Benchmarking for 360° business Management

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Benchmarking for 360° business Management

November 9, 2020, In Fairmas Blog

Integration of competitors in the BI solution

Summary:

Benchmarking is the systematic collection of performance data of a market, its market participants, and the comparative analysis using key performance indicators.  Benchmarking seeks best practices in order to identify the potential for improvement. In addition, Benchmarking serves as an ex-post analysis to review one’s own sales and pricing strategy.

The Yin and Yang of corporate management and market observation

In a market economy, companies have many different relationships. Each of them is relevant and has a direct or indirect impact on profits.

The hotel guest’s relationship is of particular importance for hotel success, but of course, the market environment and competitors are just as important.

After all, digitalization has also led to the fact that today’s travelers can quickly and easily find out about available hotel offers. All they have to do is to google a little on the internet, and online booking portals (OTBs) and/or Google will show them a list of all accommodation alternatives with the corresponding room rates. This means that the traveler is presented with a simple hotel comparison on a silver platter. A frequently noticed effect of the high transparency through digital comparison portals is a decreased brand loyalty and an increased willingness to change. Why not try out something new when something better is available for you?

This makes the competitor an essential component for your own long-term hotel success. Or, to put it another way: The 360° perspective on your own company’s success is only complete with information about the market and competitors.

Benchmarking – market observation along with comparison and Top-Performance

Benchmarking is much more than just market observation. The observation of the market consists of recording and documenting. An example from the hotel industry is the market observation by rate shoppers. Rate Shopper browse (scroll) room rates of hotels on the internet in real-time. They record the prices on the hotel’s website as well as on online booking portals. The result is a consecutive report on room rates for a specific day.  The rate shopper cannot say whether the room has actually been booked and at what price. In hotel benchmarking, this information is the key information. Only and exclusively bookings that have been made at the achieved rates are collected from the hotel’s booking system. The benchmark is about actual sales. In contrast, the Rate Shopper collects offered rates.

With this key difference, Benchmarking becomes a management method for increasing competitiveness[1]. Hotel benchmarking is the search for top performances to identify potential for improvement.

For this purpose, the data is converted into key performance indicators. In everyday hotel life and controlling, the ‘key performance indicator’, or KPI for short, is often used. It is the performance figures that provide a sense of orientation, and rankings. Also, by comparing the data, they reveal the undiscovered potential for improvement.

Benchmarking – Information for decisions

The saying “Only those who know the past can understand the present and shape the future” applies.

An example:

To check your previous sales and marketing strategy, compare your hotel performance with the results of your CompSet. (Note: CompSet is composed of Competition and Set. A CompSet consists of at least four hotels. The values are anonymized. Hotels in a CompSet address the same or very similar target group).

In order to determine whether your hotel is performing better or worse than your CompSet in the market, a number of industry-specific key performance indicators (KPI) are available for daily hotel benchmarking.

In addition to the widely used KPIs occupancy rate (Occupancy), average room rate (ADR), and average revenue per room rented (RevPar), these include the following: 

  • Average Rate Index (ARI) = achieved average room rate in relation to the average room rate of the competitor set
  • Market Penetration Index (MPI) = achieved market penetration/market share in relation to the competitor set, based on occupancy
  • Revenue Generation Index (RGI) = achieved revenue in relation to market share within the competitor set.

The chart shows an example of an evaluation by Fairmas for a hotel in relation to the Market Penetration Index (MPI). If the MPI is below 1, as in our example, it is recommended to investigate why. A value below 1 means that the hotel’s occupancy rate is below average compared to its CompSet. Additionally, coloured arrows show the change in the Revenue Generation Index (RGI) compared to the previous year. The red arrow indicates that the value has deteriorated. Therefore, it is sufficient to take a look and ask what the competitors have done differently or better. 

 A quick and accessible analysis of the KPIs occupancy rate, room price, and revenue per room rented (Occupancy, ADR, and RevPar) shows the development compared to the past as a difference and as a growth rate.

If you want to check whether a (advertising) campaign for a specific event or trade fair was successful, compare the KPIs from the current year’s trade fair period with the values from the years before without advertising. In general, a growth rate of zero means no change, and a negative growth rate means a deterioration.

Our service: If you would like to learn more about Benchmarking and would like a demo of Fairmas Benchmarking or the integration of benchmark data into Fairmas’ CPM software, please contact us.

Quality standards for hotel benchmarking

That brings us to the data that benchmarking collects and converts into hotel key figures. The definition of benchmark distinguishes between internal and external benchmarking.

The data must come directly from the hotels on the market. Here, competition law sets strict limits in order to restrict the possibility of agreements that distort competition. The data must be anonymized for further use.

Furthermore, the quality of benchmarking depends on two aspects of the number of hotels participating in the benchmark. First, the comparison hotels (direct competitors/CompSet) that are important for the respective hotel must be included. Secondly, only a sufficiently high number of participants realistically reflects the market and is therefore representative.

The data must also be recorded thoroughly. In other words, it is best to record digitally and automatically. Every interruption, every wrong number increases the risk of drawing the wrong conclusions. Another quality feature of Benchmarking is the length of the time axis that can be looked back on. Correlations are often easier to recognize when more high-quality data has been evaluated.

Checklist for hotel Benchmarking

  • Web-based – available 365 days a year and 24 hours a day
  • Daily, monthly and annual performance comparison event reporting (fairs, vacations, etc.)
  • Special reports for the head office
  • Individual competitor sets
  • Reports in any foreign currency
  • Display Best & Lowest Performer
  • Extended data collection (total turnover, travel, guests, etc.)
  • Trend barometer as an outlook for the coming months
  • Automatic e-mail reporting and Excel export
  • Interfaces for automated data import and export from PMS and data warehouse systems
  • Declaration of toleration by the German Federal Cartel Office

BI solutions only complete with Benchmark data

This question “What can (still) be done better?” is the core question of hotel controlling, the corporate management function that BI software such as FairPlanner supports.

Therefore, benchmark data should definitely be included in a CPM software dashboard for hotel financial planning.

FairPlanner integrates benchmark data automatically via interfaces. This saves the FairPlanner user the tiresome switch from the financial planning solution to another program, as the KPIs from the benchmark are already visible in the FairPlanner dashboard. This is a crucial component for identifying and taking into account the existing potential for maximizing hotel profits.  

Note: For years, STR and Fairmas have had a strategic partnership so that joint customers have access to all data. STR data is integrated into the BI solution via an interface.


[1]Source (German): https://monami.hs-mittweida.de/frontdoor/deliver/index/docId/1220/file/Bachelorarbeit_Benchmarking.pdf