The Competitive Set: The only tactic for setting your prices?

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When we talk about Revenue Management, one of the most talked-about concepts is the “competitive set”. The competitive set refers to the accommodations chosen by the revenue manager that compete directly. It is known in the industry as an important element when making pricing decisions and Revenue Management strategies.

But, what if I told you that using only this model is obsolete today? In this article, we explain the reason for this question.

First, let’s understand what it is. The competitive set model is based on the idea that your prices should be in line with those of your direct competitors. However, as we hinted at before, this model has some significant limitations, let’s see what they are:

  • You don’t take into account the overall demand of the destination: if you adjust your prices based only on a portion of the competition’s prices, you might be missing opportunities to maximize your revenue. If there is high demand in your city, you might be setting prices higher than competitors not included in your competitive set, who might be taking bookings away from you unknowingly. You are leaving the choice of your prices in the hands of a few.
  • You don’t consider your unique characteristics or external factors related to the entire city: Your accommodation may have unique features that set it apart from competitors not in your competitive set. For instance, you might offer additional services not available elsewhere in the area. By setting your prices based only on your competitive set, you might miss out on opportunities to highlight unique features that are being emphasized outside of your competitive set.
  • You don’t have a proactive strategy: relying solely on the competitive set makes you take reactive measures. If competitors in your competitive set increase their prices, you might raise yours, but if these competitors lower their prices, you are forced to lower yours as well. As mentioned before, you are letting the losers dictate your prices.

So, which model should I use? You might ask. Here are some strategies you can implement:

Market segmentation and data analysis should continue, even if you are using a competitive set. However, the competitive set is not the best strategy to adopt. We explain which model is most suitable if you want to boost your revenues:

  • Use the Total Set: don’t just choose your prices based on your competitive set, also consider the total set.
  • Analyze the destination: don’t just focus on your area, look at the whole city.
  • Increase profitability for your accommodations: position your accommodations based on bookings, and internal and external factors.

*Turbotip: On weekdays, 100% of bookings are made by business people attending conferences and trade shows. How can you increase your visibility for this segment?

In conclusion, the competitive set model is limited. Given the capabilities of current technology, we can obtain a vast amount of data. If we rely only on our competitive set, we are ignoring many other elements that would allow us to adjust prices more competitively, being able to understand how demand elasticity behaves, allowing us to take advantage of demand peaks.

Are you still relying solely on your competitive set? Learn about the total set and next-generation revenue management with our ebook, download “Introduction to Revenue Management in the Hotel Sector” (click on the title to download).