A Practical Guide to Competitive Set Selection
By Trevor Stuart-Hill President & Founder, Revenue Matters | May 18, 2014
Determining a competitive set is something those in the hospitality industry do routinely, however, these selections can have lasting effects on market positioning and performance and ultimately, asset value. The three most common reasons for competitive set selections include pro forma development, market positioning and performance benchmarking. Selecting an appropriate competitive set and evaluating this selection over time as market conditions change is a worthwhile undertaking. It is one exercise that shouldn't be taken lightly, but it is often more difficult than it appears to be at first glance.
Competitive set selection should be based on several factors – all of which can be considered to varying degrees, depending on the specifics of any given situation. While numerous studies have been conducted related to this topic and sophisticated analysis can be applied, most hospitality professionals face both time and resource constraints and are more likely to approach the challenge of competitive set selection using information that is generally available to them through the normal course of business.
What follows is a practical guide to selecting a competitive set for purposes of performance benchmarking.
Properties are either purpose-built to cater to a given customer segment, or have gravitated over time towards serving one or more customer segments that constitute the majority of business for a given property. Understanding the business mix of each competitor will help practitioners to better understand which properties are similar to their own. For those in an acquisitions or development role, this exercise will also help identify where upside potential may exist.
While it is true that during low demand periods, properties may think of every other property as a "close" competitor, it is important to consider the natural segment that each property serves best. In the case of convention center property, the most relevant competitors may be in another city or even another region.
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