The opening session provocateurs, Ed Lebar and Seth Traum of BrandAsset Consulting, explained how to transform customer data into executive brand strategy, especially given the “sea of same-ness” that afflicts many brands.
Lebar and Traum identified four pillars of brand development from the BrandAsset Valuator model of brand equity: energized differentiation, relevance, esteem and knowledge. These pillars stand on brand strength and stature. A brand begins by building energized differentiation and achieves relevance as it enters consumer consideration sets. Eventually, the brand is esteemed by its patrons, some of whom become truly loyal. Some consumers become deeply knowledgeable about the brand and turn into brand evangelists. All this begins with energized differentiation and relevance because, in the lodging category, energized differentiation is highly correlated with RevPAR and ADR, and relevance is related to occupancy rate.
Brands typically experience a life cycle that extends beyond the differentiation-and-growth phase. Lebar and Traum used brand strength and stature to construct a matrix capturing a brand’s life cycle position relative to other brands. On the resulting matrix, called a “PowerGrid,” brands fall into either the undeveloped quadrant, the niche quadrant, the commoditized quadrant or the leadership quadrant. A brand with both high strength and high stature is a leadership brand that enjoys customer commitment. In other cases, many brands that have developed high brand stature but lack brand strength are commodity brands, which can work relatively well for low-cost, high-volume operations. By contrast, a luxury brand needs high brand strength to maintain its niche positioning. The key is aligning a brand’s strategy with its position. For example, W Hotels has developed into a strong niche brand, although it is not a high-volume brand. Very few lodging brands fall into the leadership quadrant with high brand strength and brand stature, even when evaluated by frequent travellers.
The typical brand life cycle settles into the commodity quadrant, often through diminished ener-gized differentiation. According to Traum, a brand can escape this fate by focusing on building brand strength through a combination of new product development and effective branding and marketing. Within its category, for example, Holiday Inn has worked to move in the leadership direction by adding new properties and removing old ones.
Extending the brand life cycle is especially difficult in the hospitality industry, because the various traveller segments seek dissimilar brand characteristics. Frequent-travellers’ perceptions of hospitality brands are, for example, more sharply defined than those of leisure travellers, reflecting highly specific points of differentiation in prestige, distinctiveness and upper-class ambiance. Global brands must achieve and maintain consistency, according to Lebar, representing the same message in every market. Even a powerful brand will have trouble sustaining growth with a different image in every country. Consistent global branding also creates efficiencies that relieve brand managers of the burden of determining the brand’s position for each country. Because a brand essentially promises a set of benefits, it’s essential to build trust into the brand message. A brand that lacks trust and integrity will not survive. Finally, global branding depends on developing a community of like-minded people. The right combination of efficiency, trust and community leads to superior financial performance.
BRANDING BY AMENITY
The lodging industry’s well-known trend of “amenity creep” is often attributed to brands’ efforts to differentiate themselves. Most industry operators would agree, however, that the expense involved in adding amenities has not always created the hoped-for differentiation. Seeking to unravel the amenities equation, Starwood collaborated with professors at Cornell (Chekitan Dev) and the University of Maryland (Rebecca Hamilton and Roland Rust) to conduct a systematic study of amenities that guests actually want and use. In particular, the study sought a way to calculate return on the amenities investment, dubbed ROA (return on amenities). Matt Valenti and Jennifer Sabet of Starwood joined Professor Hamilton for the presentation.
Professor Hamilton explained that hotel guests, like other consumers, often fail to use amenities they predict they’ll use. Before using products, consumers tend to focus on desirability (why they want the products); after using products, however, they tend to focus on usability (how they actually used the product). For this study, amenities covered a wide range of services and features, including valet parking, kiosk check-in, guestroom television and desk chair, hair dryers and hotel safes. The research team was interested in whether hotel guests would experience a similar “flip-flop” in their amenity preferences before and after their hotel stays. In a word, the answer is yes; as expected, the survey found that predicted amenity use was generally higher than actual amenity use. The study also found that charging for amenities affected amenity use and satisfaction. Usage charges increased the gap between predicted and actual use of amenities, although the reaction to such charges varied across market segments.
Calculation of return on amenities must take into account the extent to which a guest’s decision to stay is based on predicted amenity use and actual amenity use. As Valenti pointed out, however, guests who used more amenities were significantly more satisfied with their stays and were therefore more likely to return. However, brand managers must also understand systematic mispredictions of amenity use, Professor Hamilton concluded, because decisions to stay at a property may be based more on what guests think they will use than on what they actually use.
