Benchmarking: Moving beyond traditional comp sets and year over year comparison
15 experts shared their view
For years, revenue managers used historical data as a "compass" to navigate rates and inventory. Due to the pandemic, however, historical data lost much of their relevance, as 2020 and 2021 were statistical anomalies, to say the least. In this scenario, other information became more important, such as on-the-books reservations, pick-up, pace, and, of course, comp set. Some hotels have closed and consumer behavior has shifted.
The challenge,
however, is how to clearly identify the proper comp set
: is there only one or multiple competitors?
How should a hotel judge it's performance, when most of the traditional KPIs have become meaningless?
Benchmarking, a new Concept of COMP SET
Just like “video killed the radio star”, COVID has killed several of our favorite KPIs. Most Revenue Managers would probably agree that the Comp Set and the STLY (same time last year) comparison are two of the most noteworthy.
In the case of the competitive set, our needs have changed, and so should they. When markets are relatively stable, the old-school 5-7 most direct competitors worked great. We had a basic understanding of the market conditions, and it told us whether our hotel was winning or losing, compared to the other hotels whose “tool box” was close to or identical to ours. Not unlike the way most youth sports are split by age groups. For most hotels, the goal was to exceed “fair share.”
In this current period of wildly fluctuating demand, however, we need more than just a report card. We need to know what's going on around us and this narrow focus can't tell us the whole picture. Jump on any metasearch site and look at the options that come up when performing a basic search for your market. From this perspective most hotels have way more viable competitors. When it comes to the STR report, it might be enough to shift more focus to the Sub-Market and Scale/Chain segment data, but for hotels using forward looking tools like rate shoppers and market demand tools, the broader, market-based view is an absolute must.
The problem with STLY is that it has LAST YEAR in it! Fluctuating travel restrictions, second and third waves, and hotel closures combine to create so many compound fluctuations, no one could keep track of them. One more reason to forget about 2020.
Many hoteliers are now using 2019 as a “pre-COVID” baseline. Most hotels I have looked at are tracking very consistently when compared to 2019, and after applying a factor for recovery, it is proving to be an extremely accurate benchmark for forecasting. When it comes to judging current performance, smart hoteliers are comparing current results to the previous month and looking at different arrival dates from the same DBA (days before arrival) perspective.
If there is one thing we know, it is most likely that we know nothing at all anymore. We do not know which border will open or close tomorrow due to a newly spotted variant. We do not know who will be our guest two weeks, three weeks, let alone a month from now, and we do not know who we will be competing with for those guests. Or do we?
Coming out of Covid, the traveller has a lot of choice as occupancies are rather low across most markets. The travellers' plans are more domestically oriented than ever before, meaning they also compare hotels differently than your pre-pandemic corporate international traveler. If we want to understand what that means to the concept of competition, we need to understand who these travellers are, what they value, and how they make decisions. This consumer-centric approach should sit at the core of the comp set selection. Who are travellers actually looking at before booking us? Those are the hotels that might be stealing guests in the decision making process if we are not priced properly or have not invested in our exposure. Just like current times, competitive sets are dynamic and they will and must change in line with the travellers that are interested to travel right now.
The traditional competitive set selection process in the US has always been driven by financial models, which are developed to satisfy financing and banking requirements. As such, they are usually based on aspirational comp sets in order to show future growth opportunity and return on investment. Regardless, hotels should always have external validation to compare their performance as opposed to only looking at year-over-year factors and get a true measure of current market conditions. In order to determine a relevant comp set, however, hotels should consider the following areas: number of rooms, location & distance from the property, meeting space square footage, and property type or class. However, reality is that in very few instances you can come up with a perfect competitive set of hotels where all properties equally compete on all market segments.
In most cases, hotels compete with different hotels on different market segments, such as Corporate, Transient, OTA, FIT, Group Association or SMERF. Hotels should identify these sub comp sets and create targeted strategies to compete at each level. As the competitive landscape changes, so should the selected competitors. Companies such as STR, Kalibri Labs, and others have developed a number of tools and reporting to do just that, which help our hotels determine how to maximize their revenue streams better than our competitors.
With the pandemic, the competitive set has become more fluid and broader than ever.
Some segments and target customers have shifted their preferences from hotels to vacation rentals, from the city center to the outskirts, from long-haul to short-haul travel, and vice versa. Rate dumping is being experienced in many destinations, with the result that many hotels found themselves fighting on price with unexpected competitors.
Due to all this, the traditional “financial compset” needs to sit next to a new "reference compset" that hotels might want to build and look at for commercial and strategic purposes, to better understand and convert the demand.
