Hotel Online  Special Report

Basic Concepts of Co-Branding, With Examples from the Hospitality
Industry Could Co-branding Improve Your Bottomline?

CANADIAN LODGING OUTLOOK
July  2005 Year-to-Date


The Canadian Lodging Outlook is a joint monthly publication 
of Smith Travel Research and HVS International, 
Vancouver and Toronto, Canada
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By: Peggy Yip - HVS International - New York, September 2005

Consumers in the 21st Century have become increasingly aware of the quality of the products and services they seek, and now search for added value in these items. Competition among companies to attract and retain consumers has become fierce. One of the techniques companies utilize to attract and retain consumers is product branding.

Product branding refers to establishing a well-known name for a given product or service, whereby the particular product or service and its attributes are highly recognizable and easily recalled by consumers. The basic concept behind branding is to establish a standard on which consumers may rely to estimate value and to differentiate a company’s product from competitive products. It is a powerful tool that influences repeat purchases. For the consumer, the ability to affiliate with a particular brand can often demonstrate a level of success, and can sometimes boost personal self-esteem. Thus, the ability to imprint the product’s brand into the minds of consumers is the most effective and efficient way to increase the bottom line. To further enhance a company’s revenues and increase market share, co-branding - the pairing of two or more recognized brands within one space - has become popular. The hospitality industry relies heavily on this phenomenon, whether it is alliances between different hospitality products, (Pizza Hut Express outlets in Holiday Inns) or between hospitality products and consumer goods (Bath and Body Works toiletries in Renaissance Hotels).

History of Co-Branding

The philosophy behind co-branding is to generate additional market share (and ultimately increase revenue streams) through customer awareness by forming alliances with one or more brands. Co-branding in the hospitality industry has existed in one form or another since the 1930s. But it was not until the 1980s, when Red Lobster opened two restaurants in Holiday Inn properties in Charlottesville, Virginia and Texarkana, Arkansas, that this idea became popular. 

According to an article written by Juliette Boone about co-branding, at least five reasons exist for forming an alliance: 

  1. to create financial benefits; 
  2. to provide customers with greater value; 
  3. to improve on a property’s overall image; 
  4. to strengthen an operation’s competitive position; and 
  5. to create operational advantages. 
It is believed that performance may be enhanced when one company compensates for another firm’s weak points; by forming a partnership, both companies can benefit.

Co-Branding in the Hospitality Industry

Some examples of successful cobranding in the hospitality industry include Starbucks coffee being served on United Airlines flights and in various nationally branded hotels, as well as Denny’s restaurants operating in some Holiday Inn properties. As mentioned above, co-branding can exist among different industries.

According to an article in Hotel and Motel Management, Econo Lodge and Procter & Gamble’s Mr. Clean is a successful example of the hospitality industry partnering with an unrelated industry. Because cleanliness ranks about as high as customer service when guests are considering a hotel, Choice Hotels International’s Econo Lodge brand used Procter & Gamble’s Mr. Clean products exclusively to clean its hotels. With special marketing efforts promoting this partnership, Econo Lodge reached out to consumers to let them know that the brand was serious about cleanliness.

Choosing the Right Partner

Selecting the ideal partner is a strategy in itself, whether the alliance is between companies whose sizes are similar or significantly different. The selection process requires several steps: identifying the positioning strategy; contacting intermediaries to assist in the formation of partnerships; define what is wanted; meeting with the principles involved; performing analyses to determine the feasibility of th partnership; getting the top executive’s decision in moving forward with the alliance; and finally,  negotiating the contract. Goals and objectives that each company brings to the alliance should enhance each other’s ultimate partnership strategies.  Partnerships composed of large and small companies would appear to result in a power imbalance between the partners; however, the important element in the alliance is that the products complement each other. The exercise of power does not necessarily depend only on the size of the partners; it also depends on each product’s existing market share and recognition.  Communication is vital from the beginning; if communication fails, alliances can easily crumble, a situation that can affect the bottom line for both parties.

