There’s an ancient saying: “Keep your friends close; keep your enemies closer.” Credited to Sun Tzu, a Chinese military general and philosopher who lived more than 2,500 years ago, the saying remains relevant today.
NB: This is an article from RoomPriceGenie, one of our Expert Partners
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In the hospitality industry, we don’t think of our competitors as enemies, of course – they’re more like friendly rivals. But we do compete with them for business.
Keeping them close means understanding their strengths and weaknesses relative to your property. It also means monitoring their offerings and pricing. This will help you know how to position your property effectively and attract more bookings and revenue.
Do You Know Who Your Competitors Are?
Your competitors might not be who you think. Traditionally, hotels identify competitors based on the main criteria travelers use to decide where to stay. This includes:
- Location: Properties in a similar geographic region, close to the same attractions, activities, beach, shopping, entertainment, or businesses.
- Property type: Properties of a certain size or design, such as boutique hotels, hostels, or hotels with contemporary or traditional design.
- Category: Properties in the same segment or star category, such as economy or luxury, three-star or four-star.
- Pricing: Properties that offer similar room types at similar prices.
- Facilities: Properties with comparable services, such as a restaurant, bar, pool, spa, and function space.
- Target markets: Properties that cater to specific traveler types, such as leisure, corporate, families, couples, or groups.
- Guest ratings: Properties that share similar guest ratings on Google, Tripadvisor, and OTAs (online travel agencies).
Competitive Benchmarking: Different Strokes for Different Folks
Based on these shared characteristics, the hotel selects about five properties as its primary competitive set, or comp set. Then it decides how to position its pricing relative to them, a process known as competitive price benchmarking.
Some hotels tie their pricing to just one or two competitors. When the competitor’s rates go up or down, the hotel adjusts its own rates by a similar amount to maintain the desired price differential.
However, hotels can differ significantly in terms of:
- Occupancy patterns. What if your competitors are almost sold out, but you still have many rooms left to sell?
- Revenue objectives. What if your priority is to build occupancy, whereas your competitors want to build average rate?
- Revenue expertise. How do you know if your competitors follow smart revenue management practices? They might be just winging it.
To blindly follow competitors is a risky proposition. Your pricing strategies should be as unique and individualized as your property.
Navigating an Evolving Competitive Landscape
Moreover, to limit benchmarking to five properties doesn’t reflect today’s diverse competitive landscape. Hotels compete for bookings with more properties than ever before due to:
