News for the Hospitality Executive
Hotel Branding and Product Specialization
|Dr. Gabor Forgacs, September 15, 2009
There has been a major paradigm shift in the economy during the recent decades: we have witnessed the emergence and growing significance of business models where intangibles gradually become the key drivers of value creation. The prevalence of branding exemplifies this phenomenon very well in the commercial lodging industry. Those businesses that became asset light and got themselves gradually out of the real estate ownership of hotels and have successfully repositioned themselves as first-tier hotel management companies, have realized more favourable returns on the capital deployed, plus became successful creators of intangible value called “brand”.
Branding has become a dominant trend in the hotel industry on a global scale. However, branding a hotel is not necessarily new: César Ritz (1850-1918) in Europe, Ellsworth M. Statler (1863-1928) in the US had established their respective brands named after the founders, in the earliest years of the 20th century. They had offered quality service, their brands became reputable and they had successfully built a loyal client base. Is there anything new in hotel branding then?
Quite a lot of changes have been witnessed over the decades that saw the business of hotel management become a major sector of the international tourism industry. The brand penetration index that measures the percentage of hotel rooms that belongs to a flag out of the total capacity, is over 70% in the US, while France is the market with the highest brand penetration index in Europe with less than 30%. It is fair to say that the ratio of branded hotels is on the rise all over the EU. New brands are launched by the dozen on an annual basis. The topic of hotel branding is relevant to owners, managers and customers of hotels.
Customer expectations have increased and business models have also evolved over the years. In a capital intensive business like the hotel industry, when it came to the valuation of commercial lodging companies, the tangible assets (i.e. real estate property) were considered the source of value for a significant part of the 20th century. However, during the last decades of the century the recognition that hotels are to be evaluated also as income generating entities had catalyzed the process of separating asset ownership and asset management, most evidently in North America.
Differentiation is considered the engine of any brand and the uniqueness of a given brand’s value proposition is key. Well established brands may extend their reach through entering new lines of businesses (e.g. resort, residence, cruise line) and new brands are launched at an alarming rate creating the sense of brand proliferation. Branded lodging products are easier to sell and get financing for: a growing percentage of time-pressed customers attribute value to the ease of purchase decisions facilitated by a trusted logo and banks are more comfortable lending funds to projects that can be assessed using a set of known variables if a hotel can claim brand affiliation to a popular flag, thus posing less risk.
Henry Stewart Talks has launched a new online discussion series that takes the readers/listeners into the very heart of some of the most intriguing issues: best practices in brand management, brand success, and brand leadership in the hotel industry. The objective of this series of online audio-visual briefings is to inform, educate and challenge the viewer on the key aspects of branding and product specialization in the hotel business.
The modules are presented by leading experts and cover the following topics:
Discussion series editor: Gabor Forgacs, email@example.com, Assistant Professor at the Ted Rogers School of Hospitality and Tourism Management, Toronto, Ontario, Canada.
About Henry Stewart Talks
Dr. Gabor Forgacs