Mastering Hotel Competitive Analysis: The What, Why and How

Bryan Michalis
Bryan Michalis
January 17, 2024
Mastering Hotel Competitive Analysis: The What, Why and How

Obviously you have a good understanding of your hotel, your target audience and your commercial approach.

But how well do you know your competitors? What sets them apart and how does your hotel measure up?

And more importantly: how can you use this knowledge to optimize your pricing, marketing and conversions?

The answers to these and many more questions lie in hotel competitive analysis.

What Is a Competitive Analysis in the Hotel Industry?

A hotel competitive analysis is an important revenue management tool. It helps you analyze the unique selling points (USPs), strengths and weaknesses of your hotel and other players in the market. This shows how you’re positioned in your destination’s overall offering and helps point your commercial strategy in the right direction.

Why Is Performing a Hotel Competitive Analysis Important?

A hotel competition report offers important insights into your positioning in relation to your top competitors. It also allows you to benchmark your performance against similar properties to see who is doing better and why.

This, in turn, reveals opportunities where you can maximize rates during certain periods or win more business with targeted promotions.

In short, a good competitive analysis helps you optimize your rate, marketing and distribution strategy and achieve a higher topline.

How to Determine Your Hotel’s Competitive Set

Before you get into your hotel competition report, you need to define your competitive set, or compset for short. For that, look at hotels around you. Identify the ones that are most likely to take business from you. They’re the ones your guests compare your property to and might choose over yours. Your closest, most direct competitors will make up your compset.

To find which hotels these are, go through the following five Ps.

1. Proximity

Start by checking hotels that are close to yours. Location often plays a big role in booking decisions. That makes nearby properties some of your top competitors, especially if you’re close to major attractions or event venues.

There’s an exception to this rule though. If your hotel offers a niche product and the only comparable property is across town, it still belongs in your compset.

2. Pricing

Apart from location, price is one of the easiest factors to compare for potential guests. Look at hotels with similar rate structures as yours. They’re likely to attract a clientele with a similar budget and idea of what’s good value for money.

3. Positioning

Look at what experience, ambiance and setting you offer guests. Are you running a budget, upscale, luxury or boutique hotel? Find similar properties, so you can compare apples to apples.

4. Product

This covers your room types and amenities. Make a list of what you offer first. It should include accommodation categories, F&B venues, spa and gym facilities, meeting and event spaces, your casino or other entertainment services, and anything else you offer guests on-site. Then check which hotels have a similar set-up and add them to your compset shortlist.

5. Purpose

Think about the reasons guests have for visiting a hotel:

     
  • Corporate guests come to town for business meetings or conferences.
  •  
  • Families want to enjoy a holiday with fun activities for everyone.
  •  
  • Couples look forward to pampering themselves at your restaurant and spa during a relaxing getaway.
  •  
  • Tourists are keen to explore the surrounding area and discover the local culture.

Which of these apply to your property? And which hotels around you target guest demographics with similar travel purposes? They’re additional candidates for your compset.

After going over your five Ps, you should have a list of close competitors. Pick three to five of them as your primary compset. Now, it’s finally time for your competitive edge analysis to see how you’re positioned in your market.

Infographic: The 5 P's of Your Hotel's Competitive Set

How to Do Your Hotel Competitive Analysis – Step by Step

Go through the following five points to complete your hotel’s compset analysis.

1. Pick the Characteristics You Want to Compare

The main factors to look at are competitors price, location, amenities, room types and quality as well as public review score. You can break amenities down into subcategories, e.g. F&B, spa & gym, meeting spaces, etc. if any of those are especially important areas for you. You can also add other points if they’re relevant to your compset and target audience.

2. Start Rating

Now create a table where you plot your hotel and compset as well as the characteristics you chose in step one. Evaluate all the factors for each property on a scale of 1-10.

To simplify the rate comparison, average out the highest and lowest price for a standard room. Then do some research to determine the remaining ‘grades.’ Check your competitors’ websites, TripAdvisor and Google reviews as well as OTA listings to find feedback and descriptions of their properties. Consider a site inspection to get a deeper impression of the quality of their services and facilities.

Once you have all your data, fill your table.

It could look something like this:

Start rating your hotel competition

3. Determine the Perceived Value of Each Property

Next, calculate the average grade for each property. Leave out the rate for this calculation.

determine perceived value of your hotel property

4. Plot Your Results

Finally it’s the moment of truth. Draw up a plot where the horizontal axis marks the rate and the vertical axis marks the average grade you calculated in step three. Then mark each property’s position on the grid. This will reveal how your hotel is positioned among its competitors.

