Competitive analysis for hotels: 3 mistakes to avoid when choosing your competitive set

The first mistake is also the most common among hoteliers, which is looking at the wrong competitors. Choosing the wrong competitors not only means that the analysis will fail completely, but also that you run the risk of making the wrong strategic decisions and damaging your hotel's performance.

There are many reasons why hoteliers often focus on the wrong competitors, but let's take a closer look at the most common ones.

Including properties that cater to a completely different audience than your hotel can lead to misleading conclusions.

For example, if your hotel caters primarily to families, it is important to compare it to other similar properties that offer services and amenities appropriate for this type of clientele. Similarly, if you run an "active hotel" that focuses on sports and outdoor activities, you should only consider competitors that attract guests with similar interests.

Even generalist hotels, i.e. those that do not have a specific target audience, run a significant risk if they think they can compete with any type of accommodation, perhaps only because of geographic proximity.

How to avoid this mistake: clearly define your target market (existing or desired) before selecting competitors. A thorough analysis of the demographics and preferences of the guests you want to attract will help you identify the properties that are most similar to yours, ensuring a more relevant comparison and more effective pricing and marketing strategies.

Another common mistake in competitive analysis is to select hotels that target the same customer segment as you, but offer very different services than yours. Even if the target audience is the same, the difference in services can lead to completely different market results.

For example, a hotel with a restaurant that caters to families by offering baby food and meals at flexible times, thereby relieving parents of a significant burden, will have a very different appeal than a hotel without a restaurant, even if they both target the "family" segment. This shows that it is not enough to have the same target group in order to be direct competitors.

How to avoid this mistake: analyze not only the target market, but also the type of services offered by the competitors, and make sure that the properties you choose to monitor offer an overall experience similar to yours. This will also be a great exercise to consider introducing strategic extras you hadn't considered before.

Another common mistake is choosing competitors based on your own desires and aspirations rather than a realistic comparison. It is natural to want to improve and to seek out properties that offer superior service or have a good reputation, but the competitive set should focus on properties with which you can compete on a level playing field.

How to avoid this mistake: Include in your competitive set only those competitors that operate in the same market segment as you and offer similar services as you do. Separately, create a list of hotels that are aspirational models for you to watch as models to learn from and be inspired by.

Competitive analysis should be conducted using common metrics that help you objectify and measure the differences between you and your competitors.

These metrics, known as Key Performance Indicators (KPIs), are:

• average daily rate (ARR or ADR),
• the occupancy rate,
• and revenue per available room (RevPAR).

Often, these data are not included in the analysis because they are difficult to find and track without direct sharing from competitors.

How to avoid this mistake: If you cannot get the data directly from competitors, there are still effective ways to collect it. For example, you can monitor prices posted on competitors' booking engines or OTAs and check room availability. Also, monitoring the average position of competitors' hotels on OTAs when searching by destination can provide valuable insight into their market positioning.

A common mistake is to keep your competitive set always the same.

In reality, the hospitality market is extremely dynamic: new properties open, others close or change management, and strategies evolve.

That's why it's critical to analyze and record all changes when monitoring your competitors: renovations, new services and products can have a significant impact on travelers' perceptions and, therefore, your positioning within your competitive set.

For example, if one of your competitors decides to close its restaurant while yours is still open, you will need to replace it with another hotel.

How to avoid this mistake: Review and update your competitive set at least every six months. This will allow you to reflect changes in the marketplace and ensure that the analysis remains relevant. Do this even if your property is a market leader: keeping the analysis up to date will help you stay ahead of the curve and avoid the risk of being overtaken by potential up-and-coming competitors.

Combining the results of the competitive set with those of a revenue management software (RMS) means that you can significantly simplify the management of your accommodations and have a more objective and up-to-date picture of how your competitors are behaving and how demand pressure is changing in the market, allowing you to make data-driven decisions.

For example, if you see particularly high demand pressure for a particular date, you can analyze the behavior of your competitors and observe how they are doing before making decisions about your rates or how to distribute rooms across different OTAs.

Did they close rooms on Booking.com? If they haven't, the percentage of customers interested in your property will be higher.

Have they raised prices significantly? Then they are getting a lot of bookings. In that case, you might decide to raise them even higher and wait for the competition to run out of availability, and then use your remaining rooms to attract customers who book later and are willing to pay more.

Cross-referencing competitive set analysis with traditional revenue management software to determine and apply the best pricing strategy is time-consuming and skill-intensive.

That's why we created Smartpricing, a dynamic pricing and revenue management software that automatically collects not only your property's internal data, but also data related to market trends in your location.

In this way, Smartpricing automatically applies the most appropriate dynamic pricing strategy for your lodging property and reacts promptly to any fluctuations in demand.

Want to see how it works? Request a free personal demonstration!