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Branding and Product Specialization in HotelsWhy and how to brand hotels to maximize their business potential

Published May 2009 Updated July 2009 8 lectures
Dr. Gabor Forgacs
Assistant Professor, Ted Rogers School of Hospitality and Tourism Management, Ryerson University, Canada
Summary

Branding is 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.... read moreWhat is 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. The topic of hotel branding is relevant to owners, managers and customers of hotels.

Customer expectations have increased and business models have evolved over the years. For a significant part of the 20th century, when it came to valuation of commercial lodging companies, in a capital intensive business like the hotel industry, the tangible assets (i.e. real estate property) were considered the source of value. 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. This is most evident in North America.

The above trend coincides with one of the major paradigm shifts witnessed in the economy during the recent decades: 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 been rewarded by the stock market as a result of more favourable returns on the capital deployed, plus as successful creators of intangible value called “brand”. This series will take the viewers into the very heart of the most intriguing issues: best practices in brand management, brand success, and brand leadership in the hotel industry.

We wouldn’t do justice to all of these fascinating and current topics without discussing product specialization. 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 it poses less risk.

The objective of this series of talks is to inform, educate and challenge the viewer on the key aspects of branding and product specialization in the hotel business.