We need to question ourselves more and rethink our competition: we have much more competitors, fewer demand segments, and those same demand segments still on the go are presented with a broader supply that could respond to their changing preferences.
If we don't change our point of view, we could become our own worst enemy.
We must develop a more critical and broader approach to who our competitors are. With Airbnb's IPO and data trends showing that vacation rentals are on the rise, we need to be less picky and recognize that the world has changed.
It's not a matter of fishing where the fishes thus compromising your own positioning but adapting to the changes in consumer behavior and on the commercial side benchmark on the source, segment, nationality, channel for instance.
On the financial side, focus on new KPIs for the benchmark that go beyond the traditional room revenue indexes such as RevPAG, GOPPAR, TrevPAR, ProfitPAR and develop a greater awareness of competitors vs market vs destinations.
Today, every hotel in the world has not one, but three categories of direct competitors.
- Official Comp Set
This is your traditional comp set, included in the property's dSTAR Report by STR or rate shopping report by Fornova. These reports provide real value by benchmarking how well your property is performing against the “official” competition.
Unfortunately, monitoring and benchmarking only this “official” comp set is no longer sufficient. There are two additional categories of competitors that are after your property's business 24/7 and their effectiveness in taking market share from your property quite often far exceeds the one of your official comp set.
Here are these two additional categories of direct competitors you should be especially worried about:
- Your Property's Digital Comp Set
These are properties that dominate the search engine results pages (SERPs) on the search engines for keyword terms that are very relevant to your property's product. If you are a boutique hotel in downtown Houston, search Google using the keyword term “boutique hotel downtown Houston”. If you are a 4-star hotel near Hyde Park in London, do the same and search Google for “4-star hotels near Hyde Park in London”. Do a similar exercise if you a hotel with a rooftop bar in Manhattan. Or a spa hotel on the Magnificent Mile in Chicago.
Your digital competitors are all the properties with comparable to your property core services and amenities that rank on top or above your property in the SERPs. Most likely these properties are not part of your “official” comp set. Since Google “owns” the Dreaming and Planning Phases of the Digital Customer Journey, and more recently is increasing very aggressively its presence in the Booking Phase, you are losing more potential guests to your digital competitors than to your dSTAR comp set.
- Vacation Rental Competitors
Vacation rentals now constitute almost one third of reservations for accommodations in your area. In 2020, Airbnb and Vrbo accounted for 29% of total lodging revenue in the U.S. and elsewhere. Add to that vacation rental reservations via Booking's global portfolio of over 6 million properties and …you get the picture.
So, in addition to monitoring and benchmarking your “classic” and digital competitors, you should monitor closely Airbnb's, Vrbo's and other vacation rental properties in your market. Research and identify the rental properties in your neighbourhood, and what are their typical amenities and features. Identify your property's value proposition and create a list of all of your property's amenities, services and attributes that, in your view, are better than the average vacation rental in your area. Then review and update the property descriptions on the hotel website, social media profiles, CRS and WBE descriptions, directory listings, GMB, and promotional materials.
Make sure to educate your staff about the key advantages your property has over the vacation rentals in the area: from better location to no cleaning fees to better cleanliness protocols and really high-speed WIFI and free breakfast.
Introduce weekly and monthly rates for both rooms and suites. How many hotels offer rates for extended stays which are favoured by travel consumers in the current pandemic? A weekly rate is NOT a daily rate multiplied by seven. A monthly rate is NOT a nightly rate multiplied by 30! Make sure that your CRS, WBE (Website Booking Engine) and Channel Manager can support weekly and monthly rates and fire them if they can't.
And of course, take the pricing of all three comp sets into account in your revenue management practices and ask your Rate Shopping business intelligence vendor and your revenue management system vendors to automate this process.
When thinking about comp set there are two points that come to mind. The first one being the flexible nature of a hotel's comp set. The hospitality landscape is ever evolving and with new accommodation-, workspace- and function space providers on the rise things are moving quickly. Secondly, it's important to take a look at the big picture as you might be surprised to see with whom you are competing. In Meetings & Events you sell square meters (or ft, of course 😉 ). The competing sqm's could be located at a nearby hotel or they might be located at the nearest WeWork. Commercial real-estate providers will see office space freeing up with more people that will continue to work from home. Will they introduce some event- or meeting space as well? The best way to find out who you're competing with is to ask potential guests and organizers which other parties they are considering. Doing so will allow you to send out the most competitive offer.
