Quality: A Missing Ingredient from Hotel Performance Analysis

July 12, 2011 in Journal by Hotel Compete

In our last two blog posts we introduced the idea of analyzing hotel attributes to define comp sets.  We suggested that the industry’s exclusive focus on historical performance biases analysis in some unhelpful ways.  In particular, it limits our ability to identify true performance opportunities.

Today the industry reports exhaustively on the performance that a property achieved relative to the comp set that it selected for comparison.  But to identify true opportunities, we must have a notion of the performance a hotel should expect to get.  This is a blind spot in current industry metrics.

To understand why this is an opportunity, imagine two hotels that compete directly with one another.  If one of them were to reflag, or invest significantly in adding new services and amenities, it would no longer be appropriate to expect the two hotels to perform at parity.  Yet industry metrics would treat the hotels as if nothing happened, creating the impression that one hotel is “out-performing” the other.

What’s missing is a systematic way to judge whether the performance that a hotel got was better or worse than it should have got.  That is a surprisingly difficult insight to develop, as it requires us to understand the factors that influence performance.   Performance is a factor of two things: how many guests stay at a hotel and how much money they spend during that stay.  To baseline performance, then, we should focus on the things that influence bookers – eg location, amenities, services, brand & marketing strength, pricing, etc.

Hotels conduct this type of analysis today when they conduct Value Assessments – in fact a good piece on SWOT analysis for boutique hotels was published only this week.  However, this remains a manual and largely subjective process for hotel companies, and the insights it produces are missing from the metrics that the industry uses to measure itself. 

Chain Scale can be used to be the different hotels in today’s reporting, and while this provides a useful descriptive classification, it only tells a small part of the performance story.  Hotels vary significantly within brands – particularly today, as development budgets have been limited for so many operators over the last couple of years.  A better approach is to perform the analysis or relative quality at individual hotel level.  This enables us to set a baseline from which we can understand whether a hotel’s performance is stronger or weaker than it ought to be

The passenger airlines addressed this problem back in the early 1990s, introducing the Quality of Service Index (QSI) to bring greater predictability to performance analysis.  We will return to this subject in the coming weeks, but you can learn more about the QSI and the systematic base-lining of hotel performance by visiting our website.

In our last post we mentioned a study being performed by Columbia University in collaboration with Hotel Compete.  The authors of that paper made the observation that the hotel industry, with its manifold points of product differentiation, lends itself to systematic product-based analysis of competitor sets.  We agree.  The detailed analysis of individual hotels helps us not only to identify competitor sets, but also to describe the relative quality of each hotel, based on its attributes.   And that is an insight worth developing, as it can show us where our performance opportunities really are.