Market Research in the Tourism Field

Market studies · 7-minute read · Originally published in Revista Alta Hotelería

Deciding correctly which type of business to allocate our resources to is everyday work in the business world. There are financial tools that give a simplified view of a project's economics, such as Net Present Value (NPV) or the Internal Rate of Return (IRR). But those indicators are only the final result of a much broader process: market research. It's by developing scenarios and profitability forecasts that the real business opportunities are identified.

What is market research?

It is traditionally defined as the process of gathering, processing and analyzing information about customers, competitors and the market. It helps build the company's strategic plan, prepare a product launch or support its development according to its life cycle. Its purpose is simple: to help make the best decisions.

How does tourism research differ from traditional research?

Tourism market research doesn't focus only on the product; it gives special importance to the environment: how the product is affected, complemented by, or interacts with its surroundings.

In Mexico, tourism grew naturally in beach resorts, but the push from industry and commerce has taken tourism services into other productive chains, requiring their presence in "business" destinations. A hotel's success can be tied to that of other businesses —manufacturing plants, corporate offices— that drive tourism spending. In these cases it is less relevant to assess the number of tourist attractions than to understand the real demand needs for lodging, food and transportation.

Tourism infrastructure and facilities are decisive in generating visitor flows and added value for destinations. Hospitality is an essential component of this activity.

What are the most relevant aspects of a tourism market study?

A priority is to identify the type of destination and its future economic growth plans. Evaluating the "destination's economic profile" offers a clear view of the potential for tourism demand to develop locally or regionally, and helps identify the seasonality factors that impact visitor volumes.

Tourism research analyzes market needs, satisfaction with existing services, the competition's characteristics and the importance of the project's location within the destination's development path. These variables make it possible to define a differentiated business concept that achieves effective positioning with the consumer.

How developed is this specialty in Mexico?

In Mexico, tourism is studied more as a social phenomenon than as a potential business. Most reports deal with inventories of resources, destinations, sustainability or education. The Center for Higher Tourism Studies (CESTUR), part of the Ministry of Tourism, makes a good effort with statistics and reports, but information on infrastructure, demand needs, trends or marketing is scarce. As a result, many investors are at the mercy of those who do have the information to stay ahead of the market.

In the United States there are firms dedicated exclusively to studying tourism in depth —one example is Smith Travel Research (STR)— and, globally, the World Tourism Organization publishes periodic industry reports. In Mexico, by contrast, few firms have the experience and methodologies to clarify and quantify a hotel business's chances of success.

Why evaluate the tourism market?

Among current trends there are underserved, highly profitable segments: business, convention and health tourism, and even specialized sports tourism such as golf. The hotel business is a long-term asset investment that generates attractive returns when paired with a good commercial and administrative strategy. And to assess investment and return levels, understanding the market where it will be developed is essential.

Hospitality and tourism are also an alternative to diversify portfolios for entrepreneurs from other sectors, who find in franchises and operators the experience to develop new businesses.

The 10 indicators every investor should evaluate

These are the key indicators for knowing whether it's the right time to enter the lodging business:

• 1. Economic characteristics of the market: the type and intensity of economic activity defines the demand profile, the average length of stay and the expectation of repeat customers.
• 2. Population characteristics: availability of qualified labor and population growth, which anticipate the development of other economic activities.
• 3. Investment projects: investments that generate development usually increase hotel demand and create opportunities to diversify lodging products.
• 4. Selecting the competitive set: knowing the competition's performance makes it possible to quantify the size and potential of the business, and to assess what would happen if a new hotel were built.
• 5. Hotel brand evaluation: validate that the market's characteristics are compatible with the business model to be developed.
• 6. Location, size and site conditions: they must interact with the market's supply and demand and be consistent with the size of the investment.
• 7. Optimal business size: especially relevant in highly competitive markets or when targeting an attractive niche that is also optimal in the return analysis.
• 8. Corporate bargaining power: it can limit the hotel's rate structure and create competition that is dangerous for its financial performance.
• 9. Guest profile: it helps identify specific needs that will give the new project its personality.
• 10. Complementary business units: even with the trend toward limited-service facilities and convenient rates, the guest generates spending that can be captured with other businesses —which is why it's now common to see hotels inside shopping centers.

The conclusion is clear: before investing in hospitality, objective and timely information about tourism development stops being a luxury and becomes a competitive advantage. You can dive deeper into the financial side in our guide How to know if a hotel will be profitable.