How to Select the Right Brand for Your Hotel | By Kasia Russell

In recognition of the globalization of travel, the different needs of multi-generational travelers, and numerous unique travel purposes, hotels chains have created hundreds of hotel brands. Even non-hotel companies with strong market share within their respective industries have entered the hotel space.

Brands like Hard Rock, West Elm, RH, and Louis Vuitton are responding to their customers’ desire for a more immersive experience, as well as curating the lived experience of their brands. With the hundreds of options available, how does a hotel owner begin to traverse the complicated world of brand selection?

Market Analysis

The first and arguably most important part of the brand-selection journey begins with understanding your market and target client base. Hiring a third-party consultant to perform a market demand study is a great way to begin. This study will help you with evaluating market trends, analyzing gaps, understanding pricing trends and thresholds, and identifying consumer preferences. The study also assesses a particular market’s appetite for a branded hotel; for example, a hotel in a small coastal market replete with independent hotels may not be best suited for a hard brand.

However, for a hotel with highway frontage in a suburb of a primary market, an established brand will provide the recognition necessary to garner higher occupancy and average daily rate (ADR) levels. It is imperative to invest the necessary time and resources during this initial stage, as the findings will drive much of the framework for the brand-selection process. The market analysis period includes the following three steps.

1. Investigate Demand Generators

Identify the main drivers of demand in your market. Is the market driven mostly by leisure travelers visiting a national park, for example, or is it an airport market with high levels of transient-oriented demand? Maybe the market is experiencing significant changes in demographics, and growth in the area will come from new residential and infrastructure developments. In that case, relocation demand triggers the need for properties with amenities geared toward long-term stays, such as a kitchenette and/or additional bedrooms. Making a physical visit to the subject market is crucial for this step. Personally observing the nuances of the market, especially in terms of elements such as infrastructure, amenities, and locations of demand generators and competitive hotels, can help inform the brand-selection process.

2. Determine Target Market and Market Positioning

Once the demand generators are clearly identified, the asset’s target market and its market positioning can be established. For example, a boutique, upscale hotel would not likely be appropriate in a rural highway market. Understanding the market positioning allows investors to look at brands through the lens of their ideal customer and what that traveler would expect to see in that particular market.

3. Analyze Supply

Review and research the existing hotel supply in your subject market to understand the current offerings, the condition of the existing supply, the brands that are represented, and the new hotels that are planned for development. As mentioned above, physical inspections of the competitive hotels provide greater insight into the market’s areas of opportunity and the role branding plays in the existing client experience. Be sure to read online reviews and even stay at one or two of the competitive properties to gain first-hand knowledge of your prospective competitors.

Evaluating Brand Options and Key Considerations

Once the market due diligence has been completed, it is time to prepare a list of appropriate hotel brands that represent the best fit for your hotel investment, the local market, and—most importantly—your vision and overall concept for the property. It is possible that, at the beginning of your research, you could have had 20 potential brands that resonate with your vision; however, after deeper investigation, that list would be significantly narrowed down. At this point, it is important to connect with the local brand representatives to confirm what brands might be available. Factors such as areas of protection (AOPs), new supply, and conversions may prevent you from moving forward with particular companies or affiliations. Discussions with franchise representatives would provide you with the specific details of brand availability.

Most brand representatives will engage in earnest conversations once a third-party, non-biased market demand study is completed that either confirms the need for a hotel (in the case of a new development) or supports the repositioning of an existing hotel. This is an important aspect of the brand-selection process that assures both hotel companies and prospective investors that there is indeed an opportunity to work together on a successful hotel branding project.

As you proceed with brand evaluations, there are several key performance metrics and brand collateral resources you should be able to access.

1. Brand Marketing Material and Franchise Disclosure Documents

The brand’s marketing materials highlight key aspects of the brand, such as its design and aesthetic, geographic distribution, amenity requirements, and traveler profile. These resources should also specify any signature features and amenities that might be required by the brand, as well as development and/or conversion costs. The most crucial brand material is the franchise disclosure document (FDD), a legal document outlining details of the franchise opportunity. The FDD provides prospective franchisees with the information necessary to make an informed decision about their brand selection. We note that the FDD is not provided if the hotel will be brand managed. When a hotel is managed by the brand, it is not subject to franchise fees, but rather management and incentive fees.

2. Brand Performance Metrics

Requesting a variety of brand performance metrics from each of the franchise parent companies is another important part of the brand-selection process, and it is often overlooked. It is important to understand not only the way the particular brands you are interested in perform locally, but also the way these brands compete nationally relative to similar brands. We recommend requesting the following information:

• Central reservations system (CRS) revenue contribution, both brand-wide and in the region
• Brand RevPAR index and STR ranking in the appropriate region and the state
• Brand RevPAR index and STR ranking in markets that feature the competitive brands (if the competitors are branded)
• A list of brand-family hotels that are both existing and in development (and their locations)
• Loyalty program statistics and penetration
• Loyalty program redemption and reimbursement formulas
• Guest satisfaction scores in similar markets
• Presence and strength in feeder cities

Once all information is complied, you can begin the exhaustive process of comparing and contrasting the data. It is likely that you will have a variety of questions to ask, and we recommend setting up interviews with the brand representatives to gain further clarity on the data. At this point, your list of potential brands should be limited to no more than three franchise companies, from which you will request their most competitive commitment offers.

Financial Implications and Franchise Negotiations

The financial implications of entering into a franchise agreement with a national hotel chain are significant. The agreement should be fair and beneficial to both the franchisee and franchisor, bearing in mind that the contract term and fee structure tend to favor the franchisor. These agreements are of considerable length, often complicated, and potentially risky if not understood and negotiated properly.

Understanding aspects beyond just the term of the contract and franchise fee structure, which tend to favor the franchisor, is critical. Prospective franchisees should be aware of territory rights and areas of protection. They should be familiar with brand operational and design standards. They should know what support and training should and can be received. What, if any, performance expectations are there for the brand, and how will those be measured? Is there a termination clause, and what are the financial implications of that clause? How will disputes be resolved, and what are the franchisee’s obligations, if any, with respect to selling the asset or transferring the franchise affiliation?

For guidance in tackling these questions and more, you should consult with experts at this stage of the brand-selection process. Not only is legal counsel highly recommended, but so is the knowledge, wisdom, and professional network of a hospitality-focused consultant. Working in tandem with the right team helps ensure the best possible outcome for the project and your financial investment. By carefully considering these factors, you and your team can secure a franchise agreement that best aligns with your business objectives.

Conclusion

Deciding whether to obtain a franchise affiliation for your hotel and then selecting a particular brand is an important aspect of hotel ownership. Investors should take time with making this decision and assemble the right team when embarking on this complicated process. The ultimate brand selection for your hotel should be based on the market you’re entering, your available resources, and the experience you want to provide to your guests. With the right research, strategy, and execution, you are sure to achieve the most beneficial results for your asset and investors.

Reprinted from the Hotel Business Review with permission from www.HotelExecutive.com.