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How much money do you leave on the table?

09 August 2022
Hotels compete in a market where market share is very transparent. Governments require hotels to report how many room nights they sell and their room revenue. In addition, several benchmarking companies collect more detailed information about the market. As a result, hotels have perfect information about the market and can calculate their market share, fair share, and how much money they leave on the table to their competition.
The famous quote about lies: "There are three kinds of lies: Lies, Damned Lies, and Statistics" — has been attributed to Mark Twain, who himself attributed it to British Prime Minister Benjamin Disraeli, who might never have said it in the first place. Even though there is some truth in the quote since it is easy to fool oneself and others with the way you present statistics. Let's see how statistics about the market mislead hotel owners.

Happy with the big picture

The hotel has an annual RevPAR of €150 in a market with a yearly RevPAR of €150. That means that the hotel's Revenue Generation Index (RGI) is 1.00, which means that the hotel gets its fair share of the market, not more or less. Therefore, the hotel owner is happy. However, this is an average of all 365 days during the year, which means some days are over and others are under 1.00.
Calculating average market shares for a whole year is meaningless if the hotel wants to improve the room revenue. The hotel needs more details to take the right actions to grow revenue.

Vague about the details

Breaking down the annual figures by month will not help much. The average is still there and does not give much additional information. It is also pointless to look at each day since the revenue manager will be lost in details. The only way to understand the performance is to look at patterns to find where the hotel leaves money on the table and when the hotel steals money from the competition. The pattern analysis will show one of two possible results. One is that there is no pattern, so the RGI each day is random. The conclusion is that the hotel has no clue about the market and likely no strategy to capture the market. The other scenario is that the hotel can see clear patterns by the day of the week or seasons. The hotel has a strategy for some market segments but does not understand the total market potential.

Finding the potential

It is not until the hotel understands the market that it can realize its full market potential. Hotels that understand the market can devise a strategy to steal money from their competition and grow revenue and profits. A cleverly created plan will increase market share and lead to long-term success.
The revenue potential is substantial for every hotel, no matter which level of RGI they initially have in the first analysis. For example, when we analyzed hotels with the potential analysis feature in Demand Calendar, we found that all hotels had an additional market potential of between €200 000 and €3m in room revenue. By visualizing patterns, Demand Calendar points out where the hotel has the potential to grab more of the market to grow revenue. In addition, Demand Calendar dives deeper into the information. It can show the strength of the market, segments, and distribution channels, to guide the hotel in creating a strategy to capture more of the market.