Beyond the Hotel Performance, How to Identify a Correct Hotel Competitive Set?

By.  Ahmed Mahmoud 01st Jun 2015

Accurately identifying a competitive set is important for a hotel market study because the data provide both a more accurate perspective on a hotel’s historical operating performance and a basis for projecting a hotel’s future performance. The competitive set provides a context for understanding a hotel’s relative occupancy, average daily rate (ADR) and the revenue per available rooms (RevPar) performance and also establishes a baseline for and constraints on the projection of a hotel’s future operating potential. In essence, the determination of a competitive set allows for supply and demand trends in the market to be quantified, which in turn enables a more reasonable projection of future performance and a more accurate assessment of actual performance.

The Hotel Competitors

In the hotel industry, a Comp Set, or Competitive Set is a selection of other, competing hotels against which a property or chain measures its own performance.

The “Comp Set” term has a specific meaning in the hospitality industry – most hotels have a set of competitors that they use as a basis for competitor benchmarking. The results of year-over-year RevPAR share measurement take center stage in discussions between ownership, brands and operators; hence the numbers are highly visible and important.

The Hotel Comp Set

A hotel in any given area will not necessarily compete with all the hotels in that area for the same sources of demand. For a hotel market study, it is necessary to determine which hotels compete with the subject hotel and to what degree, and it is likewise important to eliminate those hotels that are not competing for the same demand. To this end, all the lodging facilities in a market area should be inspected and analyzed in order to support the selection of the appropriate competitive set.

“Comp Set” has a specific meaning in the hospitality industry – most hotels have a set of competitors that they use as a basis for competitor benchmarking, consists of a group of hotels by which a property can compare itself to the group’s aggregate performance. The choice of competitors impacts a hotel’s share performance, so the selection of the comp set usually involves careful negotiation between a hotel’s stakeholders. The objective of that negotiation is to find a “fair” comparison set for the hotel.

The Competitors Selection

When determining hotel true competitors always remembers there are your direct and indirect competitors, as there is a big difference between who you think your hotel should compete with and who it does compete with.

Sometimes being your hotel shows better figures or rankings than your competitors, doesn’t necessarily mean you’re overachieving or you are in good position. It might simply mean you’re in the wrong competitive set, on the other hand it could be the same case if your hotel show negative figures all the way round.

The choice of competitors impacts a hotel’s share performance, so the selection of the comp set usually involves careful negotiation between a hotel’s stakeholders.

When a hotel does the marketing plan they must remember why they formulate competitive sets in the first place, means when choosing the right and true competitors, hotels will help owners, GMs, and revenue managers to better understand their property’s “actual, honest performance” as benchmarked against competitors.

Inspirational comp sets can be helpful, but only if hoteliers are trying to keep tabs on the high end of the market, she said. The standard comp set should accurately reflect a hotel’s current level of performance.

Further, it has long been our belief that hotel comp set selection – typically a subjective process – lends itself to an analytical approach, based on the characteristics of the hotels in the market. To understand which hotels bookers consider as alternatives, our analysis should focus not on historical performance (into which bookers typically have no visibility) but rather the key attributes of location, hotel class, price, amenities, services, etc. Bookers are adept at using technology to filter searches based on these characteristics, so these ought to be the things that we analyze when we select comp sets.

Viewing your local competitors through the guests’ eyes can be a helpful exercise, “Know your competitors as well as they do or better. Know them through the guest eye”.

For example, if Hotel A does not typically consider Hotel B as a direct competitor, but Hotel B reflags, or radically changes its long-term pricing strategy bringing it into direct competition with Hotel A, then Hotel A should consider adding it to its comp set. The problem today is that no good mechanisms exist in the industry to scan for and recommend changes to hotels’ comp sets.

In order to analyze hotel attributes to define comp sets, we should focus on historical performance biases or historical benchmarking analysis where in some cases it is unhelpful ways. In particular, it limits our ability to identify true performance opportunities.

In particular hotels tend to prioritize “fair” competitors – i.e. hotels that are likely to achieve similar performance to them – above hotels with whom they compete directly for business. The best way to frame competitive analysis is to ask the question: “If somebody is considering booking this hotel, which other hotels are they most likely to be considering?”

