According to STR, Hotel benchmarking is the process of comparing your property’s performance against the competition, adding a layer of context to what success and failure look like in your circumstances and environment. The key to unlocking this level of understanding is the historical performance data, both yours and that of the competition.

Looking at your hotel’s performance in isolation does not provide the full picture when the data is analysed. Having a 20% revenue increase year on year (YOY) sounds like a good result, but if the competitor set has increased it’s revenue by 35%, the comparison shows the hotel underperformed. Also, having a 5% drop in revenue appears to be poor performance, but if the competitor set has dropped 15%, the hotel clearly outperformed the other properties. Benchmarking also helps to further analyse the numbers and identify how can the hotel further increase their market share.

There are various tools available for hotels to benchmark various aspects of the business. For revenue management, the STAR report produced by STR is the most wildly used tool.

STR uses 3 main indexes to compare the hotel’s performance to the competitor set’s.

• MPI is the Market Penetration Index.

To calculate MPI: (Subject hotel Occ / Aggregated group of hotels’ Occ) x 100 = Occ Index/MPI. For example, if the subject hotel’s Occ is 80%, and the Occ of its competitive set is 80%, the subject hotel’s MPI is 100. If the subject hotel’s Occ totals 96%, its MPI is 120, indicating the hotel has captured more than its expected share. If the subject hotel’s Occ totals 64%, its index is 80, indicating the hotel has captured less than its expected share.

• ARI is the Average Rate Index.

To calculate an ARI:  (Subject hotel ADR/Aggregated group of hotels’ ADR) x 100 = ARI. For example, if the subject hotel’s ADR is £50, and the ADR of its competitive set is £50, the subject hotel’s ARI totals 100. If the subject hotel’s ADR totals £60, its ARI would be 120, indicating that the hotel captured more than its expected share. If the subject hotel’s ADR totals £40, its ARI would be 80, indicating that the hotel has captured less than its expected share.

• RGI is the Revenue Generating Index.

To calculate RGI: (Subject hotel RevPAR / Aggregated group of hotels’ RevPAR) x 100 = RevPAR Index. For example, if the subject hotel’s RevPAR is £50, and the RevPAR of its competitive set is £50, the subject hotel’s RGI is a total of 100. If the subject hotel’s RevPAR totals £60, its index is 120, indicating the hotel has captured more than its expected share. If the subject hotel’s RevPAR totals £40, its RGI is 80, indicating the hotel has captured less than its expected share.

• Step 1 is creating a competitor set. The key is the choose a competitor set which is the true reflection of your competitors. Think about where your guests would stay if your hotel was full? Having a hotel on the same street which has an entirely different customer base to your hotel is not your competitor, but a hotel a few miles away who caters to the same customer base will be.
• Step 2 is understanding the metrics and the reports. Full article on how to read the STAR report can be downloaded on this link
• Step 3 is analysing the report. STR provides many types of comparisons. Data can be compared to last year’s data, last month’s data, day of week data etc. Due to the vast amount of data, it is important to choose the most relevant ones to your hotel and competitor set. Analysing everything will not allow the hotel to take the next step in the process.
• Step 4 is taking action. The first 3 steps lead to the most important part of the Benchmarking. Comparing the right data sets will allow the revenue manager to evaluate past and current strategies and develop new ones to increase the hotel’s market share.

Next week we will look at different aspects of the STAR report and discuss how these can be interpreted and what strategies can be derived from the data analyses.

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