Caterer looks at the issue of branding and how it's altering the business landscape of the hotel industry
Branding remains a hot topic in the hotel sector, reflected by several high-profile appointments by hotel companies of executives from the fast-moving consumer goods (FMCG) sector: Andrew Cosslett, formerly at Cadbury-Schweppes, to CEO of InterContinental Ian Carter, formerly of Black & Decker, as CEO of Hilton International, and Steve Heyer, formerly of Coca-Cola, as CEO of Starwood.
It would appear these companies agree that the best way to develop their businesses is to focus on growing their brands by using experience gained in the FMCG sector. However, there are clearly doubts about the value of branding in the hotel sector. Debates on the subject often appear to confuse branding issues with service and product issues.
In this light, it's worth revisiting what's understood by a brand, the perceived benefits of branding, and how relevant all this is to the hotel sector. In particular, what are the pertinent issues of hotel branding to property investors and lenders?
What is a brand?
A brand is more than a name or logo it's about a narrative. When a consumer buys into a powerful brand, they are buying into a set of values, so any successful brand must be one that makes an emotional appeal to the consumer.
This may seem little more than marketing speak, but failure to take this on board can be hugely expensive. Remember Consignia? With no ideas or values behind the logo, all the marketing budget in the world couldn't buy it a place in the hearts of the British public.
The brand pyramid
Reaching a level of emotional involvement is the peak of what is described as the brand pyramid. Marketers often speak of this. At its lowest level, the brand merely distinguishes one product from another but, moving up, it guarantees a minimum standard, and can make the brand synonymous with the product offered - for example, Kleenex. At the peak, the brand makes an emotional connection with the customer, to the extent that the brand says more about the consumer than the product.
But why bother making an emotional involvement with the consumer when many branded corporate hotels see themselves in the sphere of business-to-business (B2B) organisations? The belief is that most purchasers of their product act totally objectively when making decisions.
Marketing has traditionally been based on the four Ps: product, price, place and promotion. Offer a superior product at a lower price, manage the sales and distribution channels and promote the product, and success should follow. In the belief that all decisions are entirely objective, the sentiment is that brand-building is only for the makers of shampoo, jeans or soft drinks.
But in an increasingly competitive environment, the four Ps are no longer the keys to success, just the basics that every operator must master simply to stay in business. Even in the B2B arena, the power of the brand is just as relevant - to create a perceptual value in the minds of their customers.
Marketing consortium Best Western has more than 1,300 units in Europe, yet arguably it is little more than a badge identifying a certain standard rather than a brand that can claim an emotional involvement with its customers. Its members' hotels are too disparate in style and price.
Conversely, unbadged Schrager hotels can claim to speak more about their guests than the product, and have a clear brand promise that the consumer buys into - stay where the "in crowd" stays.
Arguably, hotels just cannot be branded effectively - the differences with FMCGs are too great. A packet of Persil is the same wherever it's bought, and should wash as white, but hotel rooms aren't like that.
If you've stayed in the Hilton on Park Lane in London, you may be disappointed with the Hilton at Stansted. Plus, the product isn't just the bedroom it's the service, the whole experience. Practically every hotel chain will tell you it offers an easy check-in with the friendliest service. But, perhaps unsurprisingly in an industry where pay for frontline staff is notoriously low, ensuring each customer is met with a smile and a seamless check-in process is hard to deliver. And if you've misplaced your reservation number and the reservation clerk has had a bad morning, the guest is unlikely to forgive the brand.
Ian Schrager stated, when he entered the hotel industry, that the "cookie-cutter" approach of Holiday Inn had reduced hotel rooms to the status of commodities. And without a clear brand narrative, hotel rooms are indeed commodities, where the only differentiation can be on price.
By contrast, increasingly effective branding enables a premium price to be charged. Peter Gowers, chief marketing officer of InterContinental Hotels Group (IHG), states that each of the seven brands in its portfolio has to have a clear point of difference over its competition. "One example would be InterContinental itself," he says, "which gives its customers truly 'in the know' experiences with a sense of the local area, unlike the majority of luxury brands which put you in a bubble and make you feel you could be anywhere."
