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Is benchmarking helpful for losers?

17 January 2023
Hotels are driven by benchmarking to understand their performance versus their competitors. If the hotel is performing better than the competition, everyone is happy. These are the winners, and they tend to keep doing what seems to work. Benchmarking only confirms that what they are doing is the right thing. On the other hand, if the hotel is performing worse than competing hotels, general managers and owners will put a lot of pressure on the team to shape up. These hotels are the losers, and they play the game of catching up. However, once they think they have caught up, the winners have taken a step forward and are still ahead of the competition.

Can benchmarking help losers take action and create a plan to surpass the competition, or would it distract the team from creating a strategy that would make them a winner? Let's start with the benefits and challenges.

The benefits of using benchmarking in hotels

The definition of benchmarking is the process of comparing a hotel's performance against industry standards or other hotels. There are several potential benefits of using market benchmarking in the hotel industry.
  • Understand the market: By accessing benchmarking data, a hotel will get a better understanding of the size, seasonality, and demand patterns of the market. This information will trigger hotels to at least capture their fair share of the market.
  • Setting goals and targets: Benchmarking can help hotels set realistic goals and targets for market share performance based on what is achievable at a specific destination.
  • Identifying areas for improvement: By comparing a hotel's performance to a comp set of comparable hotels, it is easier to identify the KPIs where the hotel is falling short and needs to improve.
Calculating how much money the hotel leaves to the competition would be an eye-opener for many hotels and trigger actions to capture at least the hotel's fair share of the market.

The challenges with benchmarking

There are a few challenges that hotels may face when it comes to benchmarking, including the following:
  • Data quality: Even if the instructions from benchmarking companies are clear, the data reported by hotels may not always be reliable or of high quality. The actual data might need to be corrected, but changes in KPIs will be more accurate if reporting errors are consistent.
  • Data availability: Not all hotels participate in exchanging data for benchmarking, so the hotel does not get the total overview of the market. Still, trends tend to show how the market has evolved.
  • Determining appropriate comp sets: It can be challenging to determine which competing hotels are most relevant and meaningful to benchmark for a hotel. This may require a lot of research and analysis, and several comp sets might be needed for an accurate comparison.
  • Ensuring data privacy: Hotels may be reluctant to share sensitive data with other hotels, but the worry is exaggerated since benchmarking companies manage all data securely and never share data for a specific hotel.
Even if there are a few challenges, the benefits outweigh them, so all hotels should subscribe to market benchmarking from a hospitality benchmarking company.

The winners

Now, the question is, how much do you need to benchmark competitors when you are ahead of them already? It is generally a good idea for hotels to benchmark their competitors on an ongoing basis, regardless of whether or not they are currently ahead in terms of performance. This is because the hotel industry is constantly changing, and hotels must stay abreast of industry trends and developments to remain competitive. Furthermore, even if a hotel is currently ahead of its competitors, there is always room for improvement. Therefore, benchmarking can help identify areas where the hotel can further enhance its performance.
Additionally, benchmarking can help hotels identify potential threats or opportunities that may arise in the future, allowing the hotel to respond proactively and adapt to changing market conditions. Benchmarking can also help a hotel identify areas where they are already performing well and where they can capitalize on their strengths to further differentiate themselves from their competitors. Therefore, winners must continuously benchmark their competitors to stay informed about market trends and identify opportunities for improvement and growth.

