How representative is your STR competitive set?

HENDERSONVILLE, Tennessee—In this economic climate, hotels are looking everywhere for new demand sources. Customers, likewise, are considering different hotels than they had in the past because of tighter budgets, adjusted travel needs and different pricing strategies of hotels.

Generally speaking, it is not wise to change a Smith Travel Research competitive set during shifts in the market, as value is derived from gauging how the subject hotel indices change over time versus its competitive set. However, given the radical adjustments to the economic conditions of many markets with differing opinions on when the economy will recover, closely looking at that competitive set or looking at the behavior of other competitive sets might be prudent.

Here are a few suggestions on attributes you should consider when examining a STR competitive set. First, determine what attributes are the most important to your customers when selecting a hotel:

• price;
• location (close to where they are visiting, sights, offices);
• need/preference for restaurant or room service in the hotel;
• meeting space;
• complimentary breakfast ;
• hotel loyalty program;
• other full-service amenities/services, such as bellman or concierge;
• or fpecific brand or hotel personal preference.

To verify that that a competitive set is current, operators can ask in-house guests what other hotels they considered for that stay and why. If many of the guests only considered the hotel they stayed in because of hotel or brand loyalty, severe rate discounting becomes less necessary in pricing strategies. 

However, if many lower-scaled hotels are creeping into a hotel guest’s consideration set, a knee-jerk reaction would be to start pricing to compete with those lower-rated hotels. It is a good idea to know your market and how other hotels in your market are pricing themselves. However, what do operators do with that information?

Example

Recently, an upper-upscale chain hotel added another STR competitive set to their monthly STAR reports. Their primary (original) competitive set has one upscale and five upper upscale properties in it. Their secondary (new) competitive set has three upscale and three midscale-without-food-and-beverage hotels.   

In reviewing the two competitive sets, annual average daily rate variances range from US$9 – US$13. However, occupancy variances range from 3 to 10 points. In this market, the upscale and midscale without F&B competitive set reflected consistently higher occupancies, at (as expected) lower rates than the upper upscale-dominated competitive set. 

All data provided by STR.

Time will tell if this upper-upscale hotel will start looking at the second competitive set and conclude that reducing its rate will create demand by stealing business from upscale and midscale properties or if it will manage its rates at distinct premium over the lower-scale hotels.