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IJCHM
18,5 Perceptions of European
independent hoteliers: hard and
soft branding choices
398
Sonja Holverson
Ecole hôtelière de Lausanne, Vaud, Switzerland, and
Frédéric Revaz
Sheffield Hallam University, Sheffield, UK
Abstract
Purpose – This study aims to examine the effectiveness of branding through franchising and hotel
membership affiliations in Europe, where the chain penetration rate is still relatively low, albeit
growing slowly, and where hotels are limited by historical preservation codes and building
restrictions.
Design/methodology/approach – Although branding through affiliations has been a successful
strategy in North America for decades, little is known of this strategy in Europe, where the fragmented
hospitality industry comprises small and medium-sized independent enterprises which are being
subjected to increasing competitive pressure from large global chains. This exploratory study, using a
purposive sample, examines the factors that European independent hotels consider before committing
to a third-party brand and whether they perceive their decision to have improved their overall
performance.
Findings – It is revealed that these hoteliers perceive that they had significantly improved their
overall market position situation without losing a large part of their uniqueness, independence and
management control. Notwithstanding, some of the hoteliers were not satisfied with every aspect of
their brand selection and it was concluded that the degree of success would be highly contingent on
careful selection of the appropriate kind of branding tool option for each situation.
Practical implications – The main issues have been identified for hoteliers to consider when
selecting a brand affiliation as well as the key components for the branding companies to include in
their offers. Recommendations are provided for both.
Originality/value – Decision-making criteria are provided for hoteliers in the form of a checklist to
use including benefits and risks and other considerations, as well as a checklist of key success factors
of leading hotel branding companies.
Keywords Brand image, Hotels, Small to medium-sized enterprises, Purchasing groups,
Hotel and catering industry
Paper type Research paper
Introduction
Europe is estimated to be the world’s largest region for hotel stock with approximately
6,550,000 rooms out of 18.4 million worldwide (Marvel, 2005). As tourism in Europe
approaches maturity with relatively slow growth in arrivals compared to some other
International Journal of
Contemporary Hospitality regions in the world, and experiences a turbulent industry environment, European
Management hoteliers have cause for concern. Europe’s heterogeneous hotel industry is dominated
Vol. 18 No. 5, 2006
pp. 398-413
q Emerald Group Publishing Limited
0959-6119
The authors would like to acknowledge the Swiss Hotel Association (hôtellerie suisse) and the
DOI 10.1108/09596110610673538 European Hospitality Forum for their generosity in supporting this research.
by individually owned properties or small family-owned hotel groups. Switzerland, for European
example, has only 640 hotel establishments with over 50 rooms out of 5,600 hotels independent
researched in 2002 (Marvel, 2003a). Building and renovation restrictions in historical
buildings and dense neighbourhoods further challenge European independents to hoteliers
compete with larger more standardised branded hotel companies.
As the world’s large hotel groups consolidate and benefit from economies of scale,
scope, and concentrated resources for acquiring the latest technology and expertise in 399
order to build strong brands for more sophisticated and demanding customers, there is
increasing pressure on small and medium-sized independent hotels to be able to
continue to perform well or even to survive. This is especially the case for those
European hoteliers with older properties, perhaps not particularly well-located and
without any brand affiliation, who are trying to do business in an industry where
political and economic turbulence has also contributed to low occupancies for several
years (Swig, 2003; MKG Consulting, 2003).
“Branding”, in general, is a strategy to distinguish a company’s offer and to create
and maintain customer confidence (Pass et al., 1995). In this study we refer to branding
as affiliating with an established third-party brand. Today, there is an evolution of the
nature of hotel affiliation companies and their enhanced offers which creates a great
deal of confusion regarding such terms as “consortia” and “affiliation”, as well as
“reservation companies”, “referral companies”, and “voluntary chains”, etc. Therefore,
this paper will be using the term “soft branding” companies to represent all of these
different types of hotel membership organisations (Holverson, 2005). By “hard
branding” companies, this study refers to standardised hotel chains and especially
addresses those which franchise.
