Hotel competitive set: What is it and how do you find yours?

These establishments represent your direct competition, the ones potential guests evaluate and compare your hotel against when booking a room. Typically, a compset consists of around 5-10 hotels situated within the same geographic area, offering comparable services and amenities, and targeting a similar demographic.

However, it's important to note that a compset can extend beyond these parameters. For example, nearby hotels that offer a distinct experience to your own can still be considered as viable alternatives to your property by guests.

By identifying and analyzing your compset, you gain a deeper understanding of your market positioning which enables you to construct more effective strategies to drive business performance.

Essentially, understanding your compset provides invaluable insights into what it takes to attract more bookers to your property and outperform your competitors.

How to find your hotel’s competitive set

Now that we've defined what a hotel compset is and underscored its importance, you might be wondering how to find the most suitable compset for your hotel.

This involves a comprehensive understanding of your own hotel, investigating other establishments in your market, and honing in on those that bear similarities to your property for inclusion in your competitive set.

Choosing a compset that encompasses hotels with significantly higher or lower Revenue Per Available Room (RevPAR), different star rating, or divergent guest personas from your hotel can distort comparisons and deprive you of the valuable insights that compset data can offer.

The initial step in setting up a compset is ensuring you have a firm understanding of your hotel's positioning within the market.

Understand your position in the market

Before determining your compset, it's crucial to understand your hotel's position in the hospitality industry. Benchmarking provides a clear perspective on your performance relative to competitors, offering valuable context for your business performance.

To effectively benchmark your hotel's position, it's recommended to utilize the following Key Performance Indicators (KPIs):

1. Market Penetration Index (MPI). This KPI compares your hotel's occupancy to the overall market occupancy.

   It's calculated as follows: MPI = Hotel Occupancy / Market Occupancy. This index provides insights into how well your hotel is filling its rooms compared to the broader market.

2. Average Rate Index (ARI). This index compares your Average Daily Rate (ADR) to the market's ADR.

   The formula is ARI = Hotel ADR / Market ADR. This metric reflects your pricing strategy's effectiveness relative to the market.

3. Revenue Generation Index (RGI). This index compares your Revenue Per Available Room (RevPAR) to the market's RevPAR.

   It's calculated as RGI = Hotel RevPAR / Market RevPAR. This KPI is particularly crucial as it combines both occupancy and ADR, offering a more holistic view of your hotel's revenue performance.

Note: A score exceeding 100 on any of these indices indicates that your hotel is garnering more than its fair share and is outperforming the market or competitive set.

Once you understand your market positioning, a sound method to determine your hotel's competitive set is by analyzing factors similar to how travelers use Online Travel Agencies (OTAs) to filter search options when booking a room.

Identify your direct competitors

How do you determine who your competitors are in your market? Are you basing it on the competitive set established by your predecessor 5 years ago? Or perhaps, are you considering the five hotels in closest proximity to your own?

The key question to ask is: Would a traveler consider this hotel as an alternative to yours when visiting a particular city or location?

When selecting your competitive set, it's crucial to take into consideration several key factors. The most effective approach is to adopt the viewpoint of a potential guest looking to book your hotel.

Evaluate the factors they would prioritize when deciding on their accommodation, giving special attention to the following criteria:

• Type of accommodation. How similar are they to your offering? If you run a single hotel with 50-90 rooms, you are not competing with a bed and breakfast around the corner. You are attracting very different types of travelers who are seeking a very different accommodation experience.

• Room pricing. It stands to reason that any hotel with room rates similar to yours can be considered a competitor. It is always sensible to track competitor pricing so you can implement an effective pricing strategy and ensure you aren’t underpricing or overpricing your rooms.

• Hotel category. Which competitor hotels are in the same class or have the same star rating? Is your property a 3-star hotel, or does it fit in the upper upscale class? Comparing like for like is key, as guests will see your hotel listed in the same category as other similarly categorized hotels.

• Guest feedback. The rating each hotel receives from guest reviews often serves as a crucial determinant that potential customers consider when finalizing their accommodation choice. When faced with properties that share similar location, amenities, and room quality, the decisive factor can often be the guest feedback. This underscores the importance of managing your hotel's reputation.

• Proximity to your hotel. How close are they to your hotel? Are they in the same neighborhood? If so, they are likely to be direct competitors, because travelers view location as one of the most important factors in choosing where to stay.

• Quality of service. Are your staff formally trained and dressed? Or does your hotel offer a more personal, casual atmosphere? You need to compare apples with apples.