Today the hotel industry reports exhaustively on the performance that a property achieved relative to the comp set that it selected for comparison. But to identify true opportunities, we must have a notion of the performance a hotel should expect to get. This is a blind spot in current industry metrics.

Let us say and in order to understand why this is an opportunity, imagine two hotels that compete directly with one another. If one of them were to reflag, or invest significantly in adding new services and amenities, it would no longer be appropriate to expect the two hotels to perform at parity. Yet industry metrics would treat the hotels as if nothing happened, creating the impression that one hotel is “out-performing” the other.

How Well Do You Know Your Competition?

In the real world, consumers have a wide range of hotels to choose from. Experienced managers know that just having a great hotel is no guarantee of success. There are managers who sit back and wait for success to come; and those who go out and grab it. Smaller properties can play with the big boys.

Smaller hotels need to borrow some techniques from chain institutions by first performing a simple competition analysis. There are many tools to do this, but the favorite is called an S.W.O.T report which compares your hotel’s strengths, weaknesses, opportunities, and threats.

This report goes beyond the normal quantity and quality of rooms/rates and other physical attributes; it also includes a comparison of management styles, sales talent, operating limitations, web site popularity and productivity, and front desk staff.

An honest appraisal of your hotel as compared to your competition will reveal and suggest many ways to improve your position in the marketplace. From the S.W.O.T. report, you will be able to define your comparative strengths and develop your recipe to exploit them.

Hotel Compete uses its process to monitor when a hotel has moved in or out of a hotel’s comp set for more than three weeks in succession. If the changes in market dynamics appear to be permanent – ie not attributable to a temporary blip – then a change to the comp set can be recommended to users.

This process provides a good test for the quality of hotels’ STR comp sets, because the more reflective of current market conditions a comp set is, the fewer comp set changes should be recommended.

Think Out of the Box – “Beyond the Local Market”

Since the hotel industry is becoming more and more complex, we should devolve our strategy by responding to the global changes in the market trend by looking outside our local markets to competitors in the broader global and online communities.

It is not only you need to look at your pricing and your ranking and positioning in your hotel, but also your ranking and positioning out in the wider world, you also need to increasingly start looking at your hotel “reputation.”

We must consider social media, OTAs and TripAdvisor in any comp set analysis, establishing multiple comp sets “direct and indirect” can help hoteliers gauge performance on a regional or national level, if a property has an extremely large convention space, for example, it would make sense for that property to benchmark against a handful of similar properties throughout the country.

Once you understand your true competitors you can better evaluate your performance and, more importantly, better anticipate market actions toward travelling on certain days, within certain seasons and among certain segments as well as market reactions to rate levels and fluctuation. This will allow you to use your performance ranking to not only know where you stand, but more importantly to improve revenue and profitability every day.

Having identified your true competitors, now you can accurately benchmark your performance. But don’t get discouraged if those initial findings put you below the market index average. Instead, see it as an opportunity to address weaknesses and begin stealing share. If your hotel is not able to achieve a relatively strong set because of lack of supply or other factors, STR Analytics’ Comp Set Suite can help you understand your set and how you fit within it. This in itself can have a huge impact on performance perspectives and positioning strategies.

Measure Your Hotel Performance vs Your Comp Set

A visual indication of the key success criteria those are important for the hotel business, for revenue management related areas, KPIs might include:

  • Revenue Generation Index (RGI), rank or change of rank vs. previous periods (i.e. last year or month)
  • Ranking: Your hotel’s performance is ranked against the other hotels in your competitive set. If your hotel’s RevPAR rank is “2 of 6,” that means your hotel’s RevPAR was second highest of the six hotels in your competitive set.
  • Index: The Index numbers compare the performance of the subject property to the comp set Subject Value / Comp Set Value * 100 A number greater than 100 means the subject property outperformed the comp set and a number below 100 means the comp set outperformed the subject property.

Index numbers are available for occupancy, ADR, RevPAR and the percent changes.

About  Ahmed Mahmoud

Ahmed Mahmoud has more than a decade of experience in the hospitality industry and business administration, Ahmed began his career early by holding a variety of management positions with such top hotel chains as Accor Hotels, Hyatt International and Starwood hotels. With decades of revenue management experience Ahmed founded the very dedicated site for revenue management news, articles,

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