Advantages

From the perspective of both the hotelier and the partner, the ability to access a broader customer base and form new relationships with clients is one of the more important and beneficial advantages. The revenue generated by the partnership can outweigh the expense of forming the alliance; as a result, budgeted expenditures can be concentrated in other areas. In addition, co-branding enhances the credibility of the hotel’s brand by borrowing credibility from other brands. From the consumer’s perspective, no surprises will be evident in the branded products, i.e., a cup of Starbucks coffee will taste the same whether it is ordered in Seattle, Washington, or in Omaha, Nebraska.

Furthermore, the idea of receiving “more value for their money” when staying at a certain property is a critical factor for guests when choosing a hotel product.

Challenges

Co-branding in the hospitality industry can also be difficult and complicated. The idea of introducing new variables that can complicate day-to-day operations is one of the major drawbacks. Hotel management teams have to be sure that partnering with a branded food and beverage outlet, for example, will not result in direct competition with the hotel’s existing in-house food and beverage services; rather, the alliance should complement the hotel’s established amenities. Other challenges include, but are not limited to: negotiating monetary commitment and initial investment fees between the two parties; the fear of losing brand reputation and recognition or of experiencing a decrease in quality levels during the term of the alliance; and the concern of partnering with the wrong brand. Many instances of unsuccessful partnerships have been the result of miscommunication between the partners.

Conclusion

With the increasing sophistication of today’s consumer, the quality of services and products is expected to increase. Thus, it is vital that companies are consistently aware of their customers’ needs and desires. The tactic of branding a company’s product into a category that can distinguish itself from competitive products by quality control ensures the consumer a consistent product. In the hospitality industry, brands such as Marriott, Hilton, Four Seasons, Virgin Atlantic, and Radisson Seven Seas Cruises are constantly competing with new and innovative brands as well as enhancing their existing products and services in order to broaden their customer base.  Another way to achieve this goal is by forming an alliance, or cobranding, which can create a sense of added value for the consumer, and eventually boost sales for both partners. Whether the brands are within the hospitality industry or not, choosing the right brand, in addition to good communication, is the key to an effective alliance. A successful cobranding venture ultimately benefits the partners as well as the customer.

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CANADIAN LODGING OUTLOOK
HVS INTERNATIONAL - CANADA
July 2005

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© Smith Travel Research, 2004. Reproduction or quotation in whole or in part
without permission is forbidden. *INS - Insufficient Data
-
Contact:
Selina Lai
HVS International – Canada
2120 Queen St. East, Suite 202
Toronto, ON M42 1E2
(416) 686-2260, ext 21
(416) 686-2264 FAX
slai@hvsinternational.com
www.hvsinternational.com

