Hotels: Do you know what’s in your OTA contract?

Rate parity has been a hot button issue between hotels and online travel agencies (OTAs) in recent years, but there’s more to this growing tension than just two parties agreeing to maintain rates. Among hotels’ most common complaints against OTAs: high commission rates, brand hijacking in Google Adwords, and lack of control of any marketing or customer relationship management.

And when hotels try to implement solutions that might help them to level the playing field again, the biggest OTAs have flexed their muscles, sending hotels letters threatening legal action if they don’t comply with their “rules.”

What’s in these rules? We took a look at a few standard contracts from three different OTAs, and found some interesting clauses that hotels should take note of.

“[OTA] shall be entitled to give a discount on the room price at its own costs to its closed user group members.”

OTAs define a closed user group as one in which 1) consumers actively opt in to become a member, 2) any online interface used is password protected, 3) closed user members have completed a customer profile, and 4) any special rates are only offered to those who have made at least one prior booking.

This has become a way for OTAs to openly flout rate parity rules by creating their own customer loyalty programs (think Booking.com Genius, Expedia+, or Orbitz Rewards) and cutting into their commissions to offer lower prices to customers. OTAs make it especially easy to opt-in to their loyalty program—while making a booking, users are often encouraged to create a password to “unlock deals.”

For independent hotels who are not able to offer robust loyalty programs like branded hotels, this is especially hurtful. Hotels should insist on wording that OTA closed group discounts only be offered with their express permission or participation in a discount program.

“Direct Marketing to Guests. The Accommodation agrees not to specifically target Guests that have been obtained via [OTA] in either online or offline marketing promotions or solicited or unsolicited mail.”

Limiting guest marketing is a rather common clause in OTA contracts, but hotels should be very careful about how it’s worded. In one particular OTA contract, it states that the company shall “remain the data controller and owner of the Customer data at all times.”

Though it is fair for OTAs to manage initial bookings with new customers, OTAs should not have the right to own your guests forever. Hotels should insist upon an addendum clause that allows marketing to guests who have provided direct consent, usually at the time of the stay. (Note: this specific wording was written into one of the OTA contracts that we reviewed, but not all.)

“In no event shall [OTA] be liable to the Accommodation for any acts or omissions on the part of any Third Party platforms.”

Typically, hotels grant OTAs worldwide rights to use hotel’s intellectual property rights (i.e. photos, name, logo, hotel description, etc.) not only on their own sites, but on all their affiliate sites as well, including third-party sellers and metasearch sites.

The problem is when those affiliates try subversive tactics to make OTA rates appear lower than hotel rates. On one metasearch site, for example, we found a listing in which the hotel’s direct price was listed as $93, higher than the majority of the listed OTAs.

millennium-knickerbocker-kayak

Yet going to the hotel site, the price was indeed in parity with the other OTAs:

millennium-knickerbocker-site

Because of clauses such as the one above, there is little recourse for hotels to take action against the offending third party platform. A hotel’s only remedy is to request that the OTA disconnect them from the affiliate platform, but many OTAs do this at their discretion and do not have the contractual obligation to do so.

Hotels should insist upon clauses in their contracts that allow them to choose which OTA affiliates and owned metasearch channels they want to work with. At the very least, hotels should be granted the right to disconnect specifically with third-party platforms that do not adhere to the terms and conditions of the original OTA contract.

“[OTA] is entitled to promote the Accommodation using the Accommodation’s name(s) in online marketing, including email marketing and/or pay-per-click (PPC) advertising. [OTA] runs online marketing campaigns at its own costs and discretion.

The Accommodation agrees not to specifically target the [OTA] brand directly through keyword purchases that use [OTA’s] Intellectual Property Rights.”

Brand hijacking—the practice of OTAs bidding on hotel brand names in PPC campaigns, as illustrated below—is universally despised by hotels. Yet here it is, expressly written into the contract! And of course, OTAs are sure to insert a clause immediately after it saying that hotels cannot hijack their brand names.

Hotels should specifically insist against this practice in their OTA contracts. Furthermore, hotels should also take the necessary steps to trademark their hotel name (with the destination name), so that they can formally lodge a complaint with Google for any instances of brand hijacking.

driskill-google-search

Other legal protections to consider

It’s time that hotels realize how their own contracts with OTAs are creating a culture where they hold all the cards and can exert bullying tactics by threatening legal action any time the hotel does something they do not like. Hotels need to review their contracts carefully and insist upon clauses that will protect their interests in addition to the OTAs’. Here are some important points to consider:

Clarify intellectual property definitions

The name of your OTA partner and the rate at which it sells your hotel should not be considered the intellectual property of the OTA and should be clarified as such. As mentioned previously, many OTAs have free rein to use your hotel name name rate in advertising and publishing on third-party platforms, including on metasearch sites. Hotels should be allowed to do the same, using meta price-comparison tools on their own websites to give consumers the extra layer of transparency.

Insist on being able to use your hotel’s own best rate guarantee program

All the major OTAs offer best rate guarantees to their customers. Written into the OTA contract is a clause requiring that hotels honor any BRG claims made to the OTA. Essentially, if a user on an OTA site were to find a lower price on another site, the OTA would require the hotel to match the price.

Hotels should likewise insist that running their own best rate guarantee programs, whether price comparison and price matching are manually or automatically applied, is not a violation of the OTA’s rate parity rules.

Require transparency checks from the OTA

OTAs regularly use robots or their owned metasearch affiliates to “shop” their hotel partner sites for rate parity compliance. In return, OTAs must be transparent and allow hotels to do the same. Hotels should insist upon API access to an OTA and its affiliate sites that will allow the hotel to monitor rate parity. The API should allow checks by channel/device, length of stay, and geography.

Strength in numbers

Given the size and power of OTAs like Booking.com and Expedia, it’s hard to imagine that change will happen from the voices of a few. Hotels, both branded and independent, will need to work together and lobby for the necessary changes in their contracts that will protect them from bullying tactics from the OTAs and make them equal “partners” once again.

Gautam Lulla

Gautam Lulla

Gautam is CEO of Pegasus and an outspoken expert in hotel technology and distribution. When he's not busy disrupting the status quo, you can find him ripping powder on the slopes. Contact him at gautam@pegs.com.

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