How do I choose a compset for my hotel?

Selecting your competitive set is essential to any hotel revenue management strategy as it allows hoteliers to understand their position in the market, as well as keep on top of rival pricing patterns and make sure they aren’t under- or overpricing their rooms.

So how do you identify your direct competitors? Here are some factors to consider:

Type of accommodation: How similar are they to your offering? If you run a single hotel with 50-90 rooms, you are not competing with a bed and breakfast around the corner. You are attracting very different types of travellers who are seeking a very different accommodation experience.
Hotel category: Which competitor hotels are in the same class or have the same star rating? Is your property a 3-star hotel, or does it fit in the upper upscale class? Comparing like for like is key, as guests will see your hotel listed in the same category as other similarly categorised hotels.
Proximity to your hotel: How close are they to your hotel? Are they in the same neighbourhood? If so, they are likely to be direct competitors, because travellers view location as one of the most important factors in choosing where to stay.
Quality of service: Are your staff formally trained and dressed? Or does your hotel offer a more personal, casual atmosphere? You need to compare apples with apples.
Business facilities: Does your hotel have a dedicated space for corporate meetings and groups? If so, then you need to consider the other hotels that have similar facilities and are therefore competing for the same type of business.
Leisure facilities: Similarly, does your hotel have leisure facilities? If so, consider how these compare to those of your competition - you may have a golf course, and they may have a casino, but you’re competing for the same affluent traveller dollars.

Multiple compsets

A good competitive set should have no more than 10 hotels, to make it easier to draw accurate conclusions from your price comparison analysis. Even with the factors above it can be hard to find even five competitors who are on exactly the same level of comparison within your area. This makes it useful to have a secondary competitive set such as the following:

Seasonal: Demand can vary across the year as well as different traveller segments. So, rather than putting your high season and low season compset into one, consider splitting them out.

Aspirational: Whether the aspirational second compset is used by you, or it is an often requested point of analysis by your General Managers and Owners for RGI score purposes, it’s never a bad idea to aim high. If you’re a 4-star hotel planning renovations or a full rebranding of your image, you’ll already want to compare your prices to future competitors as part of the repositioning process.

Reverse: You are selecting hotels to be in your competitive set based on a variety of reasons, but it may be relevant to look at the properties who consider your hotel as one of their benchmarked competitors. After all, your strategic rate decisions are impacting these competitors directly. Ask your benchmarking partners if they can give you access to your reverse competitive sets.

A final consideration is having a more dynamic approach to building competitive sets. With travellers comparing different hotels online before making a reservation, a task that is increasingly done via OTAs and metasearch, hotels are not only competing with each other, but with these third parties too. Plan a review of your competitive sets twice a year and don’t be afraid to change them. Make things easier by using a rate shopping tool that allows you to change your own competitive set.

Which KPIs do I use?

Hotel benchmarking tends to be done with the following KPIs:

Market Penetration Index (MPI). How does my occupancy compare to my market? MPI = Hotel Occupancy / Market Occupancy
Average Rate Index (ARI). How does my ADR compare to my market?
ARI = Hotel ADR / Market ADR
Revenue Generation Index (RGI). How does my RevPAR compare to my market? RGI = Hotel RevPAR / Market RevPAR

Scoring higher than 100 means a hotel is outperforming the market/competitive set. A strong RGI score is considered the most important indicator, as it combines both occupancy and ADR. Choosing which hotels to include in your compset is therefore a balancing act, as revenue managers may have different compset goals than hotel owners, who keep the RGI score in mind.