Tags: #MarketShare, #MarketPenetration, #RGI, #MPI, #ARI, #FairMarketShare, #Quadrants, #RevenueManagement, #HospitalityCode
When we look at tools to measure the performance of our hotel, it's all starting with Occupancy %, ADR and RevPAR as base measurements.
Once you understand your hotel’s performance you need to be able to compare and measure it against your market and competition. This is where Market Share and Penetration Analysis becomes an important tool to gauge our hotel’s marketing success.
I have created downloadable free Excel file on our "Resource Hub" which called “Market Share Workbook” with Sample Hotel report which you will find screenshots on this article and exercises for your use. Please feel free to visit hospitalitycode.com/resource-hub to download.
Let’s look start reviewing them accordingly:
Fair Market Share:
Fair Market Share is an indication that a hotel’s overall performance stacks up against its immediate competitors.
A hotel within a competitive set can work out if it’s getting its Fair Market Share through a simple calculation:
Fair Market Share = Total number of rooms at the hotel / Total number of rooms in the comp set
As an example, if you have 100 rooms and total comp set number of rooms including yours are 1,000; you fair market share is 1,000/100 = 10%. So, if your hotel achieves 10% of the total rooms nights within its market set in a given month, your actual share equals to Fair Market Share and your hotel’s occupancy index would be 100%.
However large or small the comp set, a hotel trying to make itself more competitive can use a Fair Market Share tool to compare its individual percentage to their comp set.
Market Penetration Index (MPI) or Occupancy Penetration Index
MPI is a calculation to measure your hotel´s occupancy compared to the average market occupancy levels (also referred to as market share) and MPI tool helps the hotel to see its position and performance in proportion to the competitors and the market in general.
It gives a guidance of understanding a hotel’s dominance and demand in the marketplace, however, it’s not the best index for measuring performance as a whole as it doesn’t account for revenue at all. Hotels that drop rates may boost their MPI but suffer from lower a reduced RevPAR and consequently, lower GOPPAR.
MPI = Hotel Occupancy % / Comp Set Occupancy %
When:
MPI = 1 The hotel Occ% is equal to the average Occ% of their comp set
MPI > 1 The hotel Occ% is higher than the average Occ% of their comp set
MPI < 1 The hotel Occ% is less than the average Occ% of their comp set
Average Rate Index (ARI)
Similar to MPI, this performance index measures how a specific hotel’s average daily rate compares to a competitive set. An ADR index of 100 typically signifies a fair share of the ADR as compared to the aggregated group of properties that the market is comprised of – an index greater than 100 represents that hotel receives more than their fair share in the marketplace. Conversely, an ADR Index below 100 reflects less than a fair share of the aggregated group’s ADR performance.
This metric serves as a metric to pricing right in the marketplace as well as an illustration of a hotel’s rate performance against its competition, helping determine whether rates need to be lowered or elevated.
ARI = Hotel’s ADR / Comp Set Market ADR
When:
ARI Index = 1.00 The hotel ADR is equal to the average ADR of their comp set
ARI Index > 1.00 The hotel ADR is more expensive than the average ADR of their comp set
ARI Index < 1.00 The hotel ADR is less expensive than the average ADR of their comp set
Depends on the occupancy rate, the hotel can choose to lower, equal or higher their ADR compared to the ADR or their comp set in order to gain more revenue and make themselves more competitive to their competitors.
Revenue Generation Index (RGI) or RevPAR Yield Index
Another comparative index like MPI and ARI, the RGI measures how the hotel’s RevPAR compares to other hotels in the competitive set. If a hotel is capturing its fair market share, the index will be 100; if capturing less than its fair market share, a hotel’s index will be less than 100; and if capturing more than its fair market share, a hotel’s index will be greater than 100.
RGI results should exceed 100 base index otherwise hotels in a competitive set are converting more business than your hotel. Enhancing the RGI maximizes hotel profitability. This helps determine where costs need to be lowered and/or rates need to be increased.
RGI = Hotel’s RevPAR / Comp Set Market RevPAR
When:
RGI = 1 The hotel RevPar is equal to the average RevPar of their comp set
RGI > 1 The hotel RevPar is higher than the average RevPar of their comp set
RGI < 1 The hotel RevPar is less than the average RevPar of their comp set
Market Quadrant:
To be able to provide an accurate picture of hotel’s place in the market, market reports also keep previous years results. This enables us to see changes year-on-year and where our hotel sits in terms of its performance.
There are four quadrants;
“AG” Ahead & Gaining,
“AL” Ahead & Losing,
“BG” Behind & Gaining,
“BL” Behind & Losing
“A” Ahead and “B” Behind looks for This Year’s RGI;
If RGI>100 then “A”, RGI<100 then “B”
“G” Gaining and “L” Losing looks for YoY performance change;
If the hotel performing better than LY then “G” and if performance dropped YoY then “L”
Cash Impact:
Cash impact looks at both hotel’s and market’s YoY RGI performances for a given period, compares and provides cash figure impact. If the hotel performing better then it will be a positive and if performance dropped then it will give negative cash value.
Cash Impact = (TY RevPAR - (LY RevPAR / CompSet LY RevPAR) x CompSet TY RevPAR) x Total Nr of Hotel Rooms for the period)
The advantage of Using Market Comparison Reports
Track your performance vs competition
Helps in strategic pricing decisions
Help improve profitability
View supply, demand and revenue changes
I have added downloadable free Excel file on our "Resource Hub" which called “Market Share Workbook” with Sample Hotel report and exercises for your use. Please visit hospitalitycode.com/resource-hub to download.
Please follow me on www.hospitalitycode.com for my articles on various areas of Hospitality business, trends and interpretation methods.
Comments