Excellent revenue management
requires a mastery of two variables: external competition and internal
booking pace. Every few years, it is a good idea to take a fresh look
at the competition, to quickly identify your enemies and set your rate
strategies to achieve your primary goal, a positive RevPAR index. The
past few years have not been business as usual, so it may be time to
take a broader look at your competitive audit.
A Harvard expert on the competitive strategy, Michael Porter points out
that all industries face not one, but five competitive forces, four
more than simply the direct competitors (like the hotel across the
street). The four other competitive forces may not immediately come to
mind; but, like your direct competitors, they all work together to
diminish your net profitability. The four subtle competitive forces
are: new entrants, the bargaining power of customers, the bargaining
power of suppliers, and substitute products. Monitoring how these
forces are aligned against your property and using sound strategies can
limit their detrimental effects.
New
Entrants
We have seen many new hospitality approaches emerge as large chains
seek to expand offerings, fill out product lines and appeal to
increasingly segmented markets and niches. Products like W, Hyatt
Place, and Marriott Edition are carving niches out of markets that used
to be open to broader brands. If you set your strategies to compete
with the current lineup, you may be obsolete when new entrants with new
ideas better serve your current guests. The recent economic downturn
has caused some customer segments to make some difficult choices and
many have left the full-service sector in favor of limited service
alternatives with a shorter but more relevant list of amenities such as
free Wi-Fi, flat screens, iPod connectors and a pantry. This has had a
dramatic effect on the demand for 24-hour room service and in-room
movies.
Another aspect of new entrants is new communications channels used by
current competitors. How you keep up with social media trends may be
difficult as this area is still very fragmented and clear market
leaders have not yet emerged. Don’t bet the farm on any one social
media effort until bookings there start to represent real money, and
keep a low cost involvement so you do not have to start from scratch
when it becomes a primary booking channel.
Substitute
Products
In leisure hotels, this might take the form of pleasure cruises
or even camping trips. Many times these forces seem so remote that they
do not justify a mention in your completive audit, but failure to
review them periodically can prove fatal. These competitive forces are
much harder to identify, much less quantify, but a sharp eye on your
advance bookings and social media feedback can usually give early
warning of emerging hotspots and whether they are viewed a substitute
for your destination. Convention bureau surveys (or simply asking your
guests which other destinations they consider) can monitor these hard
to identify substitutes. When they do emerge, you must first take an
honest look at how your destination and property stack up and adjust
your marketing mix and messaging to focus on the features, benefits and
advantages of your property.
Closely aligned with substitute products are complementary products. At
first, complementary products, like airlines, appear to be allies.
However, a fundamental shift in airline scheduling strategies took a
large percentage of airline seats out of the market and choked off the
customer flow. While you cannot control the airlines, you need to have
alternate plans ready. As your complementary products deal with their
internal issues, they can very quickly become a negative competitive
force.
Supplier
Bargaining Power
A third competitive force is a very unlikely suspect, your
suppliers–the people from whom you buy. They don’t compete directly
with you, but they influence your ability to compete. For
example, if your reservation service is outsourced, you need to convey
to the provider the need to compete on conversion rates, services
levels and costs per call if you both are going to survive. Similarly,
it is a good idea to keep an open dialogue on your competitive posture
with your employees and unions. You cannot provide job security or
growth, if you are not keeping up with your competition in labor rates
and work rules.
Customer
Bargaining Power
The fourth competitive force is the customer. A good place to start
here is distribution channel partners. If commissions and mark-ups are
higher for you than your competition, then you are at a competitive
disadvantage. It is essential to work with your channel partners to
offset this cost disadvantage. It is a difficult landscape because the
major OTAs demand rate parity with your Website (and with each other),
but none of them promise mark-up or commission parity. We always need
to be negotiating for improved revenues to offset any mark-up
discrepancies. Monitor the rates that your direct competitors are
posting in the opaque and package channels to ensure you are getting a
fair share of the business you want (and are not taking the business
that you wish to yield to your competitors).
All these competitive forces lurk out there and we have not even
mentioned your direct competitors who operate properties in your city.
Notice, I did not say your competitive set; many competitive sets do
not identify all true competitors. This level of competition is the
most important and you probably don’t need a lot of marketing strategy
to audit them, but there are four areas that you should focus on each
year:
1.
Who is in your competitive set?
2.
What is your unique selling proposition against them?
3.
What is your price-value equation against them?
4.
What has changed to influence your price-value equation?
Competitive Set:
Question your choice of your competitive set. You shouldn’t lightly
change your competitive set because the numbers make most sense when
viewed over time. However, this is not as important as knowing who your
customers view as you competition and monitoring performance against
them. A good place to start is to identify all properties that charge
the same basic rates that you charge. If a property is charging a
similar rate, they are seeking the same price customer and should be
reviewed even if they have not been a traditional competitor. Not all
properties that charge the same rate are necessarily direct
competitors; but this needs to be assessed.
Unique Selling Proposition:
The next step is your USP, what makes your property worth being in the
market and better than your direct competitors. It may be as simple as:
we are always cleaner than our competition or we will not be undersold.
On the other hand, it can come from a complete strength, weakness,
opportunity and threat (SWOT) analysis. The important thing is that it
helps communicate who you are and provides a focus for executing the
strategy.
Price-Value Position:
After you have stated your USP, you need to determine your price-value
position. Specifically, this means how your rates should compare with
each competitor, everything else being equal. Everything else being
equal is a tough notion; but here, it can be best described as where
all the competitor base room rates would be if you were all on pace for
a normal occupancy. This is the starting point for setting your
competitive rate differentials. For example, be priced $20 over hotel
A, at par with hotel B and $20 under hotel C. As competitors fall
behind in booking pace they will lower rates; but you should not react
until observing a drop in your own pace.
Price-Value Equation Changes:
The last variable is what has changed in your price-value position.
This year pay special attention to product upgrades. With recent
occupancies at all-time lows, many properties have used the time to
renovate their hotel (like changing tires under the yellow flag in
NASCAR). As a result, flat screens are no longer exclusively found in
four-star properties.
Indeed, many three star and lower chains have implemented new, upgraded
standards. That is not your grandmother’s Holiday Inn. This phenomenon
requires some site visits this year. When you go on property, be ready
with your mental check list. Besides electronics, hot items may
be new bathroom amenities like mirrors, lighting and curved curtain
rods.
Now Execute: As a
revenue manager or general manager, after you have completed your
competitive review you are ready for another year of taking the fight
to the market. Keep your competitive advantages in mind throughout the
year as rate wars unfold and watch for opportunities to take price
leadership. Finally, through it all, keep your eye on the prize–RevPAR
index.
Tim Coleman is a revenue
management consultant and chairman of HSMAI Revenue Management Special
Interest Group.
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