How to use competitor analysis to increase your lodging establishment's revenue
Competitor analysis is a key part of any hotel’s or bed & breakfast's revenue management strategy.
Knowing your competitors and how their rates vary means knowing how to go about attracting more customers than they do.
Automated revenue management software does this task for you, however, you can analyze your competitors on your own if you do not own this kind of software and are unsure about purchasing it.
In this article we explain why you need to know your competitors, how to identify them, and how to analyze their pricing strategy to make your rooms profitable.
Let's get started.
Why you should know your hotel's competitors inside out
Your competitors are the other accommodations in your target area competing with you (and each others) to attract customers.
Namely, they are the other hotels and bed & breakfasts in your destination where your guests may choose to stay.
Knowing your competitors and their rate trends is critical.
First, it gives you greater awareness of your market and what is happening within it.
Travelers in the new millennium are increasingly informed and, thanks to the Internet, are always aware of a location's prices and room availability in real time.
To battle with others on equal terms in this super-competitive arena, you must have the same level of awareness and knowledge as your customers.
On the other hand, knowing when your competitors are raising or lowering prices helps you understand the trends in room supply and demand.
This way, you know if your location is about to face a change in reservation requests and can adjust your rates accordingly.
How to identify your competitors
To know and study your competitors, you must first know yourself.
What type of facility do you operate? What are its characteristics? Where is it located? What is your target clientele? What are your high and low season periods?
Based on this information, you must then make the fundamental distinction between direct and indirect competitors.
Direct competitors are those similar to you that your potential customer puts on an equal footing when making a choice.
Two hotels with the same services, the same clientele and in the same location are two direct competitors.
Indirect competitors are all those businesses other than yours that might still take guests away from you for some reason.
For example, if you run a bed & breakfast, an indirect competitor might be a campground in your location, or other bed & breakfasts in a destination competing with yours.
Potential guests deciding to stay home and not book is also your indirect competitor!
Now that you know this fundamental distinction, let's see who you need to focus on to optimize your revenue management strategy.
The competitors you need to analyze in our case are the direct ones.
We simplified the concept just now, but recognizing your direct competitors may actually take more effort than expected.
If you identify those that YOU believe are your direct competitors, perhaps based on proximity to you or the same number of stars, you risk deriving misleading information.
Rather, analyze your competitors by adopting the perspective of the GUEST.
Basically, always ask yourself: what other accommodations in my locality can my typical customer book into?
For example, imagine you run a small 4-star hotel in Milan, near the Duomo.
Who are your direct competitors? The other 4-star hotels in the center? Or even those in the suburbs and hinterland? Do we also consider the larger hotels with hundreds of rooms?
Only by putting yourself in your guests' shoes can you answer these questions.
If you mainly welcome tourist couples who want to sleep within walking distance of the Duomo, then your competitors are the other establishments in the area.
They don't have to be 4-star hotels; they can also be B&Bs offering similar services.
On the other hand, if your typical clientele are business travelers who want to sleep near the subway, your competitors also become the establishments near the other stops on the line.
Based on this information, identify at least 2 direct competitors to analyze.
If you think you have no competitors because you don't run a hotel in Milan, but the only lodging facility in a remote hamlet, I'm afraid I have to disappoint you.
Even then you have competitors, and you need to look for them among accommodations in neighboring towns.
How to analyze your competitors' rates
Now that you have identified your direct competitors, let's look at how to analyze them to see if room demand is growing and if you need to raise or lower your rates.
To accomplish this benchmarking activity, as it is called, open Excel or Google Docs and create a competitor analysis table, like this one.
In the left column enter the months of the year, and in the columns beside, you enter for each one:
- the names of your competitors, at least 2;
- two date ranges per month, one close to the weekend and the other during the week; you choose which you think are the most significant dates, the important thing is that they are the same for each facility;
- the price for those dates; choose the channel you think is appropriate (facility website, Booking.com, etc.) as long as it is always the same for all evaluations;
- the date of your verification, i.e., the date on which you conduct the search;
- the facilities that have room availability; these must be all the facilities in your location, not just your competitors.
Compiling this table is a progressive task to be done month by month and, as you can imagine, takes up a good part of your time.
Based on the observations you make, you can gain important information about trends in room demand and whether you should adjust your rates.
For example, you may suddenly observe an increase in rates and a decrease in room availability for a date you were not considering.
Perhaps there is a major event you were unaware of that attracts many more travelers than the average for the period.
Or you may observe a drop in demand and find that your prices are excessively high at that time.
In either case, it may be appropriate to adjust your prices, but always intervene rationally and without getting caught up in the frenzy.
Your competitors may not always act correctly, so avoid following them at all costs.
You can decide to do this analysis on your own, or you can rely on automated revenue management software that can do the work for you and save you valuable time.
Smartpricing does just that!
It is the first fully automated revenue management software made in Italy, is simple to use, and chooses room rates for you by analyzing a myriad of data (including competitor data).
It also generates clear reports, always up-to-date on your competitors and accessible from any device.