As the industry evolves and becomes more complex, hoteliers must adopt a more comprehensive approach to performance benchmarking. Let's explore the limitations of a narrow perspective, the benefits of a holistic approach, and the role of data and technology in driving informed decision-making.
The Limitations of a Narrow Perspective. Imagine looking through a keyhole. Historically, the hotel industry has relied on this kind of narrow view of the addressable market when assessing performance. This approach, highlighted by reliance on RevPAR index, limits hotels to comparing their performance with the average
performance of a self-selected group of competitors.
This was sufficient in the 1990s and early 2000s when business sources were limited. However, as demand has grown more sophisticated and complex, this method has become prone to generating inaccurate assessments of a hotel's true performance. The basic RevPAR index focuses on a small set of competitors, typically five or six. This can lead hoteliers to overlook the broader demand dynamics at play in their market. This narrow perspective fails to account for the diverse range of rate categories and distribution channels that now influence hotel performance.
Nor does it consider which hotels are actually competing for specific business types. Hoteliers may draw inaccurate conclusions about their property's strengths and weaknesses, resulting in misguided strategies and missed opportunities. Moreover, this narrow approach encourages hotels to pursue "average" performance. An index of 100 for one hotel indicates that it’s performing at the same level as the average of its selected competitors' performance. While this may seem like a reasonable target, it doesn’t capture market nuances. It also ignores the potential for a hotel to outperform in specific areas.
Embracing a Holistic Approach To overcome the limitations of this narrow market view, hoteliers must adopt a more holistic approach to performance benchmarking. This involves leveraging the wealth of data and advanced technology available today to gain a comprehensive understanding of the addressable market. By considering the full demand picture, hoteliers can make informed decisions based on a realistic assessment of their property's performance.
One key aspect of this holistic approach is the use of an optimal business mix. This method identifies competitors across various rate categories and distribution channels, providing a more nuanced and accurate representation of the market.
By benchmarking against a broader set of competitors, hoteliers can pinpoint specific areas where their property excels or could embrace additional opportunities. This enables targeted action planning and strategic adjustments.
The holistic approach delivers surgical insights that allow hoteliers to drill down into specific business segments and identify opportunities for improvement. For example, a property may discover that it’s underperforming in a particular rate category or distribution channel compared to its competitors.
Armed with this knowledge, it can develop targeted strategies to enhance performance in those specific areas. This level of granularity in insights better supports deployment decisions, whether those come in the form of staff time or funds.
Harnessing Data and Technology. To fully embrace next-generation performance benchmarking, hoteliers must leverage data and technology. Advanced analytics tools can synthesize vast amounts of market data, providing actionable insights that inform strategic decision making.
Integrating data from various sources — such as historical performance, market trends, and competitor analysis —can provide hoteliers a holistic view of their property's performance in the context of the broader market.
Technology also lets hoteliers monitor and adapt to market changes in real time. Leveraging automated reporting and data visualization tools allows them to quickly identify shifts in demand patterns and adjust their strategies accordingly. This agility is crucial in today's dynamic market, where consumer preferences and booking behaviors evolve rapidly.
Case Studies and Examples To illustrate the benefits of a comprehensive performance benchmarking approach, let's consider a few real-world examples.
- A select service hotel located in the metro Philadelphia/suburban New Jersey area was experiencing growth in all key metrics at the Hotel Collected RevPAR level, including a year to-date RevPAR Index of 125.8.
The hotel’s commercial team was thrilled with the results and felt like it was doing everything possible to “win the market.” However, upon taking a deeper look at the true market demand and extending its competitive view to include additional competitors, it identified more than $750,000 in additional profitable revenue opportunities.
The team adopted a holistic approach to analyzing the optimal business mix and discovered an additional corporate opportunity. As a commercial team, it decided to focus on corporate as the lowest hanging fruit. By developing targeted strategies to attract and retain corporate clients, the hotel improved its performance in this segment and continued to drive overall revenue growth.
2. Hotel B, a luxury resort in a popular vacation destination, focused on a narrow set of competitors
when benchmarking its performance. However, by expanding its competitive set and analyzing data
across various distribution channels, Hotel B identified untapped opportunities in the online travel agency (OTA) segment during the slow season. By optimizing its pricing and distribution strategies for OTAs during this low-demand period, Hotel B captured a larger share of this segment and enhanced its overall performance.
3. Hotel C, a boutique property in a historic district, struggled to assess its performance due to its unique
location and offerings. By leveraging advanced analytics tools and incorporating data on market trends and consumer preferences, Hotel C was able to identify its true competitive set and benchmark its performance accordingly. This insights-driven approach enabled Hotel C to make informed decisions about its positioning, pricing, and marketing strategies, ultimately leading to improved revenue and profitability.
Taking the Next Step
As the U.S. hotel industry navigates an increasingly complex market, hoteliers must adopt a comprehensive approach to performance benchmarking. Moving beyond the limitations of the basic RevPAR index and embracing a holistic view of the addressable market allows them to make informed decisions based on a realistic assessment
of their property's performance.
Hoteliers can develop targeted strategies that drive long-term success. By letting go of a narrow perspective and embracing a more comprehensive approach, they can position their properties for success in today's dynamic and competitive market.
As the industry evolves, hoteliers must stay ahead of the curve by adopting innovative approaches to performance assessment and benchmarking. By doing so, they can make data-driven decisions, identify growth opportunities, and ultimately, thrive in an ever-changing landscape by increasing profitability and growing asset value.