In search of ways to unlock the value of their lodging assets, hotel owners have, according to STR Global, reflagged 12,000 hotels in the past three decades. The reflagging curve has gone exponen-tial. The question is ‘What financial outcomes result from reflagging a property?’ A joint proprietary study by Cornell, the University of Chicago and PKF Hospitality Research (PKF-HR) identified three ways in which hotels reflag: brand-to-brand, independent-to-brand and brand-to-independent. The study captured profit-and-loss data for two years prior to the rebranding, during the rebranding year, and for two years following, matching the hotels to a control group that did not rebrand but are located in the same metropolitan areas. Although balance sheet information was not available, the two groups were compared for increases in occupancy rate, ADR, RevPAR, rooms revenue, total revenues, marketing expenses, gross operating profit (GOP) and net operating income (NOI).
Researchers Mark Woodworth, president of PKF-HR, and Cornell’s Dev reported that after re-branding, the test group saw increases in ADR, RevPAR, and revenues, but also a substantial in-crease in marketing expense. These differences were significant. Considering just the brand-to-brand conversions, RevPAR increased by 12 per cent. However, when comparison is made with the control group, the increase says more about occupancy, resulting in only a five-per-cent RevPAR lift that can be attributed to the brand changeover.
Hotels undergoing brand-to-independent conversions saw drops in occupancy, but they still rec-orded an 11-per-cent increase in RevPAR. Compared with their control group, however, although the newly independent properties had increased ADR, there was no other identifiable benefit beyond a drop in marketing expenses. Conversely, these hotels experienced, on average, a 35- per-cent decline in NOI.
Properties undergoing independent-to-brand conversions enjoyed increases in occupancy, ADR, and (thus) RevPAR, but they also experienced considerable increases in marketing expenses. These greater marketing costs offset the identified revenue gains, resulting in slight declines in NOI.
These data allowed Woodworth and Dev to break out the effects of specific brands on reflagging. Some brands added more value than they extracted from a property, but others absorbed value. Thus, because of drops in occupancy, certain brands are significantly negative in RevPAR. Most brands increased ADR, but not all increased occupancy, and the change in total revenue was not always favourable.
These results notwithstanding, Woodworth cautioned that having a brand is typically critical to securing financing for a project. In a recent meeting with 50 lenders, he found that all of them preferred a flag, while only a select few would fund an independent property. Thus, even if a brand technically extracted more value than it contributed, if there would have been no deal without it, the brand undeniably brought value to the owner.
Noting the critical matter of brand expenses, Ted Teng, of Leading Hotels, recalled the reflagging policy when he was with Wyndham. He pointed out that the chain always rebranded its owned hotels to Wyndham whenever possible, even if there was a rate or occupancy hit, because that allowed the chain to capture marketing and brand expenses instead of paying these costs to another flag.
BRANDING IN THE INTERNET AGE
Paul Brown of Hilton Worldwide shared Hilton’s approach to engaging consumers in its brands through online channels. The new model is completely topsy-turvy, he said, since the original idea of a web search involved a top-down approach, as people would go to a site and gradually drill down to discover the inventory. Now it’s sideways navigation at best, and the average traveller can visit as many as 22 websites before booking. As a result, Hilton changed its focus on channel management to evaluate the activities of the online teams, hoping to influence the decision process and maximize retail presence. It’s about more than just securing one booking.
Borrowing a phrase from product marketers, Brown said that “shelf space” is an essential consid-eration — that is, having the brand appear, under Hilton’s retail guidelines, in as many relevant locations as possible as many times as possible. That means that in addition to building great brands that deliver relevant product and experience and send a proper message, a brand must ensure appropriate product distribution along all relevant channels. In this way, a brand can demonstrate its value to owners in part by showing its shelf space on the global distribution system (GDS), on web-based business-to-consumer channels or in sales relationships.
Brown noted that there’s “lots of noise” regarding online travel agents (OTAs) in the lodging industry, but the OTAs matter mostly because of the transparency they provide. If a brand is in fact an undifferentiated commodity or perceived as one of low quality or service, this becomes readily apparent to consumers as they search on the web. This underscores the importance of effective differentiation and proper alignment of the product with the channel. Brown agrees that the economics of OTAs appear troubling but argues they have a billboard effect and in many cases open up incremental segments. That said, OTA costs are expected to continue to decrease over time as alternative distribution channels emerge and direct online channels become even more effective.
According to Brown, Hilton tries to maintain visibility and ease of navigation across all core retail and search channels. It’s essential to establish consistent product pricing across all channels and to provide the customer with compelling reasons to use direct channels as much as possible. The use of direct channels increases yield, as does encouraging guests to participate in a loyalty program. Customers who are members of Hilton HHonors, for example, are two to three times more likely to book through direct channels.
