Wednesday, March 19, 2008

I don't agree that BAR is a brand building activity for Chains

I have been keeping a watch on the stories coming out of EyeforTravel Travel Distribution Summit this week. In one story (via eTravel Blackboard) Revenue Bosses from top hotels are talking about the important role that Best Available Rate (BAR) or Best Rate Guarantees (BRG) (why have one acronym when you can have two) have in the building and maintaining of a hotel brand.

Maunik Thacker of the Venetian Macau is quoted outright as saying "Rate parity builds loyalty and trust in the brand".

I don't agree. Building and owning a brand is about so much more than just beating everyone up in the distribution chain to ensure a single price. Have a look at the Interbrand list of top global brand. Almost every single one of them charges different prices to consumers based on the channel. Here are some examples of channel based price differentiation from the top ten list:
  • Coca-Cola, the number one brand in the world, charges more for a cold 600ml bottle at my local super market than it does for a warm 2 litre bottle. This is charging more in the same store for less. It does this because it uses a non-price based differentiator (cold versus warm);
  • Nokia is the number one consumer electronics magazine. I can buy a top of the range Nokia N95 out of the box with a price range of $512-700. That is a variance of almost 50%. If I sign up for a contract I can get it for a little as US$20 per month (ie around $140 for the handset); and
  • Disney, the biggest entertainment brand in the world, let's retailers set the price on almost anything they sell.
The most successful brands on the planet use price discrimination and market segmentation to enhance their brand and the proof is in the brand valuations. Consumers love the Coke brand even though it is five times more expensive to buy it at the movie theatre than the supermarket. Yet in the hotel business the Chains argue the opposite. Maybe there is a reason there are no hotel brands in the global top 100 brands. Instead of beating up over BAR Chains should be using price and product as flexible tool for distribution management - just like the top global brands do.

PS - have look at the bottom of the article where (the now TUI owned) asiarooms is singled out for breaking the rules. This gives the answer to the commenter on an earlier post who asked why I called asiarooms infamous.

Photo ukdenners


Anonymous said...

I cant give you my identity but in all our Hotels the use of BAR rate across all our selling channels is insufficient to properly manage and control multiple distribution channels, especially where our cost of channel varies and also where there are other factors affecting what, when, and how much each channel can sell.

When will these people get of the retorical band wagon

Tim Hughes said...

BAR are hand cuffs for a hotel not brand building. Why would you give the same price and margin to a provider that is doing domestic bookings at an average of 1.8 days as against an inbound provider bringing high F&B spending Japanese versus a long stay online provider doing 3 plus nights a stay versus dedicated, loyal customers that only book direct. This is not brand building.

This is not to confuse rate parity with BAR. Just like Supermarket A can demand the same price as Supermarket B for cans of Coke so too can intermediaries battle for rate parity. But this is different to a blind insistence of BAR in the name of brand building.

Anonymous said...

Yes, distribution, pricing and market segmentation are all tied together in the marketing mix of any product.

However, the changing of prices for different customers is controversial, as you have noted. Personally I consider it unethical.

But I believe that offering different versions of a product for different prices is perfectly acceptable.

For instance I may offer e-book, paper back and hard cover versions of a book, with each selling for a different price although all contain the same content.

The question is whether BAR is selling the same product or a different version of the product.

twin said...

I don’t agree that the intention is to beat up the distributors on price. Though I do feel there is an intention to commoditize the OTAs by selling a consistent rate across those channels. The focus of the article was on wholesalers undercutting a property’s own site. Hotels want to maximize the revenue they get from on-line distribution and push their bookings to their cheapest channels. That intention does not disallow price discrimination based upon added value.

Your Nokia example is an example of an ancillary spends impacting the product price. You can still price on added value and maintain rate parity. For example, a hotel can price on the average LOS or F&B and still have rate parity across channels. In your example the domestic/1.8 stays should pay more than the high ancillary spend foreign traveler. So long as the pricing rule is applied equally to all channels you’ve achieved rate parity.

Your example of buying warm Coke vs. cold Coke is akin to selling a Standard Room w/ a city view vs. a Standard Room with an ocean view. There is an additional value with the cold Coke/ocean view and that value is reflected in the price of both products.

Anonymous said...

Tim, the best posting I have seen this year. And I fully agee with you.

BAR is not a brand building activity.

Why do we think that things work differently in our industry then in the rest of the world? Have we done proper research to prove our point of view or are we using the chrystal ball technique?

Looking at the strategies of the leading global brands maybe we should condiser price discrimination in the hotel and travel industry. Why not price by economic buying power in a country? We used to have different prices for tour operators from various countries. What was wrong with this?