Having a strong brand enables companies to not only facilitate distinguishing their
offer from the competition but to create customer confidence and loyalty in their
performance, exert greater control over promotion and distribution of the brand, as
well as commanding a premium price over the competitors; all while impacting the
valuation of the business (Pass et al., 1995).
“Because of past experiences with the product and its marketing program over the
years, consumers learn about brands. They find out which brands satisfy their needs
and which ones do not” (Keller, 2003, p. 9). Weizhong et al. (2002) cites a Cornell
University study which confirmed that consumers consider a specific hotel’s brand
name in their selection process. Business Development Research Consultants of
London found that 70 percent of international travellers and 64 percent of domestic
travellers believed that brand was an important criteria when selecting a hotel (Lewis,
2000). Trust and reassurance are also expectations of today’s travellers. Anil Thakrar,
owner of a 145-room Quality Inn in Pennsylvania believes that “customers know there
is recourse for them if something goes wrong while staying at the Quality hotel
because it is part of a franchise system” (Walsh, 2002, p. 60). Moreover, large branded
hotel companies are further segmenting the consumer market to meet each unique
customer’s requirements. “This shift from traditional hospitality marketing techniques
will evolve over several years and cost millions in telecommunications, e-commerce,
data warehousing, and one-to-one marketing investments. The independent hotel or
resort and many small branded management companies will not be able to fund this
requirement” (Cass, 2002, p. 20).
IJCHM For many years academics and practitioners have recommended using partnerships
and alliances as strategies for the improved performance of small businesses
18,5 (Morrison, 1998). Today there are opportunities for branding that are growing within
the hotel franchise chains and the hotel membership affiliations from which the smaller
hotels in Europe may benefit without losing their independence and management
control. This study focuses on identifying those opportunities, analysing responses of
400 hoteliers concerning their motivations to affiliate, their brand selection criteria, the
benefits they believed to receive, the risks perceived and their overall assessment of
their branding choice. Decision-making criteria are recommended for selecting which
of the kinds of branding options would be the most effective for different types of
independent hotels.
Studies have shown that owners of smaller independent firms highly value
management autonomy (Beaver and Prince, 2004). Therefore, this paper has not
included branded management contracts as an approach, based on the assumption that
the hoteliers which are small and medium-sized enterprises (SMEs) would like to
remain active in the management of their property.
Literature review
Introduction to hotels in Europe
Overall in Europe, only about 20-25 per cent of room capacity is branded by an
integrated chain which does not include the soft brands (Marvel, 2003a). The
penetration rate is increasing primarily in the urban locations and in the mid-to-upscale
range. In fact, according to Marvel, 60 per cent of the hotels in European capitals are
now chains; in major US cities it is 70 per cent. The percentage of branded hotels varies
greatly across Europe (Table I).
Characteristics of European independent hotels dictate, to a certain extent, the type
of branding strategy adopted. European independent hotels are, for the most part,
SMEs owned and managed by families and/or entrepreneurs. SMEs are not “miniature
versions” of large companies and need different strategic approaches than large
enterprises to allow for their special nature (Beaver and Prince, 2004). Heterogeneous
and complex, the major differences of SMEs noted by Beaver and Prince concern
business objectives, marketing and operational practices and the style of management,
as well as attitudes towards growth. The primary motivations of SME entrepreneurs
can vary from lifestyle and family-oriented objectives to economic objectives; either
allowing the independents to maintain control over key decision-making (Glancey and
Pettigrew, 1997). This is corroborated by Beaver and Prince (2004, p. 36) who claim
that “few owner-manager and entrepreneurs make financial gain their primary goal”.
Furthermore, Beaver and Prince report that most studies conclude that independence
and lifestyle are their principal motivations with the “enterprise as the major arena for
their expression”.
