The proactive and reactive way of leveraging competitive benchmark
Benchmarking is by definition the measurement of one company’s achievements compared to the standard, the best in class or the competitive set. It is used to understand the gaps in the organization’s processes to gain competitive advantage.
In the hotel industry, competitive benchmarking is leveraged in both a proactive and reactive way.
Proactive: measuring the future competitive benchmark rate (CBR)
In the current distribution landscape, comparing and measuring the hotel’s rate positioning to the competitive set is crucial. Revenue Management Systems (RMS) base their pricing logic on this, among many other factors. Even if you are not using a RMS, it is important to be aware and on top of the market rates at anytime, in order to drive the best possible RevPAR and market share for your property.
Determining your competitive set is the first step to be accomplished, if you are in doubt on what is your most significant set, I suggest you take a step back and reflect on the following:
- If you are struggling with the competitors’ choice, you will probably need to better understand and define your own current positioning and where you aspire to be next.
- Market vs Compset: the Market evolves, changes and accommodates all types of demand at the destination. The Compset evolves, changes but accommodates a specific, segmented demand.
- You cannot be everything, all the time. You must define your boundaries in terms of rate acceptance, channel, and market segment of your choice.
Once you define your significant competitive set, take your time to weigh each one of the properties within the set: by assigning different values to each competitor hotel – either generally or based on seasonality – you will make appropriate actions and avoid costly instinct decisions. How to calculate your Competitive Benchmark Rate: the easiest way is to simply assign a % value to each one your competitors, making 100% of the total.
Weighing the different average rates will return a competitive “averaged” rate, that is more balanced than a straight average of all rates in the market. The weighing can change according to season and/or day of the week as your competitors impact and segmentation mix can be different. Weighing and measuring CBR is crucial to make correct pricing decisions and pursue the correct strategy for your Hotel: with a clear positioning and a competitive awareness, you will lead rather than being a follower in the rate strategy.
Reactive (but Proactive at the same time): comparing with the KPIs of the compset
While on the proactive way of working with benchmarking, the focus is on the rate and oriented to the future by observing and responding to a dynamic and changing scenario; on the reactive way the focus is shifted to the past performance of the competitive set and its financial performance.
In revenue management, comparing your own hotel’s Key Performance Indicators (Occupancy, ADR and RevPAR) with the ones of the compset, will help you dive deeper than the visible published rate and understand the current strengths and opportunities you should work on, to further grow your revenues and market share.
The economic performance of the hotels is determined by a wide mix of factors that cannot be understood by the mere observance and measurement of the CBR, as it represents just one small visible portion of the top line strategy that is influenced by the elements that are not visible, but represent the ground factors and the foundations (product, moment, channel, segment and total revenue) of revenue generation. [for further information, refer to my previous post]
I always challenge the hotels, when they assume to know if their performance on a given time was positive or negative, by only comparing it with the previous period of reference or the previous year.
Is it really significant to compare your own performance with yourself, when the financial results in the hotel industry (and not only) are influenced by a complexity of factors?
These factors generally impact the economic results and can be resumed in one word: the market demand.
For instance, to celebrate for a +5% revenue increase year over year becomes bittersweet if you realise that the competitive set increased by +7% (and same logic applies in case of revenue decrease). By deep diving on our missed opportunities in terms of KPIs (occ%, rate), specific days of the week, segments…we can turn the reactive into a proactive way of benchmarking by studying and understanding our weaknesses to turn them into opportunities to work on, to improve and grow our revenues.
It is not only about CBR and Market Share only, many other factors should be taken into account if relevant to your competitive scenario – new openings, renovations, change in supply, transportation, currency exchange, events and fairs and so on – the journey to reach competitive awareness is never ending in a way that it constantly evolves and being on top of it is the key to succeed.
Competitive awareness is crucial to read your hotel’s performance and set the correct goals, adjust the strategy and grow by understanding opportunities and challenges based on your market.