• Business facilities. Does your hotel have a dedicated space for corporate meetings and groups? If so, then you need to consider the other hotels that have similar facilities, and are therefore competing for the same type of business.

• Leisure facilities. Similarly, does your hotel have leisure facilities? If so, consider how these compare to those of your competition - you may have a golf course, and they may have a casino, but you’re competing for the same affluent traveler dollars.

Maintain a dynamic competitive set

The internet has made markets and competition exponentially more dynamic.

Travelers typically compare numerous hotels online before finalizing a booking. This process is greatly facilitated by OTAs and metasearch engines. Consequently, hotel brands find themselves in a more complex competitive landscape than ever before. They are no longer solely vying with other brands, but must also consider a vast array of competitors, including short-term rental properties.

Given this environment, tracking the right competitors and utilizing a dynamic competitive set has become essential. It's recommended to schedule a review of your competitive sets at least twice a year and make adjustments as necessary.

Lighthouse's Solution: Smart Compset

Having an understanding of the broader market context and where your hotel sits within it means you can be agile, adapt your revenue management strategies and maintain an optimal market position to identify revenue opportunities in the short, medium, and long term.

To address these challenges, Lighthouse offers Smart Compset within its Market Insight solution. This industry-first feature dynamically adjusts your competitive set as the market shifts, providing realistic and relevant analysis of your true competitors. It enables agile, data-driven revenue management, empowering you to stay ahead in the fast-paced hospitality landscape.

In today's rapidly changing market, Smart Compset offers the agility and insight needed to maintain a competitive edge. It's more than just a feature—it's a strategic feature that can significantly impact your hotel's performance in this new era of digital competition.

Why hotels are more successful when they have multiple compsets

A solid competitive set should include about 5 to 10 hotels. Any more and it becomes more of a challenge to draw actionable conclusions from your competitive analysis. However, once you've established your primary competitive set with your main rivals, it's beneficial to also formulate secondary and tertiary compsets.

These compsets will also consist of another 5 to 10 properties that you consider of high importance but not to the same degree as your direct competitors.

This approach allows you to monitor a variety of segments, providing a comprehensive view of your local market and hones in on the factors that are of most significance to your property.

The creation of additional competitive sets can be tailored based on various factors. For instance, if your property is situated near a popular venue for music events, other hotels in the vicinity may become competitors only during specific events.

Consider whether any of these types of compsets are relevant for your hotel:

• Seasons. Your hotel might cater to different traveler segments during different times of the year. Leisure travelers will choose your hotel for very different reasons from business travelers and travel more at different times.
  Rather than fitting your high season and low season together into one, split them out. That way you can have a primary competitive set for weekdays and high season, and a second compset for weekends, holidays and low season.

• Proximity to your hotel. Your primary compset should include some competitors based on their proximity to your hotel. However, it will not solely be composed out of your neighboring hotels, but will include competitors further away but with an equal quality of service and similar star category as yours.
  You could opt to have a secondary compset, only including neighboring hotels, or pull in those further away but competing on a number of other factors, to complete the picture.

• Aspirational. Whether the aspirational second compset is used by you, or it is an often requested point of analysis by your General Managers and owners for RGI score purposes, it’s never a bad idea to aim high.
  If you’re a 4 star hotel planning renovations, or a full rebranding of your image, you’ll already want to compare your prices to future competitors as part of the repositioning process.

• Reverse compset. You are selecting hotels to be in your competitive set based on a variety of reasons, but it may be relevant to look at the properties who consider your hotel as one of their benchmarked competitors. After all, your strategic rate decisions are impacting these competitors directly.

How to set your hotel apart from other accommodations in your compset

With a primary compset defined, along with your secondary and tertiary compsets, what steps can you take to secure a competitive advantage over them?

The hotel industry is fiercely competitive, with properties vying to attract a similar guest profile, which can make hitting your desired profit margin a significant challenge, particularly in highly saturated destinations.

It's imperative to devise strategies that guarantee your offerings are of the highest standard, matching or surpassing those of comparable hotels in the vicinity. You want to ensure that your property is the preferred choice for bookers.

Real-time competitor pricing

Once you've established your compset, leverage a rate shopping tool to compare your room pricing with selected hotels. This enables a data-driven pricing strategy to boost your room revenue.

A rate shopper automates the collection of hotel pricing data, showing how your hotel’s rates compare to competitors' past, current, and future rates in an easy to read dashboard. This eliminates manual searches and spreadsheets. You can monitor rates across all key channels - OTAs, brand.com, and GDS - to maximize revenue and profitability. Quickly identify competitors pricing too high or undervaluing their rooms, giving you a clear market position.

