Market Penetration Index (MPI) is a key hotel performance metric that measures how a hotel’s occupancy rates compare to those of its competitors. More specifically, it compares a hotel’s average occupancy rate to the average occupancy rate of similar hotels in your industry. It is also sometimes referred to as a hotel’s market share.

What is Market Penetration Index (MPI) For?

MPI allows hotel managers to analyze how a property is performing based on industry standards as well as competitors with similar offerings. Instead of managers simply focusing on internal improvements to its occupancy rate, MPT allows hotel managers to assess whether their occupancy rate is above, below, or near average for its region.

Benefits of Market Penetration Index (MPI)

One of the major benefits of calculating your Market Penetration Index is in setting room rates. Understanding how you stack up against industry averages will allow you to set more competitive prices in order to increase occupancy rates.

Another benefit of MPI is that hotel operators can preselect competing hotels and/or properties that they want to compare against, rather than simply comparing against industry averages. This allows hotels to make more specific comparisons if they’re looking to be more competitive amongst particular market segments.

Limitations of Market Penetration Index (MPI)

The main limitation of Market Penetration Index pertains to the competitive set that a hotel chooses for comparison. If this set isn’t an accurate representation of the market or the property’s true competition, it can skew the index and lead to inaccurate price decisions.

How is Market Penetration Index (MPI) Calculated

MPI is calculated by dividing a hotel’s occupancy rate percentage by the average market occupancy percentage. Many revenue managers then multiply the resulting number by 100 to obtain a whole number percentage.

An MPI of 100% means that a hotel is receiving an appropriate (or full) market share of bookings. And while an MPI below 100 means that a hotel is receiving less than its expected market share, an MPI above 100 signals that a hotel is receiving more than its expected market share (based on the competitive set the hotel is comparing itself against).

Example of Market Penetration Index (MPI) Calculation

MPI = (Hotel Occupancy % / Market Occupancy %) x 100

Hotel Occupancy % = 56%
Market Occupancy % = 74%

MPI = (56 / 74) x 100 = 76%