If you want to benchmark KPI's it's important to compare apples to apples. I've had interesting conversations about Meeting Room Occupancy. It's almost impossible to calculate correctly as you are selling per hour or day-part. In Meetings & Events “revenue per available square meter” is a straightforward option that leaves little room for interpretation and error.
Finding the 'correct' comp-set is a real challenge. Hotels often pick nearby hotels as their comp-set, which makes sense but can also be misleading.
Starting from basics, the comp-set would ideally be a group of 5 or more hotels that are in the same location, with similar guest-profiles, similar facilities and similar marketing capabilities. However in reality, this is not possible - and even if it was, maybe the market is a bit crowded and it would make sense to differentiate your hotel a little more!
Exact location is very important if you are next to a conference center, but less important if you are near a beach on an island with a lot of beaches. Even in cities, many visitors just want to be reasonably central and near a tube station.
If you just take the nearest hotels, then you may find you do better or worse than the comp-set for reasons that are beyond your control. And in these times, these differences can be exacerbated.
A business hotel benchmarking against a leisure hotel may find that post-Corona they do worse through no fault of their own. A hotel with separate apartments may do better as people value the social distancing. A hotel that has spent a lot on marketing may do better as they attract new guests to the area. A hotel with tour operator or corporate contracts will do differently to a hotel without. You get the idea.
The point being that you usually cannot get perfect individual hotels as competitors. But by combining you can create a good proxy. A good comp-set should be a mix of hotels with similar attributes and similar location that individually have differences to yours, but together form a good picture of your demand.
Traditionally, Hotels used to compare themselves with the usual 4-5 hotels which were similar in terms of category, price range or location. That was the norm before the pandemic hit. Since then, much has changed, and I would like to focus on the new comp set that many are not targeting: short term alternative accommodation, being Airbnb the biggest player.
Social distancing has been a key factor for many corporate clients to start choosing apartments (be it serviced or independent) over hotels. And they are liking it: remote and contactless check in, no queues or unnecessary waits, complete privacy and extra space. Besides, the time it takes for food delivery to the apartment is not longer than the usual Hotel room service.
As STR numbers have been showing, short term rental occupancy levels have been outperforming hotels during the pandemic. Many hotels are losing large numbers of regular customers to this relatively new supply of accommodation. And they might not even realize as they continue to focus on their "traditional" comp set.
Moving forward, Hotels will have to rethink who really are their current competitors, and in most cases, certain alternative accommodation will need to be added to the list, taking the place of underperforming hotels nearby. Technology is already offering these data (AirDNA, OTAInsight,...), it's a matter of being aware and reacting on time.
Where pre-Covid the hospitality industry was largely predictable with the same as always competitors on the block, similar guest booking behaviours and reliable feeder markets, today's environment is in stark contrast.
The market has been shaken up in every which way possible, led by a few drivers. Many old competitors closed their properties for months and some will never reopen, feeder markets will change from week to week - with city center hotels where business travelers used to be the staple clientele are now coveting leisure guests, and vacation rental platforms such as AirBnB and Vrbo have now become a bona fide competitor to hotels, after having been exposed to a much wider audience during the pandemic.
All this means that hotels must up their game - by selecting the most relevant comp set if they want to gain a competitive advantage.
Be clear on who is in each comp set
Firstly - don't have one comp set. Hotels need to benchmark themselves against multiple comp sets - those who fall into a lower category that they would place themselves, those who are on par with little to distinguish themselves, those competing on verticals such as business or leisure markets, even seasonal differences and non-direct competitors such as restaurants and other venues.
Hotels must make time to map these differing competitors out so that they have a clear idea of who they are up against to effectively benchmark them against key price value matrix indicators such as price, ratings, reviews, visibility, cancellations, and production.
How is the benchmarking done?
Broadly speaking there are two ways to benchmark. Firstly, data where hotels opt-in to platforms such as STR, TravelClick and HotStats and share performance information to enable an average comp set benchmark to be generated. Secondly, competitive intelligence / rate shopping platforms where insights are scraped from OTA websites. Both provide useful data, but in order to be effective hotels need to be clear on how and why they are using the data.
Another valuable source of information
Where OTA data really comes into its own is if hotels can access the OTAs' extranets. At Fornova, we have found many of our clients have benefited from this hugely underutilised source of information which provides a window into conversion rates, whether the room was bought as part of a package deal, the average booking window, lengths or stay and source countries.
As the recovery from the pandemic takes hold, having a competitive intelligence tool or rate shopper that can easily change and track rate from any location, or guest country of origin a.k.a. point of sale, is crucial to tracking your comp set in critical feeder markets.
