I’ve attended four different in person or virtual seminars where panel members or experts have talked about the future of the hotel industry for 2022 and beyond.  Words like “incredible rate growth” and acknowledgments about hoteliers “finally figuring out that rate reduction doesn’t stimulate demand” warmed my heart.  People all looked so excited.  As my forte is Pricing and Revenue Management, I was excited to see my comrades feel proud about their work.  I honestly looked around several times and saw some boastful smiles.  It was magical.

Most of the panelists and experts fell short of putting hard numbers to their expectations – but man did they use some superlative words.  “Speak it into existence” was a theme at one of them.  “Excitement will only be tempered by forces out of our control” was an actual quote from another.  The rosy outlook seems universal.  As of August 12, STR is projecting a 6% growth in ADR for 2022.  On October 8^th, RAR Hospitality made similar claims.  CBRE claims 11.4% (albeit in July so it’s an old forecast).  Three respectable sources.  Three positive outlooks.

At Hotel Compete, we figured out a long time ago that the best indicator of the future of our industry is in the Average Published Rate trends.  What do rates – already published – say about the future?  The rates in place now form the basis of the future of our industry.  Regardless of your business mix, the one thing you can control is the price your customers see.  It’s like the thermostat in your house.  I know what 72 degrees feels like.  I can set my thermometer accordingly.  If I want to feel 65 degrees, my trusty thermometer allows me to adjust.  In a matter of an hour or two I’ll stop feeling 72 and start feeling 65.  Rates are the thing all hoteliers can control most easily.  We can turn them up or turn them down.  Raise them or lower them.  Our actions show immediate dividends.  Nothing changes the “on the books” numbers like a good price change. Yet during all these presentations, not one analyst discussed current published rate growth.  Not one.  No one mentioned how much higher the rates for the next 90 days were versus a previous period.  How something so integral to our industry continually gets overlooked baffles me.  Well here at Hotel Compete, we do look.  We are always looking.  And we have three reasons why we think hotels should also have been looking as we wrap up budget season.

Reason One – Increase Coming from a new Hotel Type

For years, our industry has largely owed its rate behavior to a certain type of hotel.  The big kind.  The full service, ask the concierge, room-service loving hotels that flood our major cities with welcoming smiles.  They were largely the innovators in revenue management and certainly the initiators of most of our rate behavior.  Consider the charts below:

Rate growth trends very nicely from 2016 to 2019, adding 2.9, 2.5 and 4.6 points of index in successive years.  Ignoring 2020, the growth from 2019 is roughly 12.5 points.  A substantial growth pace.  Even if we make the arbitrary decision to “split” that growth as if 2020 was a normal year, we could assume that 2020 and 2021 added more than 6 points per year.  A positive trend no matter how you slice it.

Our concern is that the growth isn’t coming from traditional sources.  Historically Full Service/Luxury segments make up more than 80% of the year over year change.  Simply put, when we see a 5-point growth, 4 of those points came from the impact of the higher service hotels.  2021 is not like that at all.  In fact, it is a total flip.  78% of the rate growth we are seeing now comes from hotels who traditionally don’t provide that kind of industry rate help.  I can’t speak to the sustainability of this trend, but I can assure you that my experience tells me that “new” information needs time to ferment before I call it a fine wine.

Reason Two – Convergence of Hotel Types and Value Proposition

While attending the seminars, I’ve heard a few themes that excite me.  The desire to integrate Revenue Management with Marketing and Sales into a single corporate entity is exciting (although I swear, we were talking about that 15 years ago).  The new tools and data sources that hotels are using are exciting – better data is the foundation of better decisions.  But the lack of discussion around “value proposition” and “relative pricing” terrifies me.  In 2008, Reed Holden and Mark Burton wrote what I consider to be the bible of pricing thought process (you can buy it here – I highly recommend it) and if you take nothing away from the book, take away this – CUSTOMERS UNDERSTAND VALUE PROPOSITION.  When value proposition goes awry, alternatives become more easily identifiable.