Also See Brand Equity: Raising the Flag / Theodore Noseworthy / Canadian Lodging Outlook - April 2005 Year-to-Date
Timeshare Cash-Flow Modeling and Market Feasibility / Canadian Lodging Outlook - March 2005 Year-to-Date
Low Interest Rates and High Demand for Hotel Assets Fuels Value Gains / Canadian Lodging Outlook - February 2005 Year-to-Date
A Crash Course In Cap Rates / Canadian Lodging Outlook - January 2005 Year-to-Date
2004 Canadian Hotel Transaction Survey / Canadian Lodging Outlook - November 2004 Year-to-Date
HVS International Hotel Development Cost Survey 2004 / Canadian Lodging Outlook - September 2004 Year-to-Date
Defining a Hotelier; The Hotel Professional Has Gone Through a Major Transition Over the Past 20 Years / Mark Keith / Canadian Lodging Outlook - August 2004 Year-to-Date
Hotel Investments; The Magic, Curse Of Leverage / Canadian Lodging Outlook - July 2004 Year-to-Date / September 2004
June Results Are In And.......We’re Back! / Canadian Lodging Outlook - June 2004 Year-to-Date / Aug 2004
Hotel Life Expectancy / Canadian Lodging Outlook - March 2004 Year-to-Date / May 2004
European Hotel Transactions 2003 - Country Analysis / Canadian Lodging Outlook - February 2004 Year-to-Date / April 2004
2003 an Unbelievably Strong Year for US Hotel Sales / Canadian Lodging Outlook - December 2003 Year-to-Date / February 2004
2003 Canadian Hotel Transaction Survey / Canadian Lodging Outlook / January 2004
2002 Canadian Hotel Transaction Survey / Canadian Lodging Outlook / Feb 2003
How To Get The Best Sales Price; Positioning Your Hotel for Sell / Stephen Rushmore / Canadian Lodging Outlook - July 2003 YTD / September 2003
Lodging Market Impact of Hosting Olympic Winter Games; Will Salt Lake City Experience Apply to Vancouver and Whistler? / Canadian Lodging Outlook - June 2003 YTD / August 2003
Year-to-date Occupancy through April is 50.4% for all of Canada / Canadian Lodging Outlook - April 2003 YTD / June 2003
SARS and Its Impact on Tourism in Toronto / Canadian Lodging Outlook - March 2003 YTD / May 2003
Hotel Values in Europe - Current Trends / Canadian Lodging Outlook - December 2002 Year-to-Date / Feb 2003
2002 Canadian Hotel Transaction Survey / Canadian Lodging Outlook / Feb 2003
Performance Clauses Essential In Hotel Management Contract / Stephen Rushmore / Canadian Lodging Outlook / Dec 2002
Separating the Hotel Looker From the Hotel Buyer / Stephen Rushmore / Canadian Lodging Outlook / Sept 2002
Making The Ideal Hotel Investment / Stephen Rushmore / Canadian Lodging Outlook / Aug 2002
Reporting In at Six Months..../ Canadian Lodging Outlook / July 2002
The Global Approach To Hotel Valuations / Canadian Lodging Outlook / June 2002
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Hotel Development Cost Can Determine Feasibility / Canadian Lodging Outlook / May 2002 
Hotel Internet Distribution Channels / January 2002 Month-to-Date Results / Canadian Lodging Outlook / April 2002 
2001 Was a Great Year If You Were in Edmonton! / December 2001 Year-to-Date Results / Canadian Lodging Outlook / Feb 2002 
2001 Canadian Hotel Sales / Canadian Lodging Outlook / Jan 2002 
The Effect on Capitalization Rates and Discount Factors After September 11 / Canadian Lodging Outlook / Dec 2001 
So How Bad Was September for Canadian Hotels.. Pretty Bad! / Nov 2001
So How Bad Was September for Canadian Hotels.. Pretty Bad! / The Canadian Lodging Outlook / September 2001 
Have Hotel Values in Canada Declined Since September 11th? You Bet They Have / The Canadian Lodging Outlook / August 2001 
The Popularity of Boutique Hotels / The Canadian Lodging Outlook / July 2001 
Rising Energy Costs Cause Concern in the Lodging Industry / The Canadian Lodging Outlook / June 2001 
Niagara Falls: With Supply Comes Demand / The Canadian Lodging Outlook / May 2001
Does Supply Generate Demand? / The Canadian Lodging Outlook / May 2001 
Optimism With a Hint of Caution, As Analysts Predict a Softer Year for the Canadian Hotel Industry / Mar 2001 
Limited-Service Growth in Canada - Where’s it Going? / The Canadian Lodging Outlook / January 2001 
HVS Canada in Review - Year End 2000 / The Canadian Lodging Outlook / March 2001 
Canadian Lodging Outlook / May 2000 Year to Date Statistics / HVS International - Canada / July 2000 
The Rule of Thumb Method...Does It Still Hold Weight? / Elaine Sahlins - HVS / Oct 2000
What’s Hot and What’s Not in Western Canadian Hotel Markets / Mar 2000


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