For instance now that the US$ is dropping vs. the €uro should we maintain the same prices as a Europen hotel or should we adjust our prices for the US market to remain affordable?

Rate parity by the way is something that is being pursued by IDS' to make their life easy. They do not have to compete with other online agencies anymore or the hotel websites. It saves hem a lot of work.

I totally believe in price segmentation...

Anonymous said...

re your comment on changing prices for different customers being unethical...every multinational does it...see the Economist's famous Big Mac index showing the price of a Big Mac around the cannot be a capitalist and a communist at the same time...and big business prefers capitalism. In that case it is for the consumer to investigate and get the best rate out there.

Anonymous said...

I think one things for sure - we need to be clear about definitions here. For most hotel clients that I talk to, the BAR is the best visible consumer rate. That is, if its comparable, normally via the internet, then the if its being run well BAR equals price parity.

I've got to say that I (for perhaps the first time in my life) disagree with Tim on this occassion. Firstly , the lack of a large hotel brand in the top brands in the world speaks more about the fragmentation of the travel market than it does of the evolution of thinking behind pricing of hotels. Secondly, i've seen the online brand of hotel chains harmed deeply by a lack of understanding of price parity for direct bookings vs distribution (you speak of BAR not being price parity in your comments, but I am convinced that in practice the effect of running a strong BAR strategy means price parity across the internet distribution.)

Lastly (and i'll admit that perhaps i've missed something here becuase i'm confused) ALL hotels run multiple prices across multiple distribution channels and probably always will. By this I mean one rate for corporate group A, one for group B, one for online B2C and direct B2C, one for tour operator x, another for consortium y. Since when did hotels not charge different prices depending on the importance (strategic or otherwise) of different channels?

Anonymous said...

Is BRG (Tim, there’s a huge difference between BRG and BAR – BRG comes with penalties and rewards) a way for large franchise hotel chains to force their "value" onto their franchisees? What value does a 4,000 strong chain have today for a franchisee in Europe? You can distribute direct, cost effective and maintain parity. Do hotel chains offer marketing services? Some do. Do they offer distribution? Yes, but what’s the value vs. structured matrix distribution marketing? Do they offer brand values? Sure, but are they followed by all franchisees?

I really truly believe that heralding BRG as a marketing vehicle is fundamentally wrong and akin to price-fixing – yes, that awful expression that in the EU can cost you up to 10% of your turnover in fines. How can it be acceptable to fix the price of a hotel room but not of a car (Volkswagen example)???

Tim Hughes said...

BRG (and BAR) moves from being a hand-cuff to a keystone cop routine when involving franchise relationships (even more so with the members of consortia and representation groups). Franchisee/rep group members constantly go round behind the back of their head offices and provide "unacceptable" rates to distribution houses in breach of BRG/BAR rules. They do this because it makes sense in the local market, because it reflects the needs of the local hotel and dynamics of the distribution house. Then they both engage in a he said, she said style chase around the room accusing each other of breaking the rules. The franchisee/rep member accusing head office of not doing enough marketing and harming the business with crazy rules and the head office accusing the franchisee/rep member of undermining the "brand" strategy.

Brand is about building up an experience, hope and promise in a consumer's mind such there is a physcological hold on the consumer. A hold such the consumer feels like they are making the right choice in the choosing the brand - and making the wrong choice in choosing an alternative. It makes no sense to me to try to base a strategy to develop a physcological and emotional pull on an enforced pricing singularity (even if that singularly has some channel variation).

Anonymous said...

I have enjoyed reading this article Tim as well as I enjoyed reading comments. I should read your blog more often!

For me it's a "Do as I Say (BAR), not as I Do (price discrimination)" marketplace.

Just like Patrick said, it is easier for IDS to know that chains respect BAR.. At least they have the same price as their competitors and can focus on other things to differentiate themselves from the others (like offline advertising, SEO/SEM, service,etc.)

The question is WHY this rate parity "trend" is pursued by IDS.

Simple. If 3 online intermediaries shows 3 differents prices of the same hotel rate to the final consumer then the consumer will obviously grab the cheapest price and will certainly consider the 2 other online intermediaries as being expensive ones.

In other words, price discrimination will impact branding of the online intermediaries (as opposed to hotels) in the eye of the final consumer.

I believe that hotels should try to control and fix their rates according to the channel, its cost and its consumers. (price segmentation).

Tim Hughes said...

Sylvain - thanks for the comment. I am also a fan of your "Blog on Travel"