Franchising/hard brands
Franchising: benefits and advantages. According to Turkel in 2003, franchising enables
“individual entrepreneurs to have a hotel with a recognizable name and in theory they
acquire the right to operate a business that has been fully debugged and tested”
(Haussman, 2003, p. 1). Lewis claims that the brand name recognition “or the fact that
customers have heard of the chain and have an image associated with it in mind is a
key advantage to the franchisee” (Lewis, 2000, p. 551). Furthermore, being branded by
a top hard branded company can permit charging a premium rate (Keller, 2003).
Although the offer fluctuates from company to company, in general, hard branded
hotel franchisors, have the resources necessary to offer sophisticated information and
communication technology (ICT) infrastructure to their franchisees (Lewis, 2000).
Through their advanced technology and economies of scale and scope, hotel
franchisors can provide their franchisees access to new global markets as well as
established key accounts such as large corporations with which they already have
contracts. General marketing support, promotional assistance and marketing research
and intelligence as well as training, are also available from many franchisors which
normally would be beyond the budget of an independent hotel (Lewis, 2000).
Franchising: disadvantages and risks. The average duration of a hard branded
franchise contract is ten years and could be up to 20 years, so return on investment is
critical (Marvel, 2003a). The franchisee will no doubt lose a certain amount of control
and management independence but according to Lewis, the amount of control over the
franchisee “varies as widely as the franchising options available” (Lewis, 2000, p. 548).
Further strict physical plant standards, i.e. building, décor, etc. oftentimes apply which
may require on-going investments (Lewis, 2000). Territorial rights are also an issue to
consider for a franchisee so that there is a guaranteed distance between their hotel and
same or similar corporate brands to avoid cannibalisation (Lewis, 2000). Country of
origin of the franchisor could be a possible risk during turbulent political times,
although this is usually short-lived (Colyer, 2005). One could also postulate that some
hard branding companies may focus their resources on their core geographical markets
and not necessarily on those of the franchisees elsewhere.
Franchising: costs. Franchisees are usually required to pay an initial fee averaging
around $35,000 depending on the size of the hotel and the notoriety of the brand as well
as annual royalty fees which range from 3.75 per cent to 6.5 per cent of rooms revenues European
(an industry average of 4.3 per cent) and marketing fees which run from 1 per cent to independent
4.5 per cent of rooms revenues (Marvel, 2003a). Reservation service fees are also
charged and are calculated on the number of rooms or as a percentage of the rooms hoteliers
revenue running from 1.5 to 2.5 per cent (Marvel, 2003a). Franchisees must keep in
mind that fees are generally calculated on either the number of rooms in the hotel or the
rooms revenue and not on the profits. In addition, there could be other miscellaneous 403
fees such as extra costs for training programs, travel agent commissions, GDS fees,
computer hardware and/or software and system maintenance fees, as well as for
loyalty programmes.
Many European hotels are simply too small or in the wrong location to be accepted
as a franchisee, therefore, hard branding may not even be an option. The rule-of-thumb
is that franchise chain hotels should have at least 50 rooms along with the other
requirements specified by the brand (Marvel, 2003a). However, these constraints
present an opportunity for soft branding companies to focus on smaller properties,
many of which exist in Europe.
Soft branding
Soft branding: benefits and advantages. In order to compete with the hard brands and
large online travel distributors today, Wolchuk (2002) reports that soft branding
companies have been focusing on optimising rate delivery and sales via the GDS and
the internet and cultivating a partnership role with hotels offering contracts of a
shorter duration than those with hard branding franchisors. Belonging to a soft
branding consortium can be an attractive branding option with immediate positioning
and credibility for many independent hotels in Europe where properties are small and
unique. In Switzerland, for example, only 8 per cent of the hotels are hard branded, but
27 per cent are affiliated to a soft brand. (Marvel, 2003b). Although perhaps not as
well-known to the general public as the hard branded chains, soft branding companies
can still enable independent hotels to augment their own brand differentiation and
reinforce their positioning and visibility with an appropriate soft brand affiliation
(Arruda, 2004).