It has always been crucial to know your competitors and to be aware of their pricing strategy in order to have a clear understanding of what is happening in the market and how your property is positioned in it. At the same time, that data has never been the ultimate indicator of demand fluctuations that hotels should be using to build their own strategy, and it never will be.
Years ago I wrote an article "5 reasons NOT to follow your competitors' prices" where I explained the reasoning behind that claim. Here is a short summary:
1. We have to assume that the hotel selected a proper compset.
Hotels still use their gut feeling instead of real data to come up with a set of properties that they consider their competition in the market. It is still a problem and a very significant one. OTA's have been trying to solve it by providing data that shows which hotels travelers actually look at when they consider your property. That list is very often different from what you see on your STR report.2. Then we have to assume that the competitors actually know what they're doing (i.e. they're properly following demand fluctuations and are instantly reacting to these fluctuations with accurate and optimal pricing). Can you say that about each hotel in your compset? Definitely not. Based on the latest Skift research, only about 16% of the hotels in the world are using an RMS tool. (Insert "blind leading the blind" gif :)
3. Your competitors may have group/corporate business that you don't. They have less rooms to fill by transient segment, which means they can afford raising their rates. You can't. The opposite may also be true.
4. There's no such thing as fixed compset. Your true compset constantly changes. It is very dynamic and it may depend on the day of the week or a particular event or the segment that is looking and booking.
Moral of the story: knowing and understanding what other players are doing is important of course. But properly recognizing demand fluctuations and managing/navigating the flow of demand coming into your property is more crucial. We still have a large gap when it comes to upper funnel forward-looking data (search volumes, conversion rates, etc.). I'm waiting for more tech vendors to start providing that data to hotels worldwide to help the hospitality industry recognize demand flows and act on them in a more efficient manner.
There is a need to re-examine traditional competitive sets. Pandemic disrupted the markets and urged hotels to adapt. Hotels had to create new offers, change segmentation and pricing strategies. Some properties were permanently closed. Chances are the hotel's pre-pandemic comp set is no longer relevant, and new competition emerged.
Another question is to what extent can hotels rely on benchmarking data? Pandemic created an enormous disruption, and hoteliers can not be sure that competitors' data and actions are always reliable market demand indicators. The competition is also struggling with forecasting, pricing, and benchmarking.
In my opinion, hoteliers should:
- create several competitive sets and closely monitor how properties in the market evolve their post-pandemic strategies to identify hotel's true competition
- take advantage of STR's "Composite Comp Set" solution that gives flexibility and resolves "sufficiency" issues caused by the pandemic
- explore the idea of a "Dynamic Comp Set" suggested by OTA Insight - competitors change in line with market shifts to position the hotel against the most relevant comp set
- give more weight to the hotel's internal data. Short-term trends are especially valuable when forecasting future demand (last 7 Mondays, last 7 Tuesdays, etc.). BI that provides forward-looking market demand is also a must-have tool for revenue managers
- use indexing to baseline period pre-pandemic (2019) to understand recovery pace for the hotel and competition (Demand for the first week of June 2021 / Demand for the first week of June 2019 *100)
Many, if not most, hotels have more than one comp set. Depending upon product, a hotel might find itself competing against a different mix for corporate vs. group vs. transient leisure. One thing that has not changed post-COVID is the necessity for hotels to really be honest with themselves when it comes to their product and against whom they are benchmarking. An 80% index vs. 100% on occupancy is not necessarily "underperforming" if you are a CBD-located independent in a sea of brands looking at midweek performance, and a 120% vs. 100% on ADR isn't "outperforming" if you are not comping vs. truly similar product.
I would argue that traditional KPIs haven't become meaningless, but that benchmarking the percent-change metric is increasingly relevant. What *has* changed is the need for revenue leaders to really drill down on the underlying drivers behind this data and evaluate from a more holistic perspective. Pre-COVID, many could get away with "Occupancy is too high and ADR is too low. Raise the rate." type of analysis. Forward-looking data will only continue to grow in importance, as well, and can provide more actionable insights for revenue managers watching their business change in real time.
First of all, let's start with why it is useful to have a compset:
- To compare performance and understand the proper market share and opportunities exploited or missed (ideally by going beyond the room topline KPIs and add metrics like REVPAS, TREVPAR, GOPPAR)
- To have a comparison for your pricing. Although you have your own strategy you cannot ignore what is offering your competition. Surely this data will always have less weight as soon as your OTB or competitors's OTB will grow up and other factors will become more relevant.
For sure we will always need to have a term of comparison in the market for our performances. But why not have different compsets for the different segments?
