How to build and analyze your hotel competitive set

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 post-pandemic, shifting traveller expectations, and a multitude of distribution channels.

In such an environment, relying on a static or outdated competitor list – or competitive set – can quickly undermine performance.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 pricing, distribution and investment decisions.

In this blog post we outline the essentials for success.

How to find your hotel’s competitive set

Defining the right competitive set is the foundation of effective revenue and pricing decisions.

To do this accurately, you must understand your market position, identify true guest-perceived competitors, and regularly reassess your compset as market dynamics change.

Let’s look at each in turn.

Understand your market position

Understanding your hotel's position in the market starts with benchmarking. 

Benchmarking provides a clear perspective on your performance relative to competitors, offering valuable context for your business performance. To effectively benchmark your hotel's position, experts recommend using these Key Performance Indicators (KPIs):

1.Market Penetration Index (MPI). This compares your occupancy to overall market occupancy.

It's calculated as follows: MPI = Hotel Occupancy / Market Occupancy. This index provides insights into how well you’re filling your rooms compared to the broader market.

2. Average Rate Index (ARI). This index compares your Average Daily Rate (ADR) to the market's ADR.

The formula is ARI = Hotel ADR / Market ADR. This metric reflects your pricing strategy's effectiveness in relative terms.

3. Revenue Generation Index (RGI). This compares your Revenue Per Available Room (RevPAR) to the market's.

It's calculated as RGI = Hotel RevPAR / Market RevPAR. It’s crucial as it combines both occupancy and ADR, offering a more holistic view of your revenue performance.

Note: A score above 100 on any of these indices indicates your hotel is getting more than its fair share and is outperforming the market or competitive set.

Once you understand your market positioning, a sound method to determine your competitive set is to analyze factors similar to how travelers use Online Travel Agencies (OTAs) to filter search options when booking a room.

Identify your direct competitors

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.

Maintain a dynamic hotel compset

The internet has made competition exponentially more dynamic.

Travelers typically compare numerous hotels online before finalizing a booking. This process is greatly facilitated by OTAs and metasearch engines. 

Consequently, hotel brands are no longer solely vying with other brands but must also consider a vast array of competitors, including short-term rental properties.

Tracking the right competitors with a dynamic competitive set is essential, and it’s wise to schedule twice yearly reviews of your competitive sets.

Lighthouse's solution: Smart Compset

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.

Why hotels are more successful when they have multiple 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 set your hotel apart from other accommodations in your compset

With your primary, secondary and tertiary compsets defined, what steps can you take to secure a competitive advantage?

The hotel industry is fiercely competitive, with properties vying to attract similar guests. This can make hitting your desired profit margin very challenging, particularly in saturated destinations.

So devise strategies that guarantee your offerings are of the highest standard, matching or surpassing those of comparable hotels nearby.

Real-time competitor pricing

Once your compset is defined, a rate shopping tool allows you to compare your room prices against competing hotels across all major channels, enabling more confident, data-led pricing decisions.

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, while making it easy to spot hotels that are overpricing or undervaluing their rooms.

With a clear view of your market position, you can align your pricing with demand and compset behavior, adjust promotions quickly, 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.

Provide a unique guest experience

Guest experience is one of the most effective ways to stand out from competitors in your compset. Importantly, this experience goes far beyond the room itself and includes every touchpoint from booking to departure.

To meaningfully differentiate your hotel, focus on practical improvements that directly impact how guests feel during their stay:

• Simplify arrival and departure. Streamline check-in and check-out through mobile or contactless options to reduce friction and save guests time.

• Enhance amenities that match your audience. Invest in services your core guests value most, such as wellness facilities, parking convenience or thoughtful in-room upgrades.

• Create memorable packages. Build targeted offers, such as romantic, family or business-focused packages, that combine accommodation with added-value experiences.

• Personalize where possible. Small touches like tailored welcome messages or preferences remembered from previous stays can significantly improve perception.

• Ensure consistency across touchpoints. From pre-arrival emails to on-property service, consistency reinforces quality and builds trust.

By delivering a well-designed, guest-centric experience, you can differentiate your hotel in meaningful ways, drive stronger reviews and build long-term loyalty within your target market.

Differentiate your distribution strategy

A balanced distribution strategy helps you compete more effectively within your compset by maximizing visibility while protecting profitability. This means using both OTAs and direct bookings strategically, rather than relying too heavily on one channel.

OTAs and metasearch platforms play an important role in expanding reach, particularly for price-sensitive travelers and guests comparing multiple options. They increase visibility in new and international markets but come with higher commission costs.

Direct bookings, by contrast, are more profitable and give you greater control over the guest relationship. A fast, user-friendly website and clear booking journey encourage guests to book direct, while exclusive perks such as upgrades, free breakfast or flexible policies can further shift demand away from third-party channels.

To manage this balance effectively, you need a single view of pricing and availability across all channels. A hotel channel manager allows you to control rates, inventory and restrictions centrally, ensuring consistency and reducing the risk of over- or under-selling.

Lighthouse Channel Management provides this unified control, enabling you to manage pricing and availability across OTAs and direct channels from one dashboard, helping you stay competitive while optimizing revenue and margins.

Grow hotel revenue with marketing intelligence solutions

Market intelligence enables hoteliers to make smarter commercial decisions by using real-time, market-specific data to understand pricing dynamics, demand patterns and competitive positioning.

Lighthouse Pricing gives you the visibility needed to optimize pricing, refine your compset and respond confidently to changing market conditions. It provides real-time competitive pricing and performance intelligence, helping you:

• Build, adjust and expand your competitive set with ease

• Track competitor rates, promotions, rankings and reputation

• Compare hotel and short-term rental data in one unified view

• Identify pricing gaps and missed revenue opportunities

The Demand Tab in Lighthouse Pricing adds a forward-looking view of demand, allowing you to:

• Forecast demand up to 365 days in advance using search data

• Anticipate the impact of events, seasonality and market shifts

• Benchmark against a dynamic Smart Compset that evolves with demand

• Align pricing and distribution strategies to future market conditions

Lighthouse Pricing helps you position your hotel more effectively within your competitive landscape, ensuring pricing decisions are driven by the industry’s most comprehensive and actionable data.