Soft branding: disadvantages and risks. Along with the increasingly more
sophisticated offers by soft branding companies is the implementation of stricter
standards for membership to protect the soft brands’ reputation. Inspections are
becoming more frequent. For example in 2003, Relais & Chateaux disposed of 161
properties that failed to meet its new standards (Marvel, 2003b). This implies potential
capital investments that the independent may not be in a position to make.
Soft branding: costs. Soft branded companies frequently charge initial fees. The
annual fees for a soft brand are considerably lower than those of hard brands, with an
average of 1 per cent of rooms revenues; the highest being Best Western which is about
2 per cent (Marvel, 2003a). A further cost advantage from a soft brand versus a hard
brand is that the physical plant requirements are not as standardised and a soft
branded hotel is not subject to transformation costs in the same manner as hard
brands.
IJCHM Summary of benefits and risks of branding approaches for independent hotels
18,5 A summary of the key benefits and risks of hard or soft branding versus remaining
independent is provided in Table II which has been determined from the literature
review.
Methodology
404 Though it may appear predictable that Western European hoteliers would be eager to
acquire these benefits and achieve improved performance through adopting a
third-party branding strategy, the challenges that independent European hoteliers face
are unique. In order to reveal the current issues in terms of hard and soft branding
options, two overall research questions were established:
RQ1. Which factors should independent hotels consider before committing to a
hard or soft brand?
RQ2. Does hard or soft branding of smaller independent European properties
improve overall performance?
Given the difficulty of identifying SME hotels across Western Europe that were
formerly completely independent and which have now opted for either hard or soft
branding with third parties, an exploratory approach was taken for this study. Since
the choice of methods and methodologies are determined by the research questions,
Preliminary results
Motivations of independent hoteliers to invest in a brand
The primary reason for independent hotels to brand with a soft brand was acquiring
“marketing services”, followed by “global reservations systems”, “increase in sales”,
then “access to new markets”. The leading motivation for franchisees was having
access to “global reservation systems”, followed by “increase in sales” and then, of
equal importance, “access to new markets” and “marketing services”. One possible
explanation of the larger importance of “marketing services” for soft brands could be
related to their generally smaller sized properties than the franchised hotels and
therefore they would have fewer staff available for marketing functions. Furthermore,
the smaller soft branded hotels may also actively seek “marketing services” due to a
IJCHM possible insufficient managerial training and/or a lack of marketing skills on the part
18,5 of the owner-manager.
The similar responses by both the soft and hard branded properties reflect the need
to broaden distribution which is inherently lacking in SME hotels.
Primary risks considered when becoming branded through soft or hard brands
The primary risk reported by both brand types is clearly “fees and royalties are too high
for the benefits received”. Yet when it came down to making a specific choice of brand,
this was not a major factor for either type of branded hotel. Perhaps the hoteliers had
already researched the costs before narrowing down the choice of brands which may have
had comparable fees; all of which were perceived as “too high”. Considering the strict
standards imposed by some brands, especially hard branded franchisors, it was
unexpected to find that the loss of decision-making control was perceived as a relatively
low or no risk by both types of hoteliers. It would seem that the hard branded franchisees
would be more concerned about “possible investments” due to a change of standards than
a soft branded hotel. However, more soft brands perceived this as a risk than franchisees
and even considered it more threatening than loss of unique identity. This may be related
to the limited quality assurance and the lack of resources for upgrades and
transformations that are characteristics of the smaller hotels.
Recommendations
Managerial implications and applications for independent hoteliers
As far back as 1993 the question for independent hotels was no longer “why join a
membership, reservations, or referral system?” It was: “How do you pick the right
one?” (Jesitus, 1993). The situation and the choices are far more complex today. The
major decision-making considerations for small and medium-sized hotels have been
established below. This framework has been compiled based on the literature review
and the exploratory study and contains the key issues for independent European hotels
to consider when selecting a brand affiliation, be it a hard branded hotel franchise or a
soft branded hotel membership. It could further be used by third-party hotel branding
companies to consider when adjusting or personalising their current offers to
independent hotels.
