Demand. It’s the most commonly used term across the hotel industry, and perhaps the most misunderstood.
As green hospitality managers we’re taught to look towards external benchmarking services as a bedrock for measuring performance and gauging opportunity. These tools measure room night and revenue production, packaging up this data into a tidy report that shows you whether your market is seeing higher booking volumes than usual and whether you are capturing your fair share. Additionally, we often look to combine our bookings with denials and regrets in order to gauge demand.
In fact, a recent study indicated that 58% of hospitality commercial strategists are using a combination of bookings data, denials, and regrets as their primary measurement of demand, while 25% are using STR reports or forecasts.
The challenge with this approach 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 tempted them into staying at your hotel?
The economic definition of demand is “the consumer’s desire to purchase goods and services and willingness to pay a price for a specific good or service.” Using this definition, one might argue that we need to broaden our scope to consider the following types of demand:
Market Demand
This is the lodging demand for your market in relation to competing options. The price of air travel to your market, accommodations pricing, and pricing and availability of local attractions are all factors contributing to the demand for your market.
Consider San Francisco, which witnessed several citywide conferences disappear in recent years as a result of steep pricing and the closing and renovation of the Moscone Center.
Submarket Demand
Within your market, there may be distinct submarkets offering unique benefits. Think about the Gaslamp Quarter and La Jolla in San Diego, which provide completely different experiences and attract distinct traveler profiles.
Product Demand
Consider the total demand for overnight accommodations and the available options. Depending on your hotel you may be competing against short term rentals, timeshares, glamping, camping, and Aunt Sally’s couch.
Not relevant for your hotel? Keep in mind that Airbnb and VRBO have captured 33% of the consumer lodging market since 2013 and continue to grow at a rapid pace. It’s doubtful that their success comes entirely from incremental demand.
Discrete Demand
This is the demand for your hotel in relation to alternative options within your market or submarket. Your sales and marketing strategies will influence how much demand you are able to create, while your pricing strategies influence how much demand you are able to capture.
Converted Demand
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 alternative hotels within your market or submarket.
As you begin to understand each type of demand it becomes clear that by relying entirely on converted demand metrics, hoteliers are missing out on an opportunity to understand the true demand for their lodging services. As a result, “demand” calculations turn into a self-fulfilling prophecy as hotels playing a zero-sum commodity pricing game against their competitive set rather than focusing on how they can create new demand.
Considering demand across all fronts allows hoteliers to develop a more complete understanding of the factors that contribute to the success or failure of their asset. As a result, they can focus on improving results in two ways- converting existing demand and creating new demand.
For more on that check out Part 2 HERE
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