Breaking Down Demand Measurement
Demand. It’s the most commonly used term across the hotel industry, but when it comes to measuring demand, just what does demand mean?
As green hospitality managers, we’re taught to lean into external benchmarking services as a starting point to measuring demand and realizing opportunities. These services measure room night and revenue production and then package up the data into a nice little report. From this, you can determine how your hotel is doing in volume and whether or not you’re capturing your fair share of the market. We also look to combine our bookings with denials and regrets seeking to see a bigger picture of our demand.
The challenge with this approach to measuring demand is that these benchmarking services only measure converted demand for hotels.
What about the demand from customers that initially looked at your destination but opted for another? Or from those that chose to stay at a short-term rental booked on Airbnb or VRBO? With a different approach, could you have converted them?
First, let’s define demand. Demand refers to the consumer’s desire and willingness to buy a product or service at a given period or overtime. By using this definition, we need to broaden our scope on what we consider demand.
This is the total demand for your market in relation to competing options. The price of air travel to your market, accommodations pricing, and the pricing and availability of local attractions are all factors contributing to market demand.
For example; San Francisco watched as several citywide conferences disappeared as a result of steep pricing and the closing and renovation of the Moscone Center.
Within your market, there may be distinct submarkets offering unique benefits. These markets provide a completely different experience and attract distinct traveler profiles.
Example; The Gaslamp Quarter and Del Mar in San Diego. Only miles apart, The Gaslamp attracts travelers who are looking for an electric nightlife, while Del Mar is geared for the more reserved shopper and diner.
Consider the total demand for overnight accommodations and the available options. You may just be competing against short-term rentals, timeshares, glamping, camping, and Aunt May’s couch.
Think this isn’t relevant for your hotel? The vacation rental market has seen a 10% year-over-year growth and is estimated to be close to $20 billion by 2025 compared to the hotel industry’s current $110 billion, that’s a big chunk. Airbnb alone has over 5.6 million active listings across the globe. It’s doubtful that their success comes entirely from incremental demand.
This is the demand for your hotel in relation to other options within your market or submarket. Your sales and marketing strategies will influence how much demand you are able to create, but your pricing strategies will influence the amount of demand you’re able to capture.
Perhaps the most well-known type of demand thanks to benchmarking services such as STR. Converted demand measures the amount of demand you captured in relation to other hotels within your market or submarket.
As you begin to dive into each type of demand you’ll notice that by relying entirely on converted demand metrics, you’re missing out on an opportunity to understand the true demand for your hotel. As a result, your demand calculations turn into a self-fulfilling prophecy as you play a zero-sum pricing game against your compset, instead of working to create new demand.
Measuring demand across all fronts allows you to develop a more complete understanding of all of the factors that contribute to the success or failure of your property. This way you can focus on improving results in two ways- converting existing demand and creating new demand.