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The Competitive Market Efficiency of Hotel Brands: An Application of Data Envelopment Analysis

Virginia Polytechnic Institute and State University, jamesb{at}vt.edu

Cliff T. Ragsdale

Virginia Polytechnic Institute and State University, crags{at}vt.edu

The objective of this article is to illustrate how managers in the hotel industry can analyze and improve their brands’market efficiency using data envelopment analysis (DEA). The authors evaluated the competitive market efficiency of 46 hotel brands in terms of customer satisfaction and customer value. Their DEA results show that 23 of the 46 brands studied generated less customer satisfaction and customer value for the same level of inputs relative to their more efficient competitors. In particular, the competitive market-inefficient hotel brands suffered more guest complaints, employed a lower quality staff, did not maintain their properties as well, and charged prices higher than justified by their market offerings. Furthermore, the competitive market-inefficient hotels had a less-than-optimal number of rooms and properties in the chain. The results illustrate how managers can use DEA to improve the relative market efficiency of their brands.

Key Words: data envelopment analysis • brand management • efficiency analysis • market research/strategy

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