Can you identify the difference between Tempo, Motto, and Canopy which are all separate Hilton brands? Do you know what chain Atwell Suites is part of, or what differentiates Atwell Suites, Staybridge Suites, and Candlewood Suites? Did you know that there’s a single hotel chain with 44 different brands? Would you know which frequent guest account number to give if you showed up at a Matra, Adagio or Mantis hotel?
Whenever a hotel chain adds a brand, like Marriott’s bringing on City Express as their 31st brand or Hilton launching Spark – a cheaper version of Hampton Inn, with splashes of light purple! – consumers react with confusion. How can we possibly need more hotel brands? Don’t the big chains already have more than enough?
Customers simply do not know which hotel brands are part of which chains, or what each brand stands for. This confusion must mean there are too many brands, yet brands continue to expand which must mean chains must believe doing this is profitable. After all, more brands means being able to open more hotels and attract more developers and owners.
Are There Really Too Many Brands?
Sean O’Neill of Skift interviewed Cornell hotel administration professor Chekitan Dev, who argues that there actually aren’t too many brands.
- There were “about 10 million hotel rooms worldwide and about 300 brands” in 1990 for “a brand coverage ratio of 0.03 per 1,000 rooms.” Thirty years later, in 2020, “there were approximately 17 million rooms and about 1,000 brands for a coverage ratio of 0.06 per 1000 rooms.”
- While the ratio of rooms to brands seems to have doubled,
[O]nly about 20 percent of all rooms worldwide were branded in 2000, meaning roughly 2 million rooms. That gives us a brand coverage ratio of 0.15. In 2020, about 40 percent of all hotel rooms worldwide were branded, so about 7 million rooms — giving us a brand coverage ratio of 0.14.
So, by this refined calculation, the brand coverage ratio has held roughly steady worldwide over the two decades. By this measure, the hotel industry is not overbranded.
Here I think Dev misses the point. The problem isn’t that too many hotel rooms are branded it is the number of different brands (the ‘coverage ratio’ would be the same whether all rooms were under