Rising up the pyramid, a brand can become the "only" choice in its market. Can you think of a breakfast cereal maker other than Kellogg's? And who makes toilet paper other than Andrex? There's clearly scope for hotel brands to be similarly the "only" choice in their sector. With an extremely strong brand, you needn't change the product. The most enduring brands are those that haven't changed the product, just the marketing.
Iype Abraham, commercial development director of Radisson Edwardian Hotels (REH), believes that its branding produces a number of key business spin-offs. "It provides important synergies between different areas of the business, such as purchasing, training and HR," he says, "and we get a lot more referral of business between different sectors, such as conference and banqueting, and meetings, as a result of our recognised brand."
A strong brand can also make entry into other markets possible, achieving "brand stretch". The strength of the Virgin brand allowed it to move into cosmetics, lingerie and trains. Starwood has also discovered this through its beds and bedding line.
And the importance of the brand to employee motivation should not be overlooked. As Gowers says: "The brand also helps to motivate team members to really deliver, because we all know that working for a well-known, well-loved brand is much better than working for one that isn't."
He adds that the group's sponsorship of the Aston Martin Racing team (InterContinental), and the Vauxhall team in the British Touring Car Championships (Holiday Inn) help to engage team members and boost awareness.
Enforcing the brand
Many hotel operators recognise that once they've developed a clearly defined brand, they need to work hard to maintain the standards and qualities associated with it. Abraham says that all REH's hotels are governed by strict guidelines, which are checked through regular mystery shopping and benchmarking exercises.
IHG believes its loyalty programme, Priority Club Rewards (the largest in the industry, with 30 million members), provides it with a wealth of data to help pinpoint exactly what customers want. Gowers says: "We have statistical tools to help owners carrying out new builds and refurbishments to decide which room features will really make a difference - to answer questions like: should you offer flat-screen TVs or bigger showers?"
Very few hotel chains can claim to have reached the top of the brand pyramid, but the benefits of doing so are clear. The increased focus on the separation of bricks and brains - from owner-occupation to management and franchise operations - is likely to test hotel brand strengths more and more.
While return on capital employed may be superior for companies that don't own real estate, profitability is far lower. It may take four or five management contracts to generate the same amount of cash as one property under ownership, and more with franchises.
This means that, in the rush for contracts, some brands will inevitably have to muscle out some independents and other brands. It will be survival of the fittest. Owners will need to analyse carefully not only the structure of the contract on offer, but also the status of the brand. Will the brand be strong enough to underpin future occupancy? A strong brand may be more demanding in its management fees and the capital expenditure required, and the rate premium generated by the brand will have to offset this.
The strongest brand narratives are already apparent in their respective markets - Malmaison, Hotel du Vin, Starwood's W brand, Four Seasons, Premier Travel Inn and Travelodge to name but a few.
In the midmarket, we have seen the disappearance of once-widespread names. Although it retains the initials, QMH no longer operates any Queens Moat House hotels. Instead, the UK company has a portfolio including 12 Holiday Inns and three Crowne Plazas, brands which are also operated by IHG throughout the world.
There will almost certainly be more consolidation across all sectors as operators look to franchises to tap into brand power.
The most powerful will be those that do more than just the four Ps - that truly develop themselves into tags of identity that their clients are eager to wear.
Novotel: Case study
Novotel was recently the subject of a media campaign, which included everything from brochures to online advertising, with a pan-European budget of £2.7m. Marketing manager Ian Butlin explains the objectives of the campaign.
"Novotel has not been completely rebranded but repositioned to suit the changing market.
"It's our objective to change consumers' perceptions of Novotel from being an unknown middle-of-the-road motel brand to what Novotel really is - a midmarket, city-centre, contemporary lifestyle brand.
"It's also part of a global Accor strategy to focus more on its individual brands and less on the Accor Group.
"The New Generation Novotels (more than 30 in the UK) have been in development for nearly four years now."