How is currency conversion affecting your direct revenue opportunities?

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Alice Heath

Content Specialist

How is currency conversion affecting your direct revenue opportunities?

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There are several factors that affect rate-parity and ultimately your Rate Integrity, but currency conversion is not something you may usually think about. Across all our customers, we see regular disparity issues ranging from a 20%+ price difference to much smaller differences of between 1% and 5%. Often, we have found that these smaller disparities are largely due to currency conversion, especially with OTA bids on Meta sites.

 

 

The varying impact of price disparity

 

Prices that are out of parity by a larger magnitude will often, and rightly, attract more attention. On the other end of the spectrum, even though the percentage price difference may be small, you are still losing out on direct revenue opportunities. Your customers on online channels, specifically meta sites, are incredibly price sensitive and so when they see lower prices elsewhere this is where they will book, despite a price difference of perhaps only a few dollars.

 

This can particularly have a disproportionate impact when:

 

  • The Average Booking Values (ABV) are higher: a 1-5% price difference on a $700 average booking value is more significant than a small price difference on $200 so if you are a high-end brand, this sort of parity issue will affect you more.
  • Brand.com is consistently undercut across a large share of stay dates, channels and PoS (Point of Sale: the location your guests are booking from): even though the % of the price difference may be small, when guests see this happening consistently, it severely impacts the probability of direct bookings.

 

One of our users, a large hotel chain in Asia-Pacific contacted us recently as the observed they were being undercut by approximately 3% by a well known OTA nearly 80% of the time from multiple PoS. This was directly impacting their ability to achieve their forecasted direct bookings. They were able to use benchmarking reports showing this was occurring over a period of time and across multiple PoS, to prompt the OTA to investigate and fix this issue.

 

How currency conversion affects Rate Integrity

 

If a large proportion of your guests are international travellers, then currency conversion is likely to impact your Rate Integrity. Currency conversions happen at multiple points before your guests view your rates across different channels:

 

  1. You may be sending your rates to different channels in different currencies, and using a converter to calculate these rates.
  2. Your hotel website or booking engine may be using a currency converter to show rates in your guest's local currency.
  3. OTAs will typically receive your rates in one currency, but use a converter to show their users the rates in the local currency.
  4. When OTAs bid on Meta, they will send the rates in a specified currency, and Meta Search Engines will be converting these rates into their users’ local currency.

 

As a result, your rates can undergo more than one conversion before your guests ultimately see the rates. Each of these conversion tools may be using slightly different rates, depending on their configuration. Some services use the live currency rate when the price is shown, however, others use the last close price or the last daily average, so managing issues caused by currency conversion can be tricky.

 

However, as your guests are comparative shoppers, if they are seeing a lower rate on an OTA or Meta site, then it is likely this is where they will book, so it's essential to keep an eye on this. The difficulty then lies in managing issues such as these when you have multiple distribution channels to monitor. For this reason, more and more hotels are turning to tools to help them better manage their parity.

 

For example, one of our users noticed their direct rates were consistently out of parity in a specific PoS with all their indirect channels. When they investigated this further, they traced back to see that this started when they changed the currency conversion service they were using on Brand.com. They identified a faulty configuration and fixed it. Following that, their Rate Integrity returned to healthy levels.

 

How to handle currency conversion issues

 

When you encounter price disparities of small values, and if you suspect this may be as a result of currency conversion issues, here are some steps to consider:

  • Classify if the issue lies with your own conversion tool or with the OTA you are seeing the issue with. By checking your currency converter is configured correctly to match the current market, you can determine if this is an internal system issue you can fix by ensuring your currency converter tool is in sync with your OTA partners. As we saw with the case above, if it is misconfigured, the rates may be wrong on your site and correct on your partner's site.
  • Investigate from which PoS the currency conversion issue is coming from. If like the case mentioned above, it’s coming from multiple PoS, it may be an issue with your conversion tool. If the disparity is only in a specific POS then share the evidence with your OTA to highlight the issue and it may prompt them to review it.
  • Raise a query with your OTA partner about the disparity you are seeing. Especially if you are seeing it occurring frequently. By finding out which conversion tool they are using you can check if there is a mismatch in the rates and solve the problem this way.

 

There are still many challenges when trying to ensure parity across all your channels and achieve a higher Rate Integrity. Check that the tool or system you are using to monitor your distribution can correctly handle currency conversions across different Points of Sale that are important to you, as well as provide screenshot evidence to raise issues such as these with your partners. Careful and continuous review and action will help you get there and ultimately improve your net RevPAR.

 

Are you already using our Distribution Intelligence solution but would like more information on how to monitor issue such as these? Get in touch with your customer success manager who can talk you through the best practices and processes.