To facilitate my point, we are going to set a rule.  Luxury hotels offer more services and amenities than Full-Service Hotels.  Full-Service Hotels offer more services and amenities than Mid-Scale Hotels.  Mid-Scale more than Limited and so on.  I am keenly aware that this progression is a bit fuzzy right now due to the labor issues, but we are thinking in the future so let’s assume the world gets back in order in the near term.   I think most of us think it will, but we have entered uncharted territory, so we have no choice but to assume.

At Hotel Compete, we create what we call “rate groups”.  It’s a relatively simple concept, we take your average published rate for the next 90 days, couple it with a weighted mode rate and remove some outliers and put your hotel into a bucket.  The bucket says, “my hotel in general charges rate X”.   Then you categorize 150,000 hotels worldwide using the same method.  This way we have a profile of your rate behavior.  We have about 30 other profiles for your rate behavior, but those are stories for another day.  Everything we are showing here is for US based hotels, there are more than 55,000 in this sample.

The “All Hotel Types” chart below shows an interesting shift in the price hotels are charging.  The red line indicates the shift from the bottom.  Fewer hotels have a published rate profiles in the “Less than $80” range than ever before.  While the green line indicates a huge shift in price points upwards to the “Less than $200” range.  While much of this can be addressed with the aggregate average price increases, much is also attributed to the contraction between the rates charged by “high service Hotels” versus those with “low service” profiles.  The “Full Service vs. Non-Full Service” chart shows below the dramatic shift in rate grouping for the Non-Full Service hotels into groups directly on top of the Full Service Groupings.

One of two things is going to take place over the next few months.  The first is that Full-Service Hotels will begin to increase rates at a pace similar to all other groups.  Thus, creating a full industry wide shift to a base of higher published rates across the board (making up for the issue in Reason One above).  The second is that Non-Full Service Hotels will retreat their rate growth and create a natural separation fueled by a value-based pricing approach that is suitable to consumers.  I am hopeful that the actual result will fall somewhere in the middle of the two options.

Reason Three — Increases versus decreases

The final area of concern is the trend of rate increases each day versus rate decreases.  As I mentioned, we track a lot of things rate-related.  One very large one is the volume of rate increases and decreases each day from the previous day’s rates.  The past 6 years or so, you could bank on a certain pattern each day of the week.  Mondays are more volatile than most days, Fridays have minimal changes and weekends have primarily increases only.  All that said, on average about 7.5% of rates increase each day and 6.2% decrease.  You can almost set your watch by it (well not your Apple Watch, it sets for you).

It appears though that some magic must have taken place on October 4^th of this year.  On that date, the pattern of continuous rate increases suddenly began disappearing.  With it, a significant portion of the rate growth also disappeared.  Rate reductions are at a five year high.  Pushing 9% on some days.  This isn’t a seasonal occurrence either.  Change volumes in October are usually lower than other periods.  Look at the chart below:

Seems to me that the more we change, the more we stay the same.  On this magic date, just about the time we started getting all the rosy projections, we’ve changed our behaviors.  Rate decreases day over day now exceed the increases.  The shocking part is the sudden change.  What happens when rates start decreasing faster than they increase?  Future aggregate rate growth suffers as well.  If it interests you, we have seen future rate growth decline for 33 consecutive days.  Losing nearly 3 full points in the process.

Remember the number I asked you to keep in mind?  That number (11.3%) is the current growth rate of all rates versus the same period in 2019.  A month ago it was 14.3%. In all honesty, when I envisioned this post, I was planning on focusing on the huge growth and joining in on the “the future looks rosy” bandwagon.  Now it appears I can’t.  It bears watching, and watching closely, so we’ve built a US Published Rate Trends Dashboard to allow you to do so.  The tool is free and it updates daily.

You can’t do all the analysis I’ve done above with the free version, but we have solutions to allow you to tailor the view you want available.  Just call us or shoot an email – we are happy to talk. I am personally available at jimrozell@hotelcompete.com

Imagine your price-based RMS has been up and running for a few months now.  You feel pretty good about a few of the recommendations you received.  You’ve made a few rate changes that you might not have made before, and you’ve skipped a few that didn’t look correct.  Your confidence grows daily in this new tool.  You may already have given thought to allowing the tool to go to “auto-pilot” and simply allow the system to make changes on your behalf.  But if you do, how can you be sure things are working well? How can you be certain that the tool that was intended to make your life easier and generate more revenue, is accomplishing its goals?

