|
The brand is a hotel company's most public face, as such, a
brand itself usually attracts 80 per cent of all marketing
efforts, allowing for customer recognition, repeat business and
word-of-mouth marketing. Anna Town and Undine
Engelmann-Stendebakken, vice-presidents at Jones Lang LaSalle
Hotels, ask what determines the success of a brand.
A hotel brand is not merely about a logo, a flag on the top
of a building or the concierge's uniform, it permeates all
customer contact, from online booking, to the type of hotel bed,
guest satisfaction and loyalty programmes. Most importantly,
every hotel employee is an ambassador for that brand.
What is brand value?
The hotel sector has been awash with recent corporate
transactions, many of which have involved the acquisition of
high-profile international hotel brands. We have seen brands
being swallowed into a larger entity, expanding or disappearing
altogether in the process. As recognised brands, the prices paid
reflect the asset base of each company, as well as the brand
value fostered by management over time. The value corporate
purchasers attach to a particular brand can vary significantly.
Generally, brand characteristics can be divided into tangibles
and intangibles: the latter will usually include the elements
that are most evident to the customer, but are also most
difficult to value - namely brand name and brand image. The
former can be identified, measured and valued in terms of sales
and marketing, infrastructure and loyalty programmes. These
components are either of intrinsic value or produce measurable,
enhanced cash-flows. To an extent, key components of a hotel
brand will depend upon the size and global distribution of the
company, some of the main ones being brand name, brand image,
product, brand standards, sales and marketing infrastructure and
loyalty programmes. A recognised brand name can provide comfort
to potential investors and financiers and so add value to
pipeline developments, as well as assist in securing future
development in the form of operating agreements.
Brand standards contribute to the success of the brand name.
Hotel companies have invested heavily to ensure global
consistency across their portfolios, from high-end luxury brands
to the budget segment. These standards are enforced in both
owned assets as well as those operated under a lease contract,
management agreement or franchise. Hotels that do not meet brand
standards threaten to undermine the strength of the brand.
Brand image, in addition to the brand name, is arguably one
of the most important determinants of brand value. Those most
successful in building their image have been the companies that
continuously innovate and update their image. For example, Four
Seasons Hotels & Resorts not only established its luxury brand
in the 1960s, but has continued to challenge the boundaries of
its luxury image, culminating in the re-opening of the flagship
George V hotel in Paris in 1999, which offers guests a
combination of old world luxury and modern amenities. Although
vastly different to Four Seasons' first hotel opened in Toronto
in 1961, the positioning - leading the luxury segment - remains
the same. In 2002, Four Seasons is set to open hotels in
Shanghai, Sharm El Sheikh, Amman, Riyadh, Budapest, and Tokyo;
despite the disparate locations, the product will undoubtedly be
consistent with the brand image the company has built over the
past 40 years.
Brand image goes hand in hand with the product - the physical
attributes and service delivery of the hotel. The product must
be consistent with the brand standards and image, whether it be
the size of the rooms, number of restaurants or IT facilities.
Brands, such as Ibis and Holiday Inn Express, have used a
standardised product to develop a world-renowned brand. But it
is product differentiation that will add value to a brand and
build an image, for example Le Meridien's ‘Art and Tech' concept
or Westin's ‘Heavenly Beds'. Marketing agreements, IT systems
and customer databanks are the key, most valued aspects of a
company's sales and marketing infrastructure. Marketing
agreements with wholesalers, travel groups and travel agents can
attract additional customers and build the brand. IT
considerations include a hardware system, software system,
proprietary rights, system design and flexibility to upgrade, as
well as the main priorities of the central reservation system.
The value of a loyalty programme is mostly derived from
annual revenues from the loyalty card, the online booking system
of the loyalty programme web page, the customer databank and the
favourable longer term growth potential of membership numbers.
Hotel companies should continue to innovate and deliver tangible
benefits to their customers. Six Continents has recently
announced a revamp of its Priority Club and cited it as ‘their
single strongest tool to drive sustainable revenue growth'.
