a massive new wave of attention on meta. Consumers are now exposed to a variety of unfamiliar brands, and, even though the brands are unknown, there's a reputational “halo effect” from appearing in metasearch results alongside well-known global brands. Consumers see the low price, assume the brand is legit because it’s in good company, and make the booking.
The hotel suffers. It must deliver the same service at a lower margin, often without realising that the booking was made through a non-contracted OTA selling discounted rooms. This is not a sustainable situation! Hotels must rethink their relationship with wholesalers - and moving to dynamic contracts may not be sufficient.
Dynamic is not a cure-all
I know of one hotel chain that’s considering cutting wholesalers completely; not just changing discounts or connections but actually stopping distribution of certain inventory types and destinations to those partners. It’s a handbrake turn, in some ways, because many chains have decided to switch to dynamic rates rather than cut wholesalers out.
Dynamic can actually make the parity problem worse, because it has led to a false sense of security. Yes, hotels have more operational control through the switch in the CRS to hold wholesale accountable with dynamic rates. Yes, it’s still a fixed discount off BAR. Yes, BAR is updated regularly rather than once, so they can’t undercut by large amounts. But these are not cure-alls.
In fact, this feeling of control has emboldened hotels to open the entire portfolio. So, even though wholesalers haven’t changed from the net merchant model, now they can negotiate to gain access to more inventory. The tap is more open than it was five years ago, when the static negotiated rate had only a few rooms on allocation.
For some hotel brands, the tap is now wide open. You’ve plugged in a partner but you have no idea what their business is. You don’t know their demographics or sweet spots. You’ve opened up a tap because you believe the business is offline. No matter what you’re distribution strategy was, now you’re jeopardising the whole thing because you have no visibility into where they distribute. This opaque channel challenges your whole mix and strategy… and you’ve no idea if it makes financial sense.
Rethinking the wholesaler relationship
Many hoteliers are unaware of how damaging an uncontrolled distribution strategy can be. Since it costs roughly the same to serve each booking (labour costs, maintenance, utilities, etc), selling inventory at a lower-than-forecast rate diminishes a hotel’s margin. All bookings are not created equal, as far as profitability characteristics.
Just how much of their revenue is being threatened? Given the complexity of the hospitality distribution landscape, it's impossible to benchmark actual revenue loss. What we do know: our latest hotel parity review found that independents and local chains in North America and Europe continue to be more vulnerable than major chains, with rates are out of parity over 40% of the time.
Dealing with contracted OTAs - where disparity might arise from caching, currency or tax issues - is one thing. And new initiatives in the OTA space might complicate things. But the real rate parity problem is that wholesalers are selling contracted rates onward to non-contracted OTAs. As you can see in the infographic below, that’s quite the potential for revenue loss.
See the full infographic on the real rate parity problem here.
Awareness is key. If your hotel sees benefits from the steady revenue delivered through wholesale contracts, then by all means continue. Just put some guardrails in place to make sure you're not being taken advantage of. Wholesalers may guarantee incremental upfront - but they also may undercut revenue from your other channels down the line.
To achieve that awareness, you need transparency. The market is inherently not transparent on these issues; if the only way to reveal the true source of inventory is to make a test booking, then the entire model hinges on its opacity. In pursuit of transparency, hoteliers need a simple, straightforward way to accurately visualise the pricing data. Technology has enabled personalised pricing for each search, which is a massive burden for revenue managers. It’s impossible to do these searches accurately at scale, as there are so many factors in play. Putting a lid on rogue rates requires a high-level visual view of where a hotel stands at a given point in time.
To stay in control of your distribution, consider these seven habits for effective wholesaler relationships:
- Due diligence. Before signing a contract, ask around. If the wholesaler has bad references - or refuses to provide references - walk away. It’s just not worth it.
- Reconsider contract terms. While dynamic pricing poses its own set of problems (as we saw earlier), there’s no rule requiring you to give wholesalers steep discounts. Consider providing wholesalers rates on (or near) parity with OTAs to eliminate the perverse incentives of onward selling.
- Monitor regularly. Since bookings happen 24/7, make parity habitual. Set up regular reports to easily surface areas of concern and to benchmark against your compset.
- Don’t forget geo! Disparity based on IP address can be hard to track without using a VPN. We recommend monitoring disparity at the geographic level as well, because there are many tricks that threaten price integrity.
- Do test bookings. When you notice a particularly painful rate, do a test booking to ID the inventory source via your CRS. Then reach out directly to address the issue. This is cumbersome, but can be worth it for certain situations.
- Engage the front desk. If your test bookings reveal a pattern of undercutting from a specific OTA, train your front desk to review reservation confirmations from that OTA. Then you can more quickly source the offending wholesaler.
- Cut out bad actors. Once you’ve identified a pattern of bad behavior, and there’s no sign of improvement, cut ties and move on. Your revenue will thank you.
These are all standard distribution practices, regardless of what industry you are in. There’s no point to having a controlled distribution strategy if you’re distributing to somebody that doesn’t itself have a controlled distribution strategy! Keep that in mind - your distribution is only as good as its weakest link. Often, with opaque wholesalers, you may never even know where that weakest link lies!