How to Identify a Hotel Competitive Set for a Hotel Market Study Access the HVS Library
Canadian Monthly Lodging Outlook October, 2012
Accurately identifying a competitive set is important for a hotel market study because the data provide both a more accurate perspective on a hotel’s historical operating performance and a basis for projecting a hotel’s future performance. The competitive set provides a context for understanding a hotel’s relative occupancy and average daily rate (ADR) performance and also establishes a baseline for and constraints on the projection of a...
Accurately identifying a competitive set is important for a hotel market study because the data provide both a more accurate perspective on a hotel’s historical operating performance and a basis for projecting a hotel’s future performance. The competitive set provides a context for understanding a hotel’s relative occupancy and average daily rate (ADR) performance and also establishes a baseline for and constraints on the projection of a hotel’s future operating potential. In essence, the determination of a competitive set allows for supply and demand trends in the market to be quantified, which in turn enables a more reasonable projection of future performance and a more accurate assessment of actual performance.
A hotel in any given area will not necessarily compete with all the hotels in that area for the same sources of demand. For a hotel market study, it is necessary to determine which hotels compete with the subject hotel and to what degree, and it is likewise important to eliminate those hotels that are not competing for the same demand. To this end, all the lodging facilities in a market area should be inspected and analyzed in order to support the selection of the appropriate competitive set.
Many criteria can be used to establish the competitive set, but location, brand, product type, quality, and ADR are the main considerations. The use of these criteria makes the process of selecting the competitive hotels more objective than would otherwise be possible. The process of selecting the hotels to include in a competitive set is nonetheless subjective, and the biases of the person making the selection can influence what hotels are included and excluded.
As every hotel market is unique, the criteria for selecting the competitive hotels help guide the decision-making process, but they are not a cut-and-dry indicator of competitiveness. In making the final decision about which hotels to include in the competitive set, one needs to consider the criteria but also look at the market holistically and take into account the nature of the demand generators on which the lodging market is built.