Your price-based RMS should perform three very important functions for you.  Two are simply maintenance items.  The first question to ask is: Did your hotel maintain its position within your compset?  I have 5 competitors and my rate is usually the 3^rd highest.  Did my price-based tool maintain my ranking in the compset?  Have I moved up?  Have I moved down?  Changing my ranking on a few select days is acceptable, but a change every day represents an entirely new strategy.  The second function is even more important.  Is my relative price point to my competitors remaining intact?  Long ago my hotel set a strategy to be “$10 behind competitor Z and $5 above competitor Y.”  Am I still executing my strategy?  A permanent change in relative position usually requires a known change in my offering or a change in competitors offering.  If that hasn’t taken place, correcting your rate position is often in order.

The tools are driving higher volumes of rate change

The third function is a bit trickier.  The proliferation of these types of tools has generated a much higher volume of rate changes than in years past.  At Hotel Compete, we track the volume of rate changes within the hotel category each day.  Limited-service and mid-scale hotels are now behaving much differently than they have over the past 5 years.  The comparisons are dramatic.

Both limited-service and mid-scale properties are changing their rates at more than twice the frequency they were in 2017 and 2018.  Branded properties are changing at even greater frequency.  If you drill down and focus on the brands who we know are utilizing price-based RMS systems, the rate of change is even more dramatic.  It is the exact intended outcome the tools promise.  The changes are likely generated from two methods: 1) Better focus on high demand dates and 2) Better response to competing hotel rate changes.

Am I changing rates for the right reasons?

It gets interesting when you start tracking the volume of your rate changes against those of your competitors.  Full-service hotels can lean more on internal high demand dates due to greater business mix (groups/corporate/special events) to facilitate rate changes.  Limited-service/mid-scale hotels often reside in markets where those factors are less impactful.  Thus price-based RMS tools lean heavily on “response” to competitor changes.  When one hotel changes its rate for some reason, the tools are going to recommend corresponding responses from your hotel.  It may do so even when there isn’t a significant demand change at your property.  I have always viewed this as “communal revenue management”.  Why not take advantage of the other guy’s increased demand and net a few more dollars on my own bookings?  Relatively speaking, my product offering versus my competitor hasn’t changed, so it is a win for all!!

Is my price-based RMS doing its job?

Let’s make a few assumptions.  My compset is correct (I used Hotel Compete’s Compset Analyzer tool and found the perfect compset).  I’ve applied the proper weight to my competitor’s rates so I can aggregate the market rate properly (thanks again CSA).  I’ve even used CSA to establish my “optimal rate index” for positioning my rate relative to the compset.  I’m all set and I am confident in my strategy.  Now how do I track my RMS and ensure I am executing my well thought out pricing strategy?

At Hotel Compete, we’ve identified 3 metrics that combine to ensure we are always moving in the right direction.  We call it Rate Momentum Monitoring.  The three metrics provide an overall view of what is going on in your compset.  The three metrics are as follows:

1. Rate Rank Indexing – Measures the day-to-day variance in my “rank” within a compset.  If I expect to be 2^nd of 5 comps, how frequently am I in that position?  How long do I wait when I get “out of position” to get back into position?  How does that position change over a normal booking window?
2. Rate Position Indexing – Mentally you consider the “$10 higher and $5 lower” mechanics, but what you are really doing is maintaining a constant “my hotel to the compset” index in price.  Because you “can’t match everybody”, what you aim for is a relative index that remains constant.  This is even better when you ping this position to an “optimal rate index”.
3. Rate Volatility Indexing – Understanding the impact of the frequency of rate changes within your compset.  When I change my rates, who follows?  When a competitor changes his rates, do I follow? 

When you couple the three together, you can measure how well your hotel is utilizing the tools and how well the tools are positioning your hotel for optimal rate capture.  We do this by identifying a starting point in the “evolution” of a published rate and then day-by-day tracking the “rate events” that take place over a period leading up to the check in date.  Like any good metric, it can be boiled down to a simple score that you track daily.

How does it work?