Internal issues for independent hotels to consider before selecting a hard or soft
brand are:
(1) Owner’s objectives and attitudes:
. vision, mission, values;
.
long-term goals (personal and professional); and
.
willingness to relinquish some control.
(2) Owner’s situation:
.
resources, ability to invest;
.
financial performance; and
.
direct competitive set (especially if branded).
(3) Owner’s offer to match a brand:
.
Location, size, target markets; and
.
Core competencies, condition/characteristics of the hotel.
Branding company issues for independent hotels to consider before selecting a brand are: European
(1) Brand’s corporate situation and policies: independent
.
financial health and performance in Europe; hoteliers
. global objectives and strategies; and
.
frequency of change of affiliation requirements.
(2) Brand’s corporate company portfolio: 409
.
number and types of all brands and brand extensions;
.
multi-brand clarity and degree of cannibalisation;
.
brand’s global (European) penetration and access; and
.
brand’s primary target markets.
(3) Brand’s country of origin:
.
effect on specific target markets; and
.
possible bias of targeting efforts and promotion.
(4) Brand’s strength, reputation, image:
.
clear positioning and global image, ethics.
(5) Brand’s property requirements:
.
condition, style, size of the building;
.
style of service, number of staff; and
.
location type.
(6) Brand’s quality assurance:
.
degree of rigidity and frequency of inspections; and
.
consistency within the group.
(7) Brand’s management conditions:
.
degree of control allowed.
(8) Brand’s contractual conditions:
.
duration, exit clauses, renewal of the contract; and
.
terms of payment.
(9) Brand’s costs:
.
initial fees;
.
ongoing fees (annual membership or royalties);
.
services fees (reservations, advertising, etc.); and
.
possible upgrade or re-branding investments.
(10) Brand’s technology offer:
.
CRS, GDS, PMS;
.
internet sites, hotel links, online tracking systems;
. CRM (customer relationship management); and
.
revenue management.
IJCHM (11) Brand’s marketing services:
18,5 .
brand directory and brochure support;
.
appropriate communication campaigns;
.
access to targeted databases;
.
substantial loyalty programme;
410 .
good relations with intermediaries and key accounts;
.
sales staff support; and
.
market research and marketing consulting.
(12) Brand’s other services:
.
training staff and management;
. preferred suppliers available nearby (Europe);
. financial support, reports and consulting;
.
legal consulting (Europe); and
.
architectural and engineering consulting.
Managerial implications and applications for third-party hotel branding companies
Considering that the hotel industry in Europe is dominated by independent hotels,
especially SMEs, hotel branding companies should seriously consider these
opportunities. The preliminary findings in this study could assist hotel branding
companies to improve their offers specific to independent European hoteliers’ needs
and expectations. One area of improvement would be maintaining rate integrity and
assisting with achieving premium rates. Knowing that access to new markets and
global reservations systems are a priority could enable hotel branding companies to
better integrate their technologies into small property management systems that
European hotels are using or assist them with more compatible technologies.
Understanding the importance of reputation and positioning for these independent
hotels could help branding companies emphasise their own unique selling propositions
and better define appropriate positioning. Soft branding companies in particular, do
not meet SME hotels’ expectations and needs concerning not only positioning, but also
targeting and effective marketing campaigns.
Since the perception that the fees and royalties are too high for the benefits received
by the hoteliers, the hotel branding companies could address this issue through better
communication, modified contracts and improvement in other areas of branding where
expectations might not be presently met. A ten C’s checklist of key success factors for
hard and soft brand companies which they should be able to offer is as follows:
(1) Clarity. Clear positioning of different brands in one corporation. No
cannibalisation.