To achieve a holistic view of a channel, in this case OTAs, brand managers must weigh the pros and cons. The pros for using OTAs: they provide value through being on the shelf, including the billboard effect; they reach a distinctive customer base; they offer relatively compelling yield if well managed; their contract rules can set terms and price stability; and the channel returns relatively high ROI on promotions and marketing. The cons: OTAs are relatively expensive and bid up the cost of search terms; they generally offer lower reported ADRs and relatively inflexible inventory controls; and, most critically from a brand management point of view, the brand does not have a direct connection with the consumer when booking occurs.
THE BRAND AS A BUNDLE OF RIGHTS
Longtime hospitality litigator Jim Renard, of the U.S.-based Bickel & Brewer law firm, brought the roundtable up to speed on issues relating to brands and the law. To Renard, a brand is in large part a bundle of intellectual property rights: service marks, copyrighted materials and trade secrets. Companies that own all their hotels face few legal challenges in terms of acquiring marks and copyrights and keeping trade secrets.
Challenges arise, however, in connection with third-party management agreements and franchise contracts, pursuant to what brand owners (i.e. chains) convey to others [in terms of] the right to use or to affiliate hotels with their brands. Among the most contentious provisions in management contracts are protection clauses — a major breeding ground for brand-related disputes — by which hotel owners are effectively given enforceable rights against the brand owners themselves. Further contributing to such controversies is the fundamental legal principle that the operator is an agent of the hotel owner and owes the owner fiduciary duties, even if the contract disavows that relationship.
Recent, ongoing industry consolidation has increased the number of territory disputes. In some instances, mergers and acquisitions have led to unintended encroachments. In addition, the proliferation of “co-brands” and “endorsed” brands has given rise to numerous claims of breaches of restrictive covenants and territorial exclusivity clauses. According to Renard, many such disputes arise because of poorly crafted contract language as well as the failure on the part of some management companies and franchisors to monitor and coordinate their development activities within the limitations and restrictions imposed on them by existing contracts with third-party owners. Renard urges all brand purveyors to be aware of the provisions of their contracts and to ensure compliance with their obligations as they build brand value.
BRANDING BY DESIGN
Several roundtable discussions acknowledged that design is a critical aspect of any brand’s posi-tioning. Howard Wolf of designer WATG illustrated how branding by design is part art and part science. The science comes from understanding the elements of good design. As Wolf explained, the elements are functionality, quality and impact. More specifically, excellent design fulfills its purpose, is built to last and lifts people’s spirits.
Taking those principles as a basis, Wolf referenced a tool called DQI (Design Quality Indicator) to quantify how design adds value to a project. Hyatt tested it on 30 of its owned hotels and was able to correlate the DQI scores with guest and employee satisfaction as well as with the hotels’ RevPAR index. WATG has also examined the effect of design on a property’s top and bottom lines and found that WATG-designed hotels that embody its design principles outperformed the control group in occupancy, ADR and RevPAR.
Wolf argued that effective design adds asset value even as it reduces operating and maintenance costs, improves productivity and the guest experience and builds brand identity through recognition, visibility and media exposure. Wolf cautioned that a brand is defined by its customers. Good design emphasizes and reflects the brand’s promises.
While it’s easy to think of guest satisfaction on a single continuum, Wolf sees two linear scales of customer satisfaction. Along the first one, if you fix something that’s wrong you can turn a dissatisfied customer into a satisfied guest. The second scale starts with a satisfied customer and creates a guest who loves the property. Design, as Wolf illustrated with examples, can help to move guests into the “love it” category.
Wolf also recommended asking employees to discover the design issues that a property faces. Guests come and go, but employees deal with a property’s design weaknesses every day. Based on research conducted by Wolf, the top complaints cited by employees about a hotel’s design are also noted by guests: insufficient lighting, inadequate work spaces, poor temperature control, slow elevators, confusing navigation (poor signage) and maintenance issues. As Wolf sees it, you can’t have a great hotel if your employees don’t like the place. There is also a bottom-line benefit to having happy employees that can be measured in terms of productivity, morale, turnover … and guest satisfaction.
Finally, Wolf cited another study, according to which, to get the most bang for the buck when re-novating, a property should redo the lobby before the guestrooms. Still, renovating guestrooms and the lobby together had an even greater impact on guest satisfaction and ROI. At resort properties, investing in landscaping and enhancing the arrival experience can also generate returns.
In summary, the branding roundtable provided attendees with an opportunity to showcase their thought leadership, to offer insights and to learn from spirited and informative discussions that forged new understandings across the industry-education divide.
Dr. Chekitan S. Dev is associate professor of Strategic Marketing and Branding Management at New York’s Cornell University School of Hotel Administration. His research has appeared in leading journals, including the Cornell Hospitality Quarterly, Journal of Marketing, and the Harvard Business Review. For more information on hospitality branding, contact Dr. Dev at firstname.lastname@example.org.