Hotel competitive set: How to build and analyze yours

Key takeaways

• A hotel competitive set (compset) is the group of 5–10 properties that guests view as direct alternatives to your hotel.

• Build your compset based on how travellers actually shop: filter by location, star rating, price range, amenities, guest reviews and target segment — not just proximity.

• Analyse compset performance using three key indexes: MPI (occupancy), ARI (rate) and RGI (revenue). A score above 100 on any index means you're outperforming your competitive set.

• Maintain multiple compsets for different purposes: primary competitors, seasonal alternatives, aspirational properties and reverse compsets all serve distinct strategic functions.

• Review your compset at least twice a year to account for new supply, renovations, repositioned properties and shifts in traveller behaviour.

• A static compset or one with too many weak competitors flatters your numbers but undermines your strategy. Instead build one that reflects genuine competition.

What is a hotel competitive set?

A hotel competitive set, also know as a compset is the group of properties that guests view as direct alternatives to your hotel when making a booking decision.

Typically comprising 5 - 10 hotels that share similar characteristics such as location, star rating, pricing, amenities and target guest profile, your compset forms the basis for benchmarking occupancy, rate and revenue performance.

Hotel competition has evolved dramatically. Properties today don’t just compete with neighboring properties anymore; you must consider the impact of short-term rentals, competitors adapting the focus of their hotel, shifting traveller expectations, an unpredictable economic and political climate and a multitude of distribution channels.

In such an environment, relying on a static or outdated competitive set can quickly undermine performance.

You’ll be familiar with the idea that a compset is the group of properties guests view as alternatives to your hotel when booking.

But how can you properly define the right compset and analyze it effectively?

Both tasks are necessary components of benchmarking occupancy, rate and revenue performance, and for making informed commercial decisions.

In this blog post we outline the essentials for success.

How to build your hotel competitive set

How do you determine who your competitors are in your market? Are you basing it on the competitive set established by your predecessor 5 years ago? Maybe you’re considering the five hotels in closest proximity to your own.

The key is to ask: Would a traveler consider this hotel an alternative to yours when visiting a particular city or location?

When selecting your compset, consider several key factors. The best approach is to adopt the viewpoint of a potential guest looking to book your hotel.

Evaluate the factors they’d prioritize when making a decision, giving special attention to these criteria:

• Type of accommodation. Compare hotels that offer a similar scale and experience to yours, as guests rarely cross-shop fundamentally different accommodation types.

• Room pricing. Focus on hotels that typically price within a comparable rate range, as these are the properties guests are most likely to evaluate alongside yours.

• Hotel category. Assess competitors in the same star rating or market segment, since guests generally filter and compare hotels within the same category.

• Guest feedback. Benchmark against hotels with similar review scores and sentiment, as reputation often becomes the deciding factor when other attributes are comparable.

• Proximity to your hotel. Prioritize hotels in the same neighborhood or immediate catchment area, where guests perceive location as interchangeable.

• Quality of service. Compare hotels with a similar service style and level, whether that’s formal, full-service hospitality or a more relaxed, personal approach.

• Business facilities. Include hotels offering comparable meeting and group facilities if corporate or MICE demand forms part of your business mix.

• Leisure facilities. Assess competitors with leisure amenities that appeal to the same guest segments, even if the facilities themselves differ.

Understanding the broader market context and where your hotel sits within it means you can be agile, adapt your revenue management strategies and maintain an optimal market position to identify revenue opportunities.

To address these challenges, Lighthouse offers Smart Compset within Lighthouse Pricing. An industry-first feature, it dynamically adjusts your compset as the market shifts, providing realistic and relevant analysis of your true competitors, and enabling agile, data-driven revenue management.

A strategic feature, it can significantly impact your hotel's performance, Smart Compset offers the agility and insight needed to maintain a competitive edge.

Types of hotel compsets

A solid competitive set should include about 5 to 10 hotels. Any more and it becomes a challenge to draw actionable conclusions from your analysis. But once you've established your primary competitive set, it's useful too to formulate secondary and tertiary compsets.

