If you’re a hotel that caters to group bookings, including meetings and events, you’ll often have to weigh up the value of taking a group booked at a lower, negotiated average daily rate (ADR) against seeing what appears on the books from other segments, including transient. This balancing act is known as displacement analysis.
NB: This is an article from Duetto
Sounds simple, right? However, displacement analysis can be one of the most complicated elements of revenue strategy your team has to undertake. But fear not, we’ve got you covered!
6 steps to a successful displacement analysis:
1. Scenario planning
The starting point for creating a displacement analysis is to create two different forecasts of the future of your hotel:
- If you take the group
- If you don’t take the group.
Then it’s a case of opting for what scenario you prefer. However, group business can be booked up to five years in advance, and it can be tricky to forecast that far ahead. If you don’t take the group, you need to have a firm understanding of what your transient market will be like in five years. That’s hard to predict, especially without some level of analytics.
“Often, hotels take the group because they’re afraid to turn away the business. It’s a ‘bird in the hand’ type of situation. Revenue managers will often say, ‘We know this group and we know they’ll be contractually obligated to come and stay in two years, and they’ll have to pay us if they don’t, unlike the transient guests.’,” explains Daniel Lofton, Director of Hospitality Solutions, Americas.
To create your two scenarios, we suggest you gather historical data on each revenue stream (rooms, meeting space, catering, etc.) for the defined period (e.g., the first week of June) for the years before to serve as your baseline. Try and look back over multiple years to find patterns in demand.
2. Ancillary spend
To muddy the waters further, once you have your two scenarios, you need to also factor in potential ancillary spend. This could be food and beverage, transfers, parking charges, or — in the case of a casino resort — it could be gambling revenues.
“For casinos, this decision could be worth tens of thousands of dollars. You might turn away 20 transient guests to take the group, which doesn’t seem like a lot, but if each of those guests usually spends $10,000 in the casino, then you might have made a terrible mistake,” says Lofton.
Accepting a group can also boost ancillaries. You may sell a ballroom for a gala dinner, or meeting space, even the coffee and cookies you put out when the meeting breaks, this is revenue that can’t be achieved through transient guests.
3. Costs
Each stay has a cost associated with it.
There is the cost of acquisition. For transient guests, this might include online travel agent (OTA) fees, the cost of having a call center to take bookings, or marketing spend. For groups, there may be intermediary commissions.
Then there are operational costs: room cleaning, front office staff, in-room amenities, and more. A group of 20 staying three nights can be more cost-effective than 60 transient guests coming in for one-night stays.
