[MUSIC] Welcome back. Does achieving a budget mean that you're a fantastic hotelier? Or does it just mean that the manager is skilled at negotiating achievable budgets? I started working for the world's leading hotel revenue management system provider in 2008, just before the financial crisis. Now, I know very few hotels that were able to achieve their budgets in the last month of that year. Does this mean that all of the managers worldwide were suddenly terrible? Well, no. So there seems to be a need for some way to evaluate the performance of the hotel managers as compared to each other, rather than achieving a budget or not. In an ongoing revenue management process, it is important to be able to evaluate how well you are doing. In this lecture, we're going to take a look a little bit more deeply at ways to compare performance benchmarking between hotels, which is not subject to the failures of budgets. Some of these you may remember from the first MOOC on hotel distribution. But we are now going to look at them in a little bit more detail and in the context of demand management. The first index I would like to introduce to you is the simplest to understand and calculate. The Average Rate Index or ARI. The idea is to convert your achieved average rate into an index out of 100, compared to the average rate your competitors have achieved. The value of this index is that it standardizes the comparison across an estate of hotels, and puts your performance in the context of the competitive set, rather than on the basis of the actual number. To get to an index, you simply calculate your average daily rate, divided by the average consolidated market daily rate. Let's look at January 2014 in this example. My ADR for my property is 57 Euros and 64 cents, while the competitor set has achieved, on average, 88 Euros flat in January. 57,64 divided by 88, multiplied by 100 gives us an index of 65,50. So in other words, we only achieving 65.5% of the rate that the competitors are achieving. Market Penetration Index is a little more complex since we have to take into account that hotels have a different number of rooms. The market penetration tells you what percentage of your fair market share your property is actually achieving. If you have an MPI of 100, this means that your actual market share is exactly the same as your fair market share. If you have an MPI over 100, it means that you've stolen some of the reservations, some share from your competitors. On the other hand, if your MPI is below 100, you know that some competitors have stolen some rooms from you. So that begs the question, what is the fair market share for a hotel? Well, if there are five hotels in a given submarket, you might suspect that the fair market share of each hotel is to get one room out of five sold to the market. However, what do we do when hotels have a different number of rooms? It wouldn't really be fair to compare the number of rooms thousand bedroom hotels sells, to the number of rooms a boutique hotel sells that only has 45 rooms. An actual fact, the fair market share for a hotel is the percentage of the rooms that it contributes to the market. So in this example, the submarket has a total of 1062 rooms. Your hotel has 227 rooms. Which means that your fair market share would be 227, divided by 1,062 giving us 21.4, not 20%. This mean that you have 21.4% of the rooms in the local market we are evaluating. Now, lets look at the results for a particular day. In total, the market sold 915 out of 1,062 available rooms. So the market occupancy was around 86%, but was the share of the rooms sold distributed evenly? In this case, your hotel sold 212 rooms. 212 out of 916 means that you sold 23.17% of the rooms sold yesterday. So how does that stack up to your fair market share? Well, your MPI is calculated by your actual share of 23.17, divided by your fair share of 21.37. This means that your MPI was 108 yesterday. In other words, you sold 8% more than your fair market share. Although each of these two indices are very valuable, you might recognize that they could tend to work opposite each other. Usually the higher your MPI or market penetration index, the lower your ARI, and vice versa. So we seem to need a third index to give us some really good indication of if we've made the right choice balancing between rate and occupancy. What could that be? Well when we are looking at a single property alone, we use revenue prevailable room, which is just total rooms revenue divided by the number of rooms available for sale. So when we look at the indices, we also need a kind of revpar index. Since this is such a terrible name, we tend to use Revenue Generation Index or RGI. But no matter what you call it, it is in many ways the key of measuring a hotel's performance against its competitors. If your RGI is higher than 100, then overall you are generating more revenue than your competitors. If however, you are below 100, then you are trailing your competitors. In practice, you can figure out a lot about a hotel just by seeing its ARI, MPI, and RGI. For example, for this property you can see that they are high in occupancy and low in rate, compared to their competitors. While overall, actually underachieving based on revenue. Without any further information, I would suspect the hotel should probably be either increasing rates or shifting segment focus to higher rated business. But looking backward at performance, is not a revenue manager's main job. Looking into the future is even more important. In the next video, we will continue our analysis with the booking curve, which is the first tool that helps us actually look into the future.