HENDERSONVILLE, Tennessee—In last week’s blog I discussed how important it is to have the right properties in your competitive set. Now I would like to address how which hotels you have in your comp set significantly affects an individual property’s evaluation of performance and also how it might affect brand or systemwide aggregations.
As I stated last week, one of the most frequent questions we get at STR from industry analysts is how come it seems that virtually every brand/company seems to be able to claim that they are able to outperform their competitive set. Such claims are most frequently associated not with the absolute measures of occupancy, average room rate and revenue per available room, but rather the relative change in each of those measures compared with a previous time period.
While it is statistically impossible for every company to outperform an aggregate of its competitive set, there are several factors that can make this seemingly improbable statement a reality. First and foremost is the composition of each company’s or brand’s competitive set. If, for whatever reason, a property’s competitive set is not composed of true competitors, then a bias is certain to exist when aggregating all of one’s property’s competitive set.
For example, there are many legitimate cases where, especially those at the high end of the price spectrum, there simply are no true competitors in geographic proximity to include. In a case like this, the property has two options. First is to go outside normal geographic boundaries to select properties whose attributes more closely reflect the host hotel. The second, and much more common option, is to just pick the closest properties regardless of comparability. If this is done and lower priced product is selected, then a built-in positive bias is created. This bias is then exaggerated when that competitive grouping is aggregated with all the other competitive sets. This is especially true depending on how the competitive sets are aggregated by those who measure performance and what statistical measure is used.
When a brand’s or company’s properties and competitive sets are then aggregated to reveal systemwide performance, then property competitive-set bias is exaggerated in the roll up unless a method STR refers to as portfolio weighting is used. Portfolio weighing is where each property’s systemwide room share is also applied to the competitive set. For example, if a property represents 10 percent of the system room supply, that property’s competitive set is weighted at 10 percent in any roll.
If, for example, the common method of competitive set aggregation is used, which is simply summing up the rooms available, rooms sold and room revenue for all properties in all competitive sets, then the performance of an individual hotel versus an unusually large comp set has undue influence on the systemwide results. Again, if a hotel represents 10 percent of a brand’s portfolio but their comp set represents 20 percent of the aggregated sets, then that hotel’s performance carries undue influence in any roll up.
So, in conclusion, the hotels each property has in its comp set is not only critically important for property performance results but also for the brand and/or company.