Priority Club members provide 37 per cent of all Holiday Inn
Express room nights, 28 per cent at Holiday Inn properties, 34
per cent at Staybridge Suites and 22 per cent for Crown Plaza.
The aim is to have the programme delivering 40 per cent of room
nights across the company.
Enhancing brand value
The strategic goal for a hotel company must be to improve its
brand awareness in the context of a changing environment and
competitor innovations. Hoteliers must try to anticipate where
tomorrow's brand opportunities will be. A good example of this
is the advent of boutique minimalist-style hotels, which started
with a few pioneers, namely Phillipe Starck and Ian Schrager,
and have infiltrated the industry and become a feature of major
hotel chains such as Hilton, Starwood and Le Meridien. Having
developed a level of brand awareness such as Ian Schrager
achieved with his group of Schrager Hotels, complacency is the
biggest threat. The success of this type of ‘IT' hotel led to
replication throughout the world and the product differentiation
originally enjoyed by Schrager Hotels has subsequently been much
reduced. Simply put, hoteliers have to maintain the competitive
advantage of their brand and give consumers a reason for
choosing their brand - they need to add value.
In addition, hotel companies must ensure that their brand
promise is consistent on a global basis; a guest, whether
checking into a hotel in Mexico or Milan, must be offered
a consistent brand standard. This focus on the quality of
service delivery and the standard of products might entail
shedding poorer-quality assets from a portfolio if they don't
meet the brand promise.
Looking ahead
While market saturation is not an issue, the global chains
are finding it difficult to maintain recent growth levels
through organic expansion. Given the global nature of the hotel
business, hotel companies are more comfortable with cross-border
expansion than perhaps any other industry. These two factors
alone will continue to drive the trend of brand consolidation.
Following the Granada Compass disposal in 2001 and the events of
September 11th, the investment markets paused for a moment to
catch their breath. The current trading conditions offer
investors a prime opportunity for acquiring hotel companies at a
significant discount to NAV (subject to the stock being
available) and small to mid-sized groups will come under
increasing pressure in 2002.
With an estimated $3bn to spend on acquisitions, Six
Continents is the hotel chain to watch. After selling off its
brewing business, the company is well placed to expand its
portfolio. Six Continents aims to double the number of rooms in
its system during 1999-2004 and is committed to developing
upmarket, high-growth global brands. The company is looking to
acquire properties in locations where the economic downturn has
resulted in depressed prices, areas such as the US, Asia,
Germany, France, Spain and Italy.
Marriott International is also on the expansion trail. In
2001, the company had 400 hotel properties and more than 70,000
rooms under construction and approved for development. While
those developments that have not broken ground may be on ice
until the operating markets recover, this is a substantial
commitment to brand expansion. Marriott has capitalised on the
trend towards lifestyle hotels by entering a joint agreement
with Bvlgari SpA. The pair expect to invest $140m in a chain of
‘Bvlgari Hotels & Resorts'.
Accor has recently entered into a joint venture agreement
with Century International Hotels, which operates 20 hotels and
resorts (5800 rooms) in Asia, which followed a similar
arrangement with Zenith Hotels International in January 2001.
Further activities such as this may be likely as Accor continues
to ‘tidy up' its non-core businesses. It is focusing on the
Sofitel brand; having increased its property portfolio from 100
to 150 hotels in three years, Accor expects to have 200 Sofitels
worldwide in two years.
There are several gaps in the geographic spread of Hilton
International, particularly in Southern Europe, Latin America
and Asia Pacific. Although the UK-based company has a further
£500m to spend following the sale of Ladbroke casinos and the
sale and lease-back of 11 hotels, it may wait until the Scandic
hotels are absorbed into its portfolio before making another
acquisition. Hilton has announced another potential sale and
lease back of its UK portfolio this year, aiming to raise £500m.
By Anna Town and Undine Engelmann-Stendebakken,
vice-presidents, Jones Lang LaSalle Hotels |