Let’s walk through an example:

It’s 30 days to arrival and my hotel has established its desired position relative to the compset.  I’ve used CSA to verify I have the right comps.  I’ve created an effective “weighted compset rate”.  I’ve positioned myself right in the middle of the compset price wise.  Now all that needs to happen is for me to “maintain” and grow with the comps.  Let’s see what happens on day 2 of this booking trend.

Some change is taking place.  Comps 1 and 2 in the market both raised their rates.  Now I find myself in the proper order, but suddenly missing 5.5 points of relative rate position.  Comps 1 and 2 have started the “volatility clock” and await the market response.  The “path to arrival date” clock is also ticking.  On the morning of 8/5/2021, my price-based RMS recommends I move my rate to $114.  I accept the recommendation and wake up the next morning looking back to normal (I’m also collecting an additional $5 for each booking I take – which is nice).

A job well done

This cycle continues and with proper due diligence and attention, you find yourself at the arrival date in the following position.

I’ve maintained my rank; I’ve maintained my relative position and I’ve maximized the volatility of the market with my own changes.  If I were to grade my RMS on this date, it would receive high marks.  I grew my rate with the market and maintained my value proposition against my competitors.  This is a near perfect scenario for my price-based RMS.  But am I doing this on every check-in date?  Are there any “response gaps” where my lack of response cost me dollars on my bookings?  Are there dates where I moved my rate, and the responses of my comps didn’t maintain my position?

One person can’t do this daily – you need help

Using our abundant rate data and a proprietary algorithm, Hotel Compete has created a process that helps you track and grade the performance of your tools.  We can tell if you are doing well or doing poorly.  More importantly, we can help you proactively identify dates when you are putting yourself at risk or are missing an opportunity.  We consider it “insurance” on your investment.  You wouldn’t own a car without gauges to tell you if you are overheating.  Why would you simply trust that a price-based RMS is always doing its job?

Next up we will review some aggregate data on a few “anonymous” brands (don’t worry brands and providers – we will protect your identity) and tell you how you can get access to grading your own performance.  Stay tuned.

Price Based RMS are not your Fathers RMS

The concept of the RMS has changed dramatically over the years.  Early systems were very “user oriented”.  They had multi-level forecasts, sophisticated displacement methods, and leaned heavily on the “unconstrained” room concept.  While this approach works well for a 600-room hotel with a variety of client types, room types and booking patterns, it often does very little for the smaller hotels.  To provide solutions to larger numbers of hotels and reduce the complexity of the systems for properties who could not justify full time revenue management personnel, the “price based” RMS became the norm for most installations since 2015.  Price based RMS lean less heavily on accurate forecasting, require much less understanding of displacement and offer hotels insight into the simple thing most of hoteliers know well about their property – THE BEST AVAILABLE RATE.

Personally I think Price Based RMS are Genius

Despite the more simple approach, I do not diminish their value.  Let’s face it, if you suddenly are given an impetus to raise your price by $5 and have a tool telling you it will do nothing to slow your booking pace, why not do it?  Who would refuse an extra $5 from every booking they take?  We’ve successfully used the tools to get past that awful “prices should end in 0 or 9” fallacy, so there is a lot to be thankful for Price RMS tools.  Count me in as a big fan.  Anoint me an ambassador for signing up every hotel.  But proceed with caution.

Make Sure You are Prepared – you can’t just “turn these things on“

The most important portion of your Price-based RMS implementation will come long before you generate a single recommendation. In the world of “garbage in – garbage out” Price -based RMS are the kings. Nothing is more important to these systems than a properly selected and well thought out approach to the list of competitors. If your RMS provider doesn’t spend considerable time discussing this with you, they are the wrong provider. Simply put – GET YOUR COMPSET right.

