While some hotel managers might simply look out the window to see their competition, new hotel research from Cornell's Center for Hospitality Research finds that the real competition is hotels that are charging similar average rates.

The study, "Product Tiers and ADR Clusters: Integrating Two Methods for Determining Hotel Competitive Sets," by Jin-Young Kim and Linda Canina, compared two different ways of identifying a hotel's competitive set.

"First we grouped the hotels according to their nominal product tier, such as luxury, upscale, or economy, and then we used cluster analysis to group the hotels according to their ADRs," explained Canina.

"In the product-tier grouping, we found substantial differences in average rates, which means that hotels in certain product tiers are not really competing directly with each other. Instead the hospitality research study found that when we clustered the hotels by ADR, the supposed luxury hotels were competing directly with midscale properties, based on their rates." Canina is an assistant professor at the Cornell School of Hotel Administration, where Kim is a doctoral student.

"Both competitor-analysis approaches are useful," added Kim. "The product-tier approach allows developers to identify gaps in the market, for example, while the ADR-cluster analysis reflects consumers' quality assessment of a hotel."

Kim added that although this study examined just one market, she has repeated the analysis for several diverse markets, with the same result.

Kim and Canina explain that the ADR cluster analysis allows hotel operators to review their current operating strategy. For example, the hotel research suggests that an upscale hotel that finds itself in a cluster with economy hotels, a situation which occurred in this market, might consider a property upgrade or rebranding downmarket.

The report, which examined competitive clusters of 49 hotels in a single geographic market, is available at no charge at www.hotelschool.cornell.edu/research/chr/pubs/reports/2009.html

About The Center for Hospitality Research
A unit of the Cornell School of Hotel Administration, The Center for Hospitality Research (CHR) sponsors research designed to improve practices in the hospitality industry. Under the lead of the center's 76 corporate affiliates, experienced scholars work closely with business executives to discover new insights into strategic, managerial and operating practices. The center also publishes the award-winning hospitality journal, the Cornell Hospitality Quarterly. To learn more about the center and its projects, visit www.chr.cornell.edu.