We all know that the main criteria to select a compset are: position, size, number of meeting rooms, categories, style, services. But the fact is that one hotel could be your competitor for one segment, let's say for the transient retails but not for groups or the other way around. What to do then? Exclude it from the compset because it does not fit all the criteria? It is still a strong competitor in one segment, so the only way is to create more compsets for different segments. It is very important to make a value assessment of your competition and really understand what is the group of hotels which could steal business in each segment and create your dedicated compset. In this way also the check of performance, if done by segment could be more granular.
POST PANDEMIC SITUATION:
On top of that, the pandemic brought changes in segments, new consumer behaviors and targets, closure of some properties, price dumping, change of service. As a consequence, the traditional pre-pandemic compset could be not valid anymore. It is necessary to benchmark the competition again with a swot analysis and define the real new compset(s).
The historical data (YOY) are definitely not relevant anymore and market data have a higher weight than the past, but it would be also deviant to base on competition positioning and pricing in order to determine our own strategy. Internal data (OTB, pick up, pace, displacement) will always be our compass together with the demand data, but let's keep an eye on the compset as well! Therefore rate shoppers are still an irreplaceable tool (not a case that OTA Insight launched Dynamic Compset)
So, flexibility is always the watchword even in benchmarking.
Understanding your competitors today will be vital in shaping your strategy and measuring your performance and success. Depending on your property, the services you provide, your market and your location, your competitive landscape may have changed drastically over the past year. You may now face multiple competitors, including some that were not considered direct competitors before.
To determine your current comp set, we must first get back to the basics in understanding your customer base:
- Who are your customers? – It's important to have a clear understanding of who your potential guests are, review how to segment them and then re-evaluate who else is targeting them.
- What do they want? – Behaviors are changing, so what your customers are looking for (and need) may have changed—and with that their choices. Ask yourself where they would go if you didn't have availability.
- What do they value? – Price sensitivity and perception of value has also changed, so revisit how your services and products are valued by the customer and who else is similar.
Past metrics to measure against competitors are still valid—you want to know your market, rate and RevPAR penetration—but what has really changed is your base. Before looking at these metrics, look at who should be included and how often you may need to adjust your comp set. Market and industry conditions are still changing rapidly.
There are other metrics that could also help you determine your performance and success from a bottom-line perspective. Remember, it's not only about ADR but about net ADR and net RevPAR as well as total revenue and profit contribution, and for these metrics there's really only one hotel you can compare against: your own.
COVID-19 and the subsequent travel lockdown wreaked havoc on hotels. Traditional revenue strategies that relied on historical analysis and standard, static pricing simply no longer work. The function of a revenue leader – whether at the corporate level or on property, now relies on new data and agile strategies that can be adjusted quickly and easily to adapt to shifting conditions.
Compared to 2019, there are still few corporate meetings or conventions; hotel demand has shifted almost entirely to leisure. Hoteliers are focused on what was previously only a small segment of their business. Any travellers that are venturing out are booking within days of arrival, and the compressed booking window is making it difficult to use on-the-books data to make decisions.
All hope isn't lost: the data that revenue leaders need to make smart, informed decisions is available. Revenue leaders are using shorter timeframes, such as pacing against last month instead of last year, and have access to newer analytics, like forward-looking data with deeper insights into traveller intent. Revenue managers also have a better glimpse into current and future demand than ever before by moving from static to dynamic compsets.
In order to ensure you're well positioned against the most relevant compset, the industry will need to leverage forward looking, dynamic comp set data (versus static compsets) to better anticipate future demand. With dynamic compset data, you are no longer constrained by comparing your hotel against a static group of hotels that were determined as competitors pre-COVID-19. Instead, dynamic compsets help you identify similar competitors based on consumer search behaviour. A dynamic comp set is especially important now, as market conditions change due to a variety of factors on a daily, weekly and monthly basis.
A dynamic compset will automatically adjust your competitive set based on a number of factors, such as your amenities, star rating and price. For example, hotels are seeing increased competition from alternative accommodation - these properties can be particularly attractive to travellers during a pandemic that necessitates social distancing. When determining your dynamic comp set, the data incorporates home-sharing sites in its calculations: now you can see how your occupancy and rates matchup against the short-term rental homes in your market.
As the industry begins to rebuild and recover, competition will evolve - you will no longer be competing with your traditional compset. By making the move from static to dynamic compsets, you can adjust your strategies ahead of the competition and gain the actionable insights needed to turn lookers into bookers, to help drive more revenue at your hotel.
Revenue Optimization
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