With this information you know exactly where your hotel fits into the market’s pricing landscape. You can implement an effective pricing strategy that is in line with your compset and market conditions and make effective pricing and promotional decisions that will help you outperform your competitors.

Rate Insight by Lighthouse aggregates over 2 billion daily data points from 300,000 hotels and more than 19 million short-term rentals, helping you to understand deciphering market trends and fully optimize your pricing strategy, by leveraging the industry’s best real-time data for maximum effectiveness.

Provide a unique guest experience

In today's competitive hospitality landscape, an exceptional guest experience is your key differentiator.

Enhancing the guest experience is not simply about the physical comforts within the room; it extends to every interaction the guest has with your hotel, from the moment they consider booking to the time they check out.

A seamless check-in and check-out process, for example, can elevate the guest experience. Some hotels are adopting contactless procedures that allow guests to bypass the front desk entirely, providing an effortless and safe experience.

Luxury amenities also play a crucial role in differentiating your hotel from the competition. From spa services that offer relaxation and rejuvenation, to valet parking that adds an extra touch of convenience and class, these amenities can transform a guest's stay into something truly memorable.

Special packages can further enhance the guest experience. For instance, a couples’ package might include a welcome gift of chocolates and champagne, a couples massage at the spa, and other romantic touches. These packages not only provide value to guests but also create unique experiences that guests will remember and associate with your hotel.

By focusing on these areas, you can create a guest experience that exceeds expectations, setting you apart from your competition and fostering guest loyalty.

Differentiate your distribution strategy

By strategically using both third party booking sites and direct bookings via your own website, you can reach a broader audience, cater to diverse guest preferences, and better position your hotel to compete with your compset.

OTAs and metasearch sites can be instrumental in reaching a global audience. These platforms provide visibility to millions of potential guests and can be particularly effective in attracting travelers who are price-sensitive or those who enjoy the convenience of comparing multiple options in one place.

At the same time, it's crucial not to overlook the power of direct bookings through your own website. While OTAs can help increase visibility and reach, they charge high commission fees - direct bookings do not - and allow you to establish a relationship with your guests, often leading to higher guest loyalty and repeat business.

A well-designed, user-friendly website with a seamless booking process can attract guests who prefer to book directly with the hotel, often those who are seeking a more personalized experience.

Furthermore, by offering exclusive deals or perks for direct bookings, such as room upgrades, free breakfast, or loyalty points, hotels can incentivize guests to book directly.

A hotel channel manager assists you in effectively marketing, managing and selling hotel rooms online through multiple third-party sites and direct on your website. This enables you to effectively control pricing and availability across all your online channels.

With Lighthouse Channel Manager you can manage prices and availability of all your online booking channels through one central dashboard.

Market intelligence solutions give hotels a competitive advantage

Market intelligence empowers hoteliers to make strategic decisions based on real-time, relevant data specific to their market.

This primarily involves a real-time grasp of competitive room rates, occupancy levels, awareness of local events, and understanding of seasonal fluctuations that influence market demand.

This data is used to tailor revenue management strategies and fine-tune room pricing to shifting market conditions.

Lighthouse’s rate shopper, Rate Insight, allows you to create, modify, and expand your own competitive set, providing you with access to the pricing and promotional intelligence that directly influences your hotel's performance.

Rated the industry’s best rate shopping tool by Hotel Tech Report four years in a row, it provides real-time rate intelligence on your competitors’ pricing strategy by uniquely delivering granular insights on competitors’ rates, ranking, reputation, and OTB occupancy.

Short-term rental and hotel data are also provided together in a single platform. The addition of short-term rental data enables you to capture more revenue by providing a complete view of your compset.

You can further enhance your demand accuracy by connecting Rate Insight with our predictive market intelligence solution, Market Insight.

Market Insight leverages forward-looking search data, so you can more effectively predict market demand at your hotel up to 365 days in advance.

This is in combination with Market Insight’s Smart Compset, a dynamic competitor set that changes in line with market shifts, providing an extended competitor comparison in every demand condition.

By positioning yourself strategically among your Smart Compset you can compare your pricing strategy to all relevant competitors, ensuring you never miss out on a revenue opportunity.

If you want to learn more about harnessing the industry’s best data sets to define and monitor your competitive set, and craft the most profitable room pricing strategy, get in touch today.