With the data from our example grid above, we got the following result.

plot your hotel competition analysis results

5. Evaluate Your Findings

Now it’s clear how you’re positioned in the market compared to your competitors. Our example hotel is already doing quite well, with a higher overall score than most properties in its competitive set. According to our analysis, this creates an opportunity for a rate hike. Why? Look at Competitor 4. Despite having a lower score, it charges more than the example hotel. This means our sample property should be able to devise a winning strategy and increase its rates by around $10-$20 without losing business. Of course, the analysis and conclusion are simplified here, but the opportunity for a rate increase is real and deserves a closer look and some testing.

8 Expert Tips for a Meaningful Hotel Competitive Analysis

To make your competitive set analysis even more valuable, here are some extra suggestions for you to consider.

8 Expert tips for Hotel Competitive Analysis

1. Set Goals for Your Competitive Analysis

Before you get started, ask yourself why you're doing a compset analysis. Do you want to better understand the market? Are you interested in what other  competitors offer? Maybe you want to compare online reputations or find opportunities to improve your pricing strategy. Decide this early on, so you can focus your research accordingly and get the data and answers you want.

2. Choose the Right Data

Pick relevant competitive attributes to examine. For example, if you’re a big player in the local events business, compare meeting and event venues and services. In this case, leisure amenities might not be as interesting. But it could also be the other way around if you’re a leisure-focused hotel in a popular holiday destination.

Whatever the case, rates, review scores and the overall quality of your facilities are always critical factors to look at.

3. Create a Secondary Competitive Set

Your secondary compset could be made up of cheaper and/or more expensive properties nearby. Maybe you also want to include hotels in a different part of town that are similar to yours.

Monitoring these properties gives you an understanding of how other players with different target audiences are faring under current conditions. This provides you with solid knowledge of the market and how recent market shifts are impacting overall demand.

4. Keep It Simple

Adding extra properties to your compset may seem tempting. But looking at too many hotels will make your competitive analysis too complex and time-consuming. Instead, pick only a handful of hotels and stick with a few key competitive attributes to evaluate.

5. Revise Your Competitive Analysis Regularly

Sometimes your positioning might change because hotels open or close, or a property reopens after an extensive renovation. In that case, revisit your hotel competition report, update the ratings, and see how your position in the market has shifted. Don't forget to consider your social media presence and online reputation when assessing your competitive landscape. You can also set fixed dates for a new competitive set analysis. That could be once a year, every six months, or every quarter, depending on how dynamic your market is.

6. Use the Right Tools

Business intelligence tools and rate shoppers allow you to quickly collect competitor information for your competitive analysis. This saves you valuable time on tedious manual research. They also allow you to keep an eye on daily compset activity.

For an even better daily or weekly overview, use a platform like STR. Here, you share your revenue and occupancy data and in turn, get access to anonymized KPIs from your selected compset.

The three key figures you’ll see include:

     
  • Revenue generation index (RGI): indicates what share of the market’s revenue your hotel generated.
  •  
  • Market penetration index (MPI): shows how much demand (i.e. occupancy) you were able to capture vs. your compset.
  •  
  • Average rate index (ARI): compares your average hotel room rate with your compset’s.

There’s a general rule of thumb for all three values: if you score above 1, you’re outperforming your competition. If your score is below 1, you’re lagging on that metric. Monitoring these figures helps you understand your overall performance and it can give you ideas for where to improve.

7. Conduct a SWOT Analysis

In addition to the data from your compset and key metrics, it’s important to also conduct a SWOT analysis for your hotel. This stands for Strengths, Weaknesses, Opportunities, and Threats. By identifying these four areas, you can gain a better understanding of your hotel’s current position in the market and make strategic decisions moving forward.

Strengths and weaknesses refer to internal factors that are within your control. For example, strengths might include a prime location or excellent customer service, while weaknesses could be outdated facilities or high employee turnover. Opportunities and threats are external factors that may impact your hotel. These could include changes in the local economy or new competition in the area.

8. Leverage Your Insights

Gathering and evaluating your data isn’t enough. Now it’s time to act on it! Depending on your findings, adjust pricing, test new rate strategies or promotions and see what works. You can also try service bundles to add extra value, so you can charge more. And of course, work on boosting your online review score, so your positioning improves and you can attract more guests.

Ready, set, compare!

With this step-by-step guide and our seven expert tips, you’re ready to tackle your hotel competitive analysis.

It’ll leave you with valuable knowledge about your market and your hotel’s place in it. That’s essential if you want to uncover new revenue management and marketing opportunities.

So, go and invest the time in this research and you’ll find new ways to get ahead of your competition and reach your business goals.

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