How much revenue should a property generate? What sort of market share could that property hope for? Hotel companies have been working out answers to these questions, but old methods just aren’t enough any more. EyeforTravel’s Ritesh Gupta discovers what is being done to evaluate performance in today’s environment.

The business environment is constantly changing for hotel operators. Fragmentation of categories is increasing as the industry focuses on defining its position, with new details in every market segment from luxury to economy. The emergence of new hotel brands or re-branding of the existing ones indicates that hotel companies are actively improving their asset-management strategy, as well as targeting management and franchise growth.

As a specialist in market intelligence and hotel-performance metrics, STR Global believes that benchmarking is a key tool in assessing a hotel group’s performance and establishing its standing against competitors.

“It can help you to find opportunities in the market and reveals whether your strategies have had an impact on your performance,” says Naureen Ahmed, manager, Marketing and Analysis, STR Global, who will be speaking at the Travel Distribution Summit, Europe in London on May 23-24.

 “Competitiveness should be measured through benchmarking,” she adds, “where performance is determined relative to the competition and/or best in class. This enables a business to remain agile and make adjustments accordingly.”

Careful assessment

A hotel needs to evaluate the accurate competitive set for its own business if it is to thrive in a competitive environment. So how is this achieved?

Firstly, a group is established which has similar attributes. These could be based on the quality of the offering, brand image, the hotel size, location, etc. The segment mix for these hotels needs to be worked out before checking how closely related or overlapping hotels are faring in a particular segment. This paves the way for a final competitiveness score which then helps determine the final competitive set.

Once the competitive set has been identified, revenue-management professionals can assess the business coming into that set. Let’s say, a property has 20% of the rooms in the competitive set, then its rational share would be 20% of the total business coming into the competitive set. Accordingly, one can work out if this property is outperforming or underperforming.

“The performance of each property is most commonly captured through the Revenue Generation Index and its percentage change,” says Ahmed.

Combatting external factors

According to Ahmed, one should be aware of the key demand generators for a particular market, which means understanding who the customers are and why they choose a hotel.

“Another key aspect is the consideration of the source of data. A reliable source of data and the relevant data will lead to actionable information,” says Ahmed.

External factors are also important. To help determine pricing strategies,

hotel companies must be aware of flights, new routes (or cancelled routes), travel restrictions, visa and immigration restrictions, taxes and oil prices which can change the price of flights, as well as any other factor which directly affects the customer.

Overcoming operational challenges

There are certain decisions, especially ones related to pricing and promotions that can have a big impact on the performance of properties.

Promotions are vital to filling ‘need periods’, and optimising revenue and profit over a certain period of time. Hotel companies analyse and forecast the demand for approximately 500 days in the future. They also have to assess need periods in advance to decide when promotions should be used and also finalise day-of-week analysis and which room type can be included as part of the promotion.

From a revenue manager’s perspective, competitive pricing is critical for any hotel company, especially given the current economic environment where supply exceeds demand in most markets.

While it’s true that revenue management plays a key role in optimising demand, it’s also important to know that an efficient rate structure and competitive pricing help generate demand across multiple segments within the catchment area of the hotel.

“In order to implement competitive pricing, all hotels need to have a test- and-learn approach,” says Chinmai Sharma, vice president revenue management and distribution, Louvre Hotels Group.

The market dynamics and the customer buying habits change continuously, so it is important to test new price points and offers to see what works best by channel and segment. “The results of a good pricing strategy are rate efficiency, profitability and finally the market share index vs competing hotels,” says Sharma.

Data analytics

The number of distribution channels has increased considerably, while the data available to distribution and revenue management teams has also gone up. This means hotel companies have had to focus on their technology infrastructure to handle the storage and processing of large amounts of data. They have also needed to strengthen their team to interpret the data and understand analytics better.

At the same time, the number of business-intelligence tools has grown.

“Each encompasses negative and positive aspects. However, the application depends upon numerous factors, including the user - how they interpret, analyse and use this data,” says Ahmed.

A hotel company that is still evaluating the performance of its properties in the same way as it was five years ago, probably doesn’t have an accurate representation of the business environment. In order to optimise revenue there‘s so much more that can be done.  

To hear more insights from Naureen Ahmed, manager, Marketing and Analysis, STR Global, and Chinmai Sharma, VP revenue management and distribution, Louvre Hotels Group, join us at the Travel Distribution Summit, Europe in London on May 23-24.