Market Reference Price Weighted vs Non-Weighted

To illustrate this issue, lets understand the concept of the “market reference price” (MRP).  The MRP is nothing more than an aggregation of the BAR rates of your competitors.  For example:

The simple non-weighted approach is show above.  If my rate is $109, my relative position is “pinged” to $120.40 (roughly 90.5% of the market price).  Any change to any of the 5 competitors, should require a change from my hotel to maintain my position.  This example ignores the “most important competitor approach”.  Thus, a concept of “weightings” is generally applied.  GMs are asked to “rank competitors” and apply weightings to each competitor, so that the “market reference” price becomes a rate specific to the reference hotel.  For example:

Using a weighted approach, the MRP drops to $116.05 and the reference hotel now indexes at 94% of the market.  In simple terms, it is a 3.5-point change in relative position. While a small number, it represents a strategic missed opportunity or worse an oversight that costs bookings.  I’ll make it even more simple, if your RMS provider promised you a 3.5% return on your investment – you’d jump at it.  Because 3.5% is a huge improvement in your rates.  So, starting with a 3.5 point “deviation” is huge.  Determining the weightings, to date, has not been science so much a tribal knowledge.  It’s a risky proposition.

What if My Compset isn’t Correct?

What if one of the 5 competitors isn’t really a “price” competitor or an “alternative” hotel for potential bookers?  If Hotel C truly doesn’t belong in this compset and my RMS has been making recommendations using irrelevant data – my problem gets worse.  I have, in fact, used technology to harm my hotel’s relevant position in the market.  What if seasonally I have a different set of competitors?  What if my competitors vary on weekends?

Enter Compset Analyzer (CSA).  Compset Analyzer is a tool that performs an objective view of your marketplace.  CSA identifies hotels who consumers (not hoteliers) would be considering booking if they were also considering booking your hotel.  It assesses your services offered, amenities offered, guest review profile, location (and relative location), published rate behavior and web search result commonality in your area.  It scans hundred of potential competitors, scores each for similarity to your property and rank orders them in a concise manner.  The result is an unbiased view of the hotels that Consumer A would also be shopping if they had looked at your property.  Each candidate is scored and ultimately, a recommend compset is generated.  That recommend set further delivers proposed “weightings” that could feed a Price based RMS.  Finally, the process generates an “optimal rate index” against the proposed compset.  This index allows you understand where you should position your hotel against a “market reference” rate to maintain the proper rate on a day-to-day basis.  The CSA process has no restriction on brand, competitor type or any other roadblock.

Using the outputs from CSA will “kick start” your Price based RMS and put you in a position where the outputs are more meaningful.  If your RMS provider hasn’t walked you through a scenario like CSA does, you could very well be hurting your hotel’s position rather than helping it.

If you would like to find out more about Compset Analyzer, please contact Hotel Compete at sales@hotelcompete.com.

Where do we go next?

Compset Analyzer is just a part of this discussion.  An important part, but not the entire discussion.  In the next two parts of this discussion, we will address monitoring the performance of your RMS.  We will take a deeper dive into how well you maintain your position in your compset.  We will answer questions about your rate volatility relative to your competitors.  We will take stock in what happens when you change your rate versus a competitor changing their rate.  All with an eye on building trust in your RMS investment. 

Who knows, you might learn a thing or two you didn’t know.

Summer 2019 is winding down.  The litany of annual hotel summer sales is dwindling, and a view of the future rate landscape is taking shape for the end of summer booking lull. 

Overall rate growth is about zero.  As we look forward 120 days from today, on average the published rates look about 1.0% higher than last year.  If you plan to travel in the next few months, you can expect to pay on average about $152.26 per night for your stay.  That’s a touch cheaper than you paid over the summer, but about the same as you paid last year.

As with any good analysis, the devil is in the details, so here are a few breakdowns of what is looking good and what is not looking so good.

Service Class Comparison

Luxury Hotel rooms continue to pace the rate growth with a near 4% increase over last year.  Full-service hotels, which are about 11% of the sample, have a solid improvement of a 2.6% increase.

Regional Comparison

Across the US, the 1% increase isn’t a given.  In fact, the rate growth across the US is largely carried by one quarter of the country.  West Coast hotels sport a 3.5% growth year over year, driven by a 4+% growth in the Mountain region.  Hotels in the Midwest are down across the board and the Mid-Atlantic and West South-Central regions lag everyone with a near 1-point decline in year/year-average rate.

The West South-Central rates are strong (albeit with only a few hotels) in the Luxury category, but every other category is down relative to the US average.  This region is a stronghold for Expanded/Limited/Basic service properties (91.8% of all rooms) and none are performing particularly well as we move forward.

