This is a guest post by Jeong, pronounced “Jung”, Pyon. He is the Director of Revenue at the Trump Vancouver, Canada. A good friend of mine with whom I have spent countless hours talking about Revenue Management. The numerous conversations and observing his work lead me to inviting him to contribute this article.
The hospitality industry is one of the few industries that are fortunate enough to have a ‘report card’, AKA ‘STAR Report’, that shows where you stand against your competition on a weekly basis. By reviewing the STR Report, the hotel is able to identify whether their rate strategy had succeeded or not.
Unfortunately, many hotels are not using STAR to its fullest potential, and some are even using it for the wrong purpose. In all fairness, sometimes it is difficult to define the comp set due to the vast number of hotels around you, or the lack of hotels in your immediate surroundings. However, if you follow the logic below, you should have little problem defining your true comp set.
Keep in mind that ultimately, your comp set is truly defined by your guests.
Distance is perhaps the most obvious factor that needs to be taken into account, but it’s also where many mistakes are found. Many hotels simply draw a circle around the hotel and select all ‘similar’ hotels inside that circle. However, what a hotel should really do is to draw that circle based on the demand generator.
Let’s take a look at airport hotels for example. Let’s say that Hotel A is 5km south of the airport,
and Hotel B is 5km north of the airport. As the hotels are 10km apart from each other, it’s easy for a hotel manager to exclude the other hotel from its comp set. However, from the guests’ perspective, both hotels are 5km away from the airport, making them equally attractive.
Size & Market Segment
I have seen various hotels that consider a hotel with a completely different number of rooms simply because the quality of service is similar. However, the different in the number of rooms in a hotel reflects in the difference in the market segments.
As an example, let’s compare a small luxury boutique property with 50 rooms next to a large luxury hotel with 300 rooms. During the peak season, the small hotel would most definitely be able to sell all of its rooms at its retail rate (or Best Available Rate). However, the larger hotel would have taken some group business with lower rate in advance in order to minimize risk, and to build relationship that will aid them during the slower season. The smaller hotel would also have less need of negotiated accounts such as corporate and wholesale accounts while the larger hotel would have a sales manager for each of those markets.
Market segments can vary even when hotels are similar in size. A hotel might have decided to target corporate clients are group business, while its competition might have decided to take in group tour business that puts ‘heads in beds,’ taking less risk. These two hotels should reconsider including each other in its comp set as they are playing in a different field. However, by including each other, they would be able to find out which of the two strategies work better.
Quality of Service & Online Reputation
Traditionally, hotel managers visited all of its potential comp set and identified those that have similar level of service and quality of amenities as their own. The flaw with this method is the fact that most guests would not have stayed in those properties before making a decision. What really matters to a guest is the hotel’s online reputation.
I must admit, however, that all the hype in regards to online media really matters most to luxury properties, as they are often found at the top of the list. To many guests it does not matter whether you are rank 15 or 20. However, if you are a top performing 3-star hotel in top 10, you probably don’t want to include a hotel that is 3-star and in 50th place on TripAdvisor. In such a case, you should be able to charge higher rates than the other hotel, and thus you would begin to target a different clientele. This leads to the next topic: ADR.
One might argue that the ADR represents the quality of the hotel. As a hotel manager, you should know that this is not necessarily true. The difference (or similarity) in ADR might simply be the result of the difference in the skills of the revenue managers.
If there is a hotel that constantly undervalues itself, achieving 100% occupancy with ADR that is far lower than the market average, would you want to include it in your comp set? Many revenue managers will be tempted to in order to boost their rank in the STR STAR report, but deep down, he/she will most probably know that the hotel should be removed from the comp set.
Secondary STR Report
Most markets have some level of seasonality, but some hotels must adopt completely different strategies based on the season, such as Chicago, Vancouver, Toronto, etc. Let’s face it, who wants to go to Chicago during its notorious winter season unless forced to do so by the employer. In such markets, only a handful of hotels will be able to command high rates during its slower season. Most hotels will have to readjust their strategies completely in order to maximize RevPar. If you find yourself in this situation, I would advise you to consider a second STAR report. If you compete with the higher-end hotels during the peak season, but compete with lower end hotels during the slow season, then you should definitely have a second report.
Having the relevant data on STR STAR report is vital for any revenue manager to adjust his or her revenue strategy before it is too late. After all, an increase in RevPar means nothing if your growth ranked last in your comp-set. Vice-versa, even if you are ranked last in RevPar Index, having a high RevPar Growth Index would indicate that you have the correct strategy in place. All the analysis, however, would be meaningless if you were comparing your property to the wrong competition.
Distance, size, market segment, quality of service, online reputation, and ADR are all necessary factors to consider when deciding your true comp set. Realistically, not many hotels will score A+ in all of the factors. Analyzing each of the factors will, however, help you narrow down your search and minimize the risk of choosing the wrong comp set.