Marriott, Hilton and Big Hotel Chains Are Jeopardizing Their Entire Business Model, How Much Is Left?

Sean O’Neill interviews a hotel marketing professor who believes hotels are underinvesting in their brands in the current environment, much to their detriment. Even one of the highlights of brand investment he cites, Disney, has been diluting the brand by removing experiences from accessible price points. But Disney is one of the good ones. It’s the Marriotts and Hiltons of the world that are especially problematic.

Hotel chains and hotel owners have different incentives. A hotel chain benefits from a strong brand. That attracts guests, which they can deliver to hotels. It attracts a revenue premium as well. And it serves as a short-hand a guest can use to know what they’re getting in terms of experience for their money.

A hotel owner, though, is happy to pay for the guest to stay at their property. But outside of repeat business, once the hotel owner has got the reservation their incentive is to spend as little money as possible servicing the guest or – in some cases – even maintaining the property (though this can affect resale value).

If a chain enforces brand standards, and fines hotels that do not live up to them, they can align incentives.

  • The brand standards are upheld
  • So guests staying at a brand trust that brand, and will stay at other hotels in the chain

But if a chain doesn’t enforce brand standards, the brand gets diluted. Guests used to think the brand stood for a certain level of quality, but they learn that’s not the case. When one hotel doesn’t uphold standards, it may not hurt that hotel but it hurts other hotels the guest might have stayed at which share the brand, and it hurts the value of the brand itself which is what the chain markets.

  • Chains have a short-term incentive to look the other way because that maximizes revenue for them. Hotel owners want the benefit of the brand at lowest cost. If chains impose costs on owners, the owners will go somewhere else, to a different brand. So being ‘easy for an owner to work with’ the chain can sign up the most hotels, and generate the most fees.

  • That’s a long-run destruction of value for the chain. The hotel owner pays a chain to rent its brand, but if the brand has less value fewer owners will receive benefit for the fees. Owners sometimes talk about a loyalty program member as a “lead” and the chain’s website as lead-generation. If guests don’t value the brand, they don’t go to the chain website to choose it over competitors, and they no longer have the reputation or customer base to sell. Hotel loyalty program devaluations further the problem.

Before the pandemic we saw a shift away from enforcements of some brand standards. For instance the Grand Hyatt San Francisco started experimenting with the elimination of room service. This wasn’t just a Hilton, Hyatt or Marriott dropping room service in exchange for a grab-n-go market, this was a more premium brand sacrificing higher standards for lower costs. Hyatt also dropped guaranteed turndown service as an elite benefit to lower housekeeping costs.

But the pandemic accelerated these trends. Owners were demanding lower costs and relaxed standards. The Marriott acquisition of Starwood led the Bethesda-based company to promise owners lower costs. And the amalgam of 30 brands made no sense, so they leaned into their loyalty program and website and having a presence everywhere rather than any clear brand messaging.

Chains like Marriott started enforcing the brand standards that existed far less. It wasn’t just about suspending standards for a period while business dissipated as a result of the pandemic. Once standards were officially returned they were policed less than ever. It wasn’t just club lounges not re-opening (that wasn’t a violation of a standard) and housekeeping standards relaxed (again, consistent with the rules) it was hotels not re-opening food and beverage outlets when the chains said those should be open, and properties doing an inferior job actually cleaning rooms. They kept fewer housekeepers and expected them to service rooms more quickly.

It’s this short-run sacrifice of brand standards, both de jure (reduced standards) and de facto (lack of enforcement) that has made individual owners happy in the short-tun but is sacrificing any long-run value for chains.

That lessens the gap between Airbnb and a hotel. If you’re not going to get daily housekeeping, or even a thoroughly cleaned room, and the hotel is going to add destination or resort (or energy) fees – and isn’t going to offer full service food and beverage on property – then how is it a better, more seamless experience than Airbnb, fees and all?

While a hotel chain’s customers are property owners, and guests are the product not the customer, it’s a dangerous game that many chains are playing focusing on short-term revenue from owners and risking long-term value for shareholders.

When the Marriotts and Hiltons of the world actually owned the hotels that they marketed, there was better alignment of incentives for maintaining and extending their brands (and they found it much easier to deliver promises to guests on-property). An ‘asset light’ model where the chain simply rents out the brand can work – but needs a laser-like focus on defending and growing the value of the brand, not merely living off of and depreciating it.

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