(2) Communication. Ability to communicate appropriately to very specific targets
through the latest technology.
(3) Channels of distribution. Reaching new global markets through e-distribution.
(4) Consistency. Similar facilities, service delivery and pricing in order to satisfy
expectations. Not necessarily replication.
(5) Credibility. Always delivers on the promises.
(6)Customer-centricity. Constant monitoring of changing needs. European
(7)Critical mass. Synergies and resources necessary to compete. independent
(8)Cooperation. Partnerships and strategic alliances. hoteliers
(9)Control. Measuring and monitoring activities for effectiveness and customer
satisfaction.
(10) Creativity. Constant innovation and adapting to customers’ consumer behaviour 411
and desires.
Conclusion
The primary motivations indicated by formerly independent hotels to brand, either
with soft or hard brands, were access to global reservations systems, access to new
markets, and marketing services. Increasing sales and improving image were also
significant reasons for hotels to select branded affiliations. It was found that the
criteria of reputation and image were nearly as important as access to global
reservations and more important than fees for these SME hotels when selecting specific
brands. Positioning also played a major role in selecting specific brands and there was
no interest indicated in loyalty programmes. But did the hotels actually receive what
they were looking for in a hard or soft hotel branding company?
Despite the nature of the unique and diverse European hotel industry structure and
a difficult economic environment, it was found that the majority of a small sample of
hotels surveyed indicated that their decision to brand through hard branded
franchising or soft branded hotel membership organisations has improved their overall
performance without losing a large part of their management control. Nevertheless,
these benefits were not acquired without perceived risks. The most frequently stated
risk was the concern for high fees and royalties compared to the return on investment.
But in fact, the majority of hotels expressed satisfaction with their return from their
specific hard or soft brand affiliation. Although, also perceived as a risk, the possible
loss of identity did not materialise for most of the hotels. Contrary to traditional
branding theory, the hoteliers indicated that they have not been able to charge higher
rates as a direct result of branding. This, however, is a variable that is difficult to
isolate in a discounting environment and it is conceivable that the hotels were getting
the maximum rate possible.
Branding, either through hard branded franchising or soft branded hotel membership
organisations, is an important component of an entrepreneurial marketing strategy for
some small and medium-sized independent European hotels. Through this exploratory
study it was found that an appropriate branding strategy appears to be critical for the
European hotel industry for superior performance and survival in a highly competitive
and threatened environment. However, the degree of success for the many different types
of hotels will be contingent on selecting the appropriate form of branding, including
building one’s own brand. As internet brands develop and online purchasing of
hospitality products increases, independent hoteliers may need to further consider online
branding opportunities which they may be able to pursue on their own as well as through
the increasingly available hard and soft branding choices.
IJCHM Further research
18,5 The next step will be to conduct a study with substantial quantitative data in order to
validate the significance of the independent hotels’ motivations and the selection
criteria for branding companies as well as to correlate the different types of hotels with
their degree of satisfaction with their branding choice. In-depth case studies or
interviews could reveal details on the underlying causes of satisfaction and
412 dissatisfaction of independent hoteliers and their chosen brand which would be
beneficial to hotel branding companies and independents alike. This study was
concerned with two branding options for independent European Hoteliers: hard
branded franchising and soft branded hotel membership organisations. A further
comparative study of branding options for independent hoteliers could also include
evaluating the performance of the rapidly evolving “branded” distribution companies
on the internet which may prove to have more “brand value” than the existing hard
and soft brands under consideration here. These internet aggregates may also be able
to offer independent hotels the benefits of economies of scale and scope that
independents seek as well as other benefits without the restrictions and possible higher
fees of the traditional large hotel chain franchisors and soft branding companies.
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hospitality enterprises: strategic analysis and critical factors”, International Journal of
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International ed., Prentice-Hall, Pearson Education International, Upper Saddle River, NJ.
Corresponding author
Sonja Holverson can be contacted at: sonja.holverson@ehl.ch