Understanding MPI, ARI and RGI from sales eyes

One of the main focus of sales person in a hotel industry is to sell the room accommodation to generate revenue.  Room accommodation is a significant revenue contribution for a hotel especially for a hotel that has large numbers of room inventory.

Dynamic rate structure is suggested to be created to support the changes of market situation.  Depending on the season, either low season, peak season or shoulder season (shoulder season means between the peak and low season), room rate can be fluctuated to adapt into market demand. 

A simple example will be New Year periods when people tend to travel and stay at their preferred hotel which creates a peak period. In this case, hotel will then sell the room at higher rate to generate maximum revenue.

On the other hand, the starting month of the year can be categorized as low season for many hotels and therefore, hotel will promote the room at low rate to encourage people to stay.

In sales department of hotel industry, we come across the terms MPI, ARI and RGI which are part of discussion during revenue management meeting held regularly.  What is MPI, ARI and RGI? MPI stands for Market Penetration Index, ARI stands for Average Rate Index and RGI stands for Revenue Generation Index.

Let’s explore one by one so that each of these terms can assist sales person to generate more revenue.  Do note that MPI, ARI and RGI are related to one another, so you need to have better understanding of all to give a maximum result.

MPI (Market Penetration Index)

MPI is calculated as follow,

(your hotel occupancy / aggregated group of another hotels occupancy) X 100.  Group of hotel occupancy here are the numbers of hotels selected as your hotel direct competitors.

What is the purpose of MPI? MPI is to analyze your hotel position and performance as compared to your hotel direct competitor in terms of occupancy.

When you see your hotel’s MPI is on number 2 position compared to the direct hotel competitors, this means, some of your hotel’s market are eaten by other hotels. From sales perspective, the team must review the cause, such as,

• Does the client decide to move to another hotel? If so, what is the reason?
• Does another hotel win a group business that your hotel does not have?
• Does your hotel’s room rate sell too high which shift the market to another hotel?
• Is your hotel no longer chosen as the preferred hotel by certain companies?
• Is your hotel losing a bidding on some project?
• Is your hotel no longer attractive to capture leisure market due to limited facilities?

The factors mentioned above are several points to help sales persons to do the analysis.  There are many other reasons which can cause the movement of hotel’s MPI position. It is very important to understand this to be able to tackle the problem and improve the numbers.

ARI (Average Rate Index)

How to calculate ARI?

(Your hotel Average Room Rate / Aggregated group of another hotels average room rate) X 100.

The importance of ARI is to measure the performance of your hotel average room rate compared to the hotel competitors’ average room rate.

If your hotel ARI is on the position of number 1, is this considered as a good result?  If your hotel direction is to focus on getting high average room rate, then, you will need to monitor the rate fluctuation aiming on selling higher rate.  Do note to also review the impact into occupancy when selling higher rate.

There will be a situation when your hotel ARI is on the number 1 position but in the expense of your hotel MPI position to drop.

This situation can be resulted due to the market sensitivity to the rate offered.  Say, for example, your hotel rate is selling higher than the hotel competitor.  Because the market does not have any hotel preference, then, the client will decide to stay at the hotel that offer better rate.  If this situation continues to repeat, your hotel ARI might be on the number 1 position but losing the market share to another hotel.

MPI and ARI will need to support one to another to be able to generate better result.

RGI (Revenue Generation Index)

RGI is calculated as follow,

(Your hotel RevPar / Aggregated group of another hotels RevPar) X 100.

Having a good understanding on RGI is very important as to determine on a fair share of revenue of your hotel compared to the hotel competitors.  At the end of the day, revenue is a significant factor for the hotel which can be generated from a balance of relatively reasonable average rate versus fair share of occupancy.

If your hotel RGI position is on number 1 resulted from the push of occupancy but a drop of average room rate, will you be happy with your hotel performance? From sales perspective, there is a need to be dynamic on several factors, such as,

• When to increase the rate, to which market segment and to which periods?
• When to decrease the rate, is it for group business only or also to other market segment and is it only during certain season?
• Consider to apply the attrition method especially for group business for better yielding
• Consider to apply advance purchase method to drive booking as early as possible
• Understand the behavior of customer booking habits to help applying the right rate strategy

The above factors as mentioned can assist to maximize revenue generation.

In the ideal situation, of course, each hotel will aim to have the position of MPI, ARI and RGI, all are in the number 1 position.  But, is this a realistic scenario in today’s market situation?

When your hotel is situated in an exclusive location whereby market demand is high but number of hotels are limited, hence, the ideal situation will be possible to achieve.  But in the city or resort destination where number of hotels are no longer possible to be counted, then, the scenario of MPI, ARI and RGI target position will need to be still aggressive but realistic.

Do note that having a good balance of different market segment in different periods will help to support the position of MPI, ARI and RGI of a hotel.

Wish you all the best.