Over the years there have been two questions we are repeatedly asked regarding competitive sets. The first, which typically comes from properties or brands in building their comp sets is, “Who should I put in my comp set?” The second, which most frequently comes from industry analysts, is “Why does every brand always beat their comp sets in either RevPAR Index or the relative change in their index number compared with last year?”
I’ll tackle the first question in this entry, and then next Friday I will address the more complicated second issue—why everyone can say “Winner, winner, chicken dinner!”
Typically, set the two main criteria for comp set selection by a property are geography and price. Basically, most properties tend to select competitors that are both closest to them and those that have a similar pricing structure. While this seems obvious and rational, is it always the most productive way to go?
For some properties the answer to that question is yes, but for most I suspect picking a truly competitive set of hotels, especially from a consumer decision making standpoint, is a bit hazier. This decision is even more complicated by such things as mix of business, quality of product and day of week patterns, to name a few. In addition, brand loyalty programs and consumer preferences must also be considered.
But perhaps one of the bigger emerging factors in making sure you have the right competitive set is the transparency of room rates that now exists on the Internet. With most hotel revenue managers convinced that every guest is shopping every one of their competitors for every room every night, it is clear that when you react to price movements by any or all of your competitors you’d better be sure they really are your competitors!
Having a truly reflective competitive set is especially critical in today’s environment where it seems that the industry has collectively embraced the strategy of price being the main differentiator between them and their competitive set. If you’re reacting to pricing decisions at property that is not actually competing with you for guests, it’s not only a waste of time and energy, but also hurting the bottom line. Indeed, if each property was basing pricing decisions on its true competitors, I suspect ADR declines would not be as steep.
With these comments in mind, STR is currently working on creating statistical models to help identify a property’s true competitors.