The losers

The definition of a loser is that the hotel is far from reaching its fair share of the market. Something needs to be fixed with the hotel's commercial strategy, quality, service, or something else. The hotel should start to analyze why it needs to catch up in market performance.
  • Could you figure out the root causes of any underperformance and brainstorm potential solutions?
  • Could you please identify if the hotel is outperforming or underperforming in occupancy or average rate for seasons or specific days of the week compared to the other hotels?
  • Set specific, measurable, achievable, relevant, and time-bound (SMART) goals for improving the identified areas of underperformance.
  • Could you develop a strategy for reaching these goals, including any necessary changes to processes, policies, or resources?
  • Could you implement the strategy and track progress toward meeting the established goals?
Continue to benchmark the hotel's performance on an ongoing basis to identify any additional areas for improvement and ensure that the hotel remains competitive. Even if setting a goal and implementing new creative strategies to grow market share, the losing hotels can rarely catch up to their competitors. Benchmarking tends to drive sameness and commoditization and creates followers. The losers try to do the same thing as their competitors but need more insight and are therefore in the dark so that the results will reach a different level than the competitors. Lowering the rate to gain short-term effects is tempting, but this tactic will only reinforce sameness and commoditization and continue to drive down rates.
A loser can only gain market share by differentiating themselves from the competitors and potentially surpassing their competitors in terms of performance. This way, benchmarking can be a proactive and forward-thinking process that helps hotels stay competitive and achieve long-term success. To surpass competitors and become number one, a company must also be innovative and take bold risks. The key to success is differentiation in concept, target audience, products, and services, but also in exploring and implementing new technologies to provide better service and become more productive in how the hotel markets and sells itself. By combining benchmarking with innovation and risk-taking, a hotel can stay competitive while positioning itself as a leader in its niche.

Do not mimic your competition

Another type of benchmarking is comparing the rates that competitors currently offer potential guests. There are several tools available in the market to compare rates. Rates tend to change frequently or every hour, so the tool has to be real-time and shop rates several times daily. Nevertheless, there are one excellent and many wrong reasons to monitor competitors' rates. A good reason to monitor competitors' rates is to take advantage of vital insights into market demand. It is unlikely, but there is a slim chance that even a great revenue manager might miss something that suddenly starts to drive demand.
Losers tend to be nervous and use rate shopping for numerous wrong reasons. There are too many unknowns, so it is hard to make decisions based on which rates competitors charge.
  • Never blindly follow the competition when they change their rates. The reason for the rate change is unknown, so it is very difficult to decide on changing the rate based on a competitor's rate change.
  • Rates are rarely comparable unless the hotels are standardized and sell room nights as a commodity. Still, hotels have different room types, amenities, facilities, and locations, so there are differentiators in all hotels that guests are willing to pay for.
  • The price (rate) is only one P out of the 4Ps that all business students learn in marketing courses. To become competitive, hotels need to develop the other three, product, place, and promotion. It is a misconception that guests only select hotels based on the rate.
Instead of nervously changing rates based on competitors' rates, could you set a pricing strategy?

Create a unique pricing strategy

A pricing strategy is your short- and long-term revenue plan. The best hotel companies document their pricing strategies and make it a living and breathing document. I'd suggest you document your pricing strategy in writing, which will help get all roles in your hotel's commercial team and top management on the same page.
The price strategy document has four building blocks.
  • Setting clear goals and prioritizing among conflicting goals.
  • Pick a price positioning strategy. For example, are you generally selling rooms at a higher or a lower rate than your competitors (skimming or penetration)?
  • Set price-setting principles that define the rules of your strategy, such as price differentiation, price endings, price floors, and general price increases.
  • Finally, define your promotional and competitive reaction principles to avoid unplanned knee-jerk price reactions.
Hotels with well-defined pricing strategies are more likely to realize their revenue potential than hotels that do not have them.

Find the balance

Benchmarking will give hotels valuable insights when creating a strategy to become successful in a competitive market. So, if you belong to the winners, capitalize on your strengths and continue to develop your concept, product, and services to keep adapting to changing consumer and market trends.
If you belong to the losers, start by analyzing why you lose. You will find that the competitors do some things that hotel guests appreciate much better. The competition might have found something you have yet to be aware of. Could you start by copying what the competitors are doing right? If you never copy best practices, you must repeat all the mistakes yourself. Copying competitors drives sameness and commoditization, which tends to drive down prices. Only copying will always keep your hotel one step behind the leading hotels. To become a winner, you must create ideas to attract guests to your hotel instead of competing hotels.