How comparing yourself to others helps you adapt pricing
strategy and can really make you better.
GLOBAL REPORT – It’s important to remember that competitor
sets are not something the hotel sector has invented: Einstein got there first
with the Theory of Relativity. But what is true is that if hotels want
to improve and become the best they can be – which is what we all want – they need
to compare themselves with others.
For competitor sets to be effective and allow hotels to
identify every single opportunity within the market, properties must be
comparable. This means identifying a collection of hotels with which a property
competes for business. This has become an art – and ever-changing one – in itself.
Defining that set can start years before the hotel opens,
when the HMA is signed and the competitive set is agreed for the purposes of
the performance test. Fortunately, or unfortunately, during the intervening
period – sometimes more than five years – the market is likely to change. Therefore,
the hotel might need to have a second or even a third comp set to enable the
comparison of apples with apples. But to operate effectively and to truly know
how well you are doing, you must be prepared to frequently revise your
competitor set.
The hotel might need to have a second or even a third compset to enable the comparison of apples with apples. But to operate effectively and to truly know how well you are doing, you must be prepared to frequently revise your competitor set.
Dimitris Mittas
The most common comp set reports are the ones analyzing the
room revenue (with its main KPIs such as occupancy, average daily rate and
revenue per available room) and the one analyzing the costs.
The first category is instrumental in allowing the hotel
management to identify opportunities within the market. You can see whether
your property needs more guests on certain days of the week, or whether your
rate is correct versus the competition. You can determine whether your
competitors are stronger on the transient clients or groups, as well as whether
you achieve your fair share.
It also enables you to see their business on the books
versus yours, and as a result, you can adapt your pricing strategy. You can see
whether your competitors attract customers from countries willing to pay a higher
ADR. From the moment you define the demand within the city and where your
operation needs improvement, it is easy to set up a strategy. Your sales
department might need more travel, or more travel ads might be necessary for
digital sales. Of course, this doesn't mean that you can stop trying to improve
your fair share if you are performing well.
On the contrary, you never stop looking for opportunities,
as the sky is the limit. Often, when hotels perform well, they become
complacent. This is when an asset manager is important, pushing for more and
finding new opportunities in the market. This marks another moment to review
your comp set and add other hotels to help you improve further. To echo
football, it might be time to join the Super League.
In working example, a big concert is taking place in the
city, and the comp set shows the competition is full while your hotel still has
available rooms due to the high rates. You take the decision to take advantage
of the last-minute demand and leave rates unchanged. The supply was reducing;
however, the demand was still there. It was a great decision, as the property
ended with high occupancy and the best RevPAR in town for the concert days.
This also helped to rank first at the end of the month.
In another scenario the hotel is performing well in relation
to groups, but the transient business is weak compared to the competition. It
is understood that the competition is receiving a lot of clients from LATAM
countries. A new strategy is implemented, including recruiting a sales manager
located in the feeder market to improve the hotel’s presence and increase the
number of hotel sales visits to the area (trade shows, fairs, etc.). The result
of this strategy increases transient business in this market and improves
profitability.
Bear in mind that your target market can not only be within the city where you perform. The competitor of a hotel in Ibiza, Spain, could be a hotel in Mykonos, Greece, despite the physical distance.
Dimitris Mittas
The second category allows the hotel to track their
performance versus the comp set on the costs. This way, they can identify all
the areas of underperformance and implement the necessary measures to close the
gaps. For example, if you identify that your payroll is above your competitors,
you might revise your FTE or analyze the productivity.
For example, a hotel’s payroll percentage versus the comp set’s
is 5pp above, according to a HotStats report. This is discussed with the hotel
management and suggested they take measures to improve this percentage. A more
detailed review of the payroll takes place, as well as an analysis of the
productivity report, and after a couple of months, the decision is made to
reduce the hotel’s headcount. Some new vacancies were not filled in the
following months despite the volume increase. Changes to work schedules are
made, leading to a rise in productivity and reduced payroll costs.
Once you have this data, which should be analyzed monthly, the
hotel’s operations can be adapted. A strategy is set at the beginning of the
year with the budget, but the competitive set means the data is readily
available throughout the year and the strategy can be adapted to take advantage
of any new opportunities in the market.
In big cities such as New York, it is important to keep an
eye outside your comp set to better understand the market. Bear in mind that
your target market can not only be within the city where you perform. The
competitor of a hotel in Ibiza, Spain, could be a hotel in Mykonos, Greece,
despite the physical distance.
Utilize all the information and data to create flexible
targets and follow-up monthly with any necessary items.
Contributed by Dimitris Mittas, Global Asset Solutions,
Barcelona
The views and opinions expressed in this column do not
necessarily reflect the opinions of Hotel Investment Today or Northstar Travel
Group and its affiliated companies.