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How to select your perfect competitive set

Like any other business, hoteliers need to keep an eye on their competitor set if they want to make sure they’re keeping up with them. The aim is not to follow your competitors at every turn, but to monitor them to ensure you aren’t underpricing or overpricing your rooms.

Understanding your position in the market

Comparing your own position to the market is part of the foundation of developing a competitive pricing strategy. To benchmark your hotel’s position, it is advisable to use 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

If you score higher than 100, it means your hotel is receiving more than its fair share and is outperforming its 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.

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Identify your direct competitors

How do you identify who in your market you’re competing with? Do you rely on the compset created by your predecessor 5 years ago? Do you take the 5 hotels located closest to your own?

The basic identifier of a hotel that may be part of your competitive set is: If a traveller would consider another hotel instead of your hotel when visiting a city or location. There are some additional factors to consider when picking your competitive set:

  • 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.

Benefits of multiple compsets

A good competitive set should only include about 5 to 10 hotels. Any more and it becomes a challenge to draw actionable conclusions from your price comparison analysis. In reality, finding 5 competitors who are exactly on the same level of product and service quality in your area is nearly impossible.

Having a secondary competitive set comes in handy in this case. Consider whether any of these types of compsets are relevant for your hotel:

  • Seasons. Your hotel might cater to different traveller segments during different times of the year. Leisure travellers will choose your hotel for very different reasons from business travellers and travel more at different times. Rather than fitting your high season and low season compset together into one, split them out. That way you can have a primary competitive set for weekdays and high season, and a second compset for weekends, holidays and low season.
  • Proximity. Your primary compset should include some competitors based on their proximity to your hotel. However, it will not solely be composed out of your neighbouring hotels, but will include competitors further away but with an equal quality of service as yours. You could opt to have a secondary compset, only including the neighbouring hotels, or those further away, to complete the picture.
  • 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 compset. 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.

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Dynamic competitive sets

The internet has made markets and competition exponentially more dynamic. Travellers are comparing different hotels online before making a reservation, facilitated by the OTAs and various metasearch engines. Hotel brands are no longer only competing with other brands, but need to take a plethora of other competitors in mind. Tracking the right competitors and using dynamic competitive sets has therefore become crucial. Plan in a review session of your competitive set(s) twice a year, and don’t be afraid to change them.

Make your life easier and find a rateshopping tool like Rate Insight that allows you to change your own competitive set. If you’re keeping up with a dynamically changing market, so should your revenue management tech stack. Revenue Managers who make the most of their compsets will arrive at optimised pricing, and are ultimately able to maximise every revenue opportunity..

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