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 Components of a "Hotel Impact Study" 
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February 17, 2006 – Hotel impact represents a commitment to protect franchisees’ rights.  For developers looking to expand a franchisor presence in a specific market, it can mean delays and challenges in the franchise approval process. For franchisees’ it may signify erosion of their key asset – demand generated through their brand’s central reservation system (CRS). 

There are two tiers of impact – Base Impact and Incremental Impact. 

Base Impact is defined as the effect of new competition on an existing property, usually resulting form the addition of hotel rooms to the competitive market. Base impact could also result from the repositioning of an existing hotel to a “better” product. In this scenario no new rooms would be added to the market, but competitive rooms will be created. The rebranding would make both properties compete directly for similarly rated business and could subject existing hotels to base impact. 

Incremental Impact is defined as the effect of new competition on an existing property due to the addition of hotel rooms that operate under the same brand or franchise company or that access the same reservations system. An example of this would be the addition of a Franchise “A” hotel located ten miles away from an existing Franchise “A” hotel. This could cause incremental impact depending upon the demand characteristics of the area. While any new supply could cause base impact, new supply within the same franchise or reservations network may cause base and incremental impact. The additional impact incurred due to the dilution of the franchise company-generated business is known as incremental impact. 

Hotel owners frequently fail to recognize this difference. Franchisors tend to focus only on incremental impact when deciding whether to approve a franchise application. While most impact studies will include calculations of base impact, it is not the main concern of the franchise company. 

Although hotel companies have different policies regarding who has the right to object and who will undertake the impact study, the basis by which to evaluate and quantify impact remains similar. Considerations in determining impact are geographic characteristics, target markets and market mixes, hotel rate structures, and central reservations system contributions. The critical steps in conducting an impact study include:

  • Evaluating the existing property
  • Analyzing the competition and competitive market
  • Profiling the applicant property
  • Profiling the franchise company and relevant brands
  • Projecting occupancy and average daily rates for the existing hotel
  • Determining impact
(Excerpted from "Hotel Investments: Issues & Perspectives"- 4th Edition)
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Rachel J. Roginsky, ISHC, is a principal and co-owner of Pinnacle Advisory Group and Pinnacle Realty Investments. She is a graduate of and a regular guest lecturer at The School of Hotel Administration at Cornell University, is a board member of the Massachusetts Lodging Association, and the International Society of Hospitality Consultants.
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Contact:

Rachel J. Roginsky
Pinnacle Advisory Group
76 Canal Street
Boston, MA 02114
Telephone: 617-722-9916
Email: rroginsky@pinnacle-advisory.com
Website: www.pinnacle-advisory.com

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Also See: Opinion: Hotel Brand Franchise Impact Policies Must Change / Richard J. Welch / June 2002
Hotel Brand Impact: Can Hotel Franchisors Compete With Their Own Franchisees? / Jeff Coy / Oct 1998 


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