These also each comprise another 5 to 10 properties you consider highly important but not to the same degree as your direct competitors.

This approach allows you to monitor a variety of segments, providing a comprehensive view of your local market, and it hones in on the factors of most significance to your property.

You can tailor additional compsets based on various factors. For instance, if your property is close to a popular music venue, other nearby hotels may become competitors only during specific events.

Consider whether any of these types of compsets are relevant for your hotel:

• Seasons. Your hotel might cater to different traveler segments during different times of the year. Leisure travelers will choose your hotel for very different reasons from business travelers and travel more at different times.

Rather than fitting your high season and low season together into one, split them out. That way you can have a primary competitive set for weekdays and high season, and a second compset for weekends, holidays and low season.

• Proximity to your hotel. Your primary compset should include some competitors based on their proximity to your property. However, it won’t solely comprise neighboring hotels. It’ll include competitors further away but with an equal quality of service and similar star category.

You could opt for a secondary compset, only including neighboring hotels or pull in those further away but competing on a number of other factors.

• Aspirational. Whether you use the aspirational second compset or it’s an often requested point of analysis by your General Managers and owners for RGI score purposes, it’s good to aim high.

If you’re a 4 star hotel planning renovations or a full rebranding of your image, you’ll already want to compare your prices to future competitors as part of your repositioning.

• Reverse compset. You’re selecting hotels to be in your competitive set based on many reasons but it may be relevant to look at the properties who consider your hotel one of their benchmarked competitors, something you can infer from tools like Lighthouse Performance. After all, your strategic rate decisions impact them directly.

How to analyze your competitive set

Building your compset is only the first step. The value comes from using it to measure your performance and inform pricing decisions. There are two core disciplines here, benchmarking your performance against the compset using index metrics, and tracking competitor pricing in real time across all channels.

Benchmarking with MPI, ARI and RGI

Benchmarking gives you a clear view of how your hotel is performing relative to competitors. Three key performance indexes, commonly found in STR STAR reports, form the foundation of compset analysis:

Market penetration index (MPI) compares your occupancy to the comp set's occupancy.

It's calculated as: MPI = hotel occupancy ÷ comp set occupancy × 100. This tells you whether you're capturing your fair share of room demand.

Average rate index (ARI) compares your average daily rate (ADR) to the comp set's ADR.

The formula is: ARI = hotel ADR ÷ comp set ADR × 100. This reflects how your pricing stacks up against comparable properties.

Revenue generation index (RGI) compares your RevPAR to the comp set's RevPAR.

It's calculated as: RGI = hotel RevPAR ÷ comp set RevPAR × 100. Because it combines both occupancy and rate, RGI gives the most complete picture of overall revenue performance.

A score above 100 on any of these indexes means your hotel is outperforming the comp set — capturing more than its fair share of the market.

The real insight comes from reading all three together. If your ARI is consistently above 100 but your MPI is slipping, you may be pricing above what the market will sustain and losing bookings to competitors offering better perceived value. If your MPI is strong but your ARI lags, you're likely filling rooms at the expense of rate and leaving revenue on the table.

Lighthouse Performance provides daily-updated MPI, ARI and RGI data alongside your internal business intelligence, giving you a unified view of how your hotel is performing against the comp set, historically, in real time and into the future.

Real-time competitor pricing

While benchmarking indexes tell you how you're performing relative to the comp set overall, a rate shopping tool shows you exactly where your pricing sits against each individual competitor across channels, room types and future dates.

Rate shoppers automatically collect and display competitor pricing across OTAs, brand.com and GDS, showing how your rates compare historically, in real time and into the future. This removes the need for manual checks and spreadsheets, making it easy to spot competitors that are undercutting you or leaving pricing gaps you can exploit.

With both benchmarking data and real-time rate intelligence, you can align pricing with demand and comp set behaviour, adjust promotions with confidence, and protect both revenue and profitability.

Lighthouse Pricing delivers this visibility at scale, aggregating billions of daily data points from hundreds of thousands of hotels and short-term rentals to help you understand market trends and optimize pricing with industry-leading real-time data.

Common compset mistakes and how to avoid them

The internet has made hotel competition exponentially more dynamic. Travellers typically compare numerous properties online before finalising a booking, facilitated by OTAs and metasearch engines. You are no longer solely vying with other brands, you must also consider a vast array of competitors, including short-term rental properties. In this environment, a poorly constructed or neglected compset can quietly undermine your entire revenue strategy.

Inheriting an outdated compset

One of the most common mistakes is simply never revisiting the compset your predecessor put in place. Markets shift, which means new hotels open, existing properties renovate or rebrand, short-term rental supply fluctuates, and traveller expectations evolve.

A compset that was accurate three years ago may bear little resemblance to the competitive landscape today. Schedule a formal compset review at least twice a year, ideally as part of your regular strategy meetings, and trigger an ad hoc review whenever a significant change hits your market (a new opening, a major renovation, a brand conversion).

Stacking your deck with weaker competitors

It's tempting to fill your compset with lower-tier properties that can't realistically match your hotel's performance.

The result looks flattering, you get strong MPI and impressive ARI to show your owners but it tells you nothing useful. You end up benchmarking against hotels your guests aren't actually comparing you to, which means your pricing and occupancy decisions are based on the wrong reference points.

Always select properties that genuinely compete for the same guest: similar star rating, comparable pricing, overlapping guest profile and a location travellers would view as interchangeable with yours.

Relying solely on proximity

Geography matters, but it isn't everything. The hotel next door may operate in an entirely different segment, a budget property and a luxury boutique three doors apart are not meaningful competitors.

Equally, a hotel across town with the same star rating, price point and target audience may be a far more relevant benchmark than your immediate neighbour.

Build your compset around how guests actually shop, not just where properties sit on a map.

Setting it and forgetting it

Even a well-constructed compset degrades over time if it isn't maintained. Tracking the right competitors with a dynamic compset is essential.

Lighthouse's Smart Compset addresses this by dynamically adjusting your compset as market conditions shift, ensuring you're always benchmarking against the most relevant competitors rather than a static list that quietly falls out of date.

Turn your compset into a competitive advantage

Defining and analysing your competitive set is foundational work, but the quality of your decisions will always depend on the quality of your data.

Market intelligence and business intelligence tools transform compset analysis into an ongoing strategic capability, giving you real-time visibility into competitor pricing, demand patterns and performance benchmarks so you can act on what's happening in your market rather than reacting to it after the fact.

The most effective revenue teams combine backward-looking benchmarking (how did we perform against the compset?) with forward-looking demand signals (what's coming next?) to set rates with confidence.

That means tracking competitor pricing across channels in real time, monitoring how your MPI, ARI and RGI trend over time, and using search and booking data to anticipate shifts before they hit.

To see how this works in practice, explore how Lighthouse Pricing brings together competitive rate intelligence, demand forecasting and dynamic compset analysis in a single platform, helping you turn compset data into pricing decisions you can act on today.

Frequently asked questions

How many hotels should be in a competitive set?

A primary compset typically includes 5–10 hotels. Fewer than five limits the statistical reliability of your benchmarking, while more than ten makes it difficult to draw actionable conclusions. You can supplement your primary compset with secondary and tertiary sets for seasonal, aspirational or proximity-based analysis.

How often should you review your compset?

At a minimum, twice a year, ideally as part of your regular strategy reviews. Major changes in your market such as new hotel openings, renovations, brand conversions or shifts in short-term rental supply should also trigger a compset review. Forward-looking tools like Lighthouse's Smart Compset can adjust dynamically as market conditions change.

What is the difference between a compset and a market?

Your compset is the specific group of hotels you've selected as direct competitors for benchmarking purposes. Your market is the broader set of all hotels in your geographic area or segment. STR STAR reports provide data for both, but compset analysis gives you a more targeted and actionable view of your competitive position.

What is a reverse compset?

A reverse compset identifies hotels that include your property in their own competitive set, essentially, who considers you a competitor. This can reveal competitive dynamics you might not have considered, and understanding which hotels benchmark against you can inform both pricing strategy and positioning decisions.