BOULDER, Colorado—Our industry is accustomed to reviewing and measuring hotel performance in macro terms on a monthly, quarterly or annual basis. However, the industry is actually a micro market with a competitive product that perishes and renews every single night.
Much can be learned by measuring the individual competitive interactions between hotels on a nightly basis. Therefore, while owners, investors and lenders primarily are concerned with the performance of their hotel relative
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Greg Hartmann
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Orly Ripmaster
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to macro market standards, hotel operators, brands and revenue and asset managers must focus on the interactions of occupancy, average daily rate and revenue per available room relative to their competition each night.
Furthermore, these nightly market performance metrics are more complex than an average of five or six competitive properties. While an average provides a standard, recognizable benchmark, the actual performance is a range, or a “bandwidth” of highs, lows and performances in between among each individual competitor on an overall or sometimes segmented group and transient basis. For example, if your property competes with four other comparably sized hotels and two competitors achieved a RevPAR double yours while on the same night the other two competitors achieved a RevPAR half of yours, you may be under the impression that you maximized your revenue that night achieving 100 percent RevPAR penetration. This average performance is graphed in Figure 1 in the RevPAR bandwidth analysis. The orange line represents a performance analogous to an overall 100 percent RevPAR penetration factor, or a ranking of three out of five.
Figure 1: Sample RevPAR Bandwidth Analysis: Sample Focus Service Hotel- Month of November 2009
Click image to enlarge.
The graph above illustrates the RevPAR bandwidth of a Competitive Set, represented by the shaded area, excluding the subject property, which is represented by the orange line. On any given night the maximum RevPAR achieved in the market is the top of the shaded area, while the lowest RevPAR achieved is the bottom of the shaded area. Days when the orange line is above the grey area, the subject property achieved the highest RevPAR that night, and vice versa. The respective market maximum and minimum values are achieved by various competitors on different nights and do not represent the same property, preserving the confidentiality of the data and individual competitors performance metrics. It is important to note that if a particular market consistently has a market leader or a market lagger; a similar graph will not be available for that market, as it will not pass the market confidentiality parameters.
Without disclosing an individual property’s performance, the bandwidth analysis quantifies the hotel’s ranking and reveals that even with a 100-percent penetration performance, certain competitors substantially outperform and others dramatically underperform the subject property. In a month like November, occupancy often varies dramatically, creating a considerable swing in RevPAR for all the hotels in the comp set. This pattern was typically followed by the subject property in the example above. However, on certain nights in which the subject achieved 100 percent RevPAR penetration, it only slightly underperformed the market leader (21 November) and on other nights in which the subject achieved 100 percent penetration, it substantially underperformed the market leader (17 November).
Presuming the selected competitors are reasonably comparable to the subject, the previously outlined situation would indicate that the subject property may be leaving thousands to tens of thousands of dollars on the table numerous nights a month and potentially millions over the course of a year by discounting rates on nights that did not achieve increased occupancy over other competitors and/or by not raising prices on nights in which demand for individual hotels in the market was not affected by price.
Bandwidth Analysis helps management have a much stronger market understanding and gauge the timing and effectiveness of a particular pricing strategy, group booking, market positioning and promotional campaign by comparing performance to individual competitors rather than relative to the mean.
Bandwidth Analytics also enables the operator to quantify what the true potential revenue gain (or loss) that a hotel can realistically achieve by understanding the breadth of market performance within which they compete. This potential is represented by the gap in the subject performance and the top performance achieved in your market on a nightly basis, which is quantified in Figure 2.
Figure 2: Sample Potential Gain Table
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Sample Focus Service Hotel - Month of November 2009
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| Current month potential revenue gain |
US$89,792.68 |
| Year-to-date potential revenue gain |
US$2,155,024.38 |
Once again, assuming a reasonable comp set, if one hotel in your set could achieve a certain level of performance one night, your hotel has at least the opportunity to achieve that same level, through improved sales and marketing, facility promotion or yield management. If that is not the case, and an inferior location, limited amenities or a less desirable guest loyalty program prevents your hotel from ever achieving the top spot in your comp set for at least a few nights per month, perhaps your competitive set is too broad or no longer truly represents your primary competition.
This new benchmarking tool, among other types of analyses, is available on a customized basis to help owners and operators have an elevated understanding of their competitive market. Furthermore, if a competitive market has changed over time, especially in light of the recent economic recession, then this analysis and other competitive analytics are particularly useful in establishing the most relevant and influential competitive set for your hotel(s). STR Analytics can determine if there are stronger competitors in the market with whom you should be tracking your performance or additional competitors who will increase the statistical relevance of the competitive set as a whole, which will ultimately have a significant impact on what you can learn from your market performance and competitive relationships.
For further information regarding Bandwidth Analysis, Alternative Competitive Sets and other products produced by STR Analytics, please contact Greg Hartmann or Orly Ripmaster at STR Analytics at 303-396-1641 or e-mail us at info@STRanalytics.com.