Major Brands Review

Finally, a quick look at the top brands in the US.  There are a few disturbing numbers in this list.  However, we are not the type to pass judgment or call out performance from potential new clients, so we will allow the graphic below to speak for itself.

Moving Forward

Next month we plan on diving into some major city rate trends, along with our Service Class/Regional/Brand reviews.  Towards the end of the year, we will be providing a 2020 rate growth forecast free of charge!

If you want a greater dive into the data shown above, contact us at sales@hotelcompete.com. I’m sure we can provide you the ability to slice and dice your way to analysis paralysis.

Take care and have a great month.

Interested in knowing how we calculate growth rates? read The Methodology from our first blog Hotel Compete: Future Industry Published Rate Trends

It seems that every day we are shown a new and exciting sale from hotel companies.  Whether it is a “Make Your Break” sale or a “Global Sale” – discounted rates appear to be the new norm in the hotel industry.  Summer has historically been “sale time” in the industry, which ironically is usually the busiest time for most of the US/CA.

So, all these sales are driving the price down – correct? Maybe or maybe not. To help the industry better understand the future of published rates Hotel Compete has created a tracking mechanism for overall rate growth.

The Methodology

As this will be the inaugural post about rate growth, we figured it would be a good time to let you in on how we calculate growth rates.

Each week we will be taking a snapshot of the future rate values for more than 46,000 hotels in the USA (we will be layering in other countries over time).  Each hotel is considered “comparable”.  Essentially it has a similar sample of “future” dates as it had last year.  To put it simply, if it was open and published rates last year AND this year, it likely made the cut.

What are “future dates”?  We sample each hotel for a 90 minimum day rate sample.  That sample includes a dense population of the next 60 days and sparse snapshots of 30 random dates after 60 days from now.  For example, hotel A is checked for each of the next 60 check-in dates and 30 “other check-in dates” after that through 330 days into the future.  Any “special event” that is non-recurring is excluded (think Super Bowl). 

Each date is “weighted” accordingly, so that the closer in dates are weighted more.  Dates where the hotel is closed out are assessed using the last rate that was available before close out.

Rather than simply using a single rate for each hotel and averaging those prices, we weigh the rate by number of rooms at the hotel.  This ensures that the 2,000 rooms at the Hyatt Chicago are more influential than the 45 rooms at the City Suites Hotel in Chicago.

The balance of the formula is a trade secret and while we aren’t as protective as Colonel Sanders, we are pretty protective.  We’d share it, but then we’d have to…. well you get it.

Rate Trends by Hotel Class

We further have our own logic for hotel classification (we’d happily share that with you if you contact us).  Essentially, we assign all hotels into 5 categories.  The highest is luxury (think 4.5+ star) hotels and the lowest is roadside motels (think roadside, pull your car up to the door property in Paducah, KY).

We don’t generically group you into a category based on brand or your ADR.  We categorize based on the services and amenities you list about yourself via the various on-line channels.  If you have a spa, 3 gold star restaurants on-site, a concierge and award-winning artistic features, you are likely a luxury hotel in our world.  If you offer a free hot breakfast, free parking, no restaurant, etc.  You are probably in our “Limited Service” category and so on.

Luxury hotels, while pacing the industry in growth, are lagging in their historic growth rates (we’ll cover this at a later date). Basic Service Hotels on the other hand are REALLY struggling right now.  This might be a result of the numerous sales currently in place, but that is a deeper dive.

Rate Trends By Brand

If we look at the data a Brand Parent Company level has (think all Choice Hotels, not just Comfort Suites). We can see that hotels whose portfolio falls largely in the lower end of the hotel class spectrum are lagging the rest of the industry in rate growth.

Taking a slightly deeper look by reducing the sample to ONLY the Limited Service and Basic Service categories, the pattern is clearer.  And it is a reminder of how impactful a single hotel company can be on the overall reported industry results.

Moving Forward

Over the next few weeks we will be publishing a few different snapshots of the trends and data.  We will ultimately land on a set of metrics we will update weekly in some form of dashboard for our readers to reference regularly.

If you have any questions or wish to have access to a deeper dive (region, state, brand, etc.) we are happy to share some answers.  Please send all inquiries to sales@hotelcompete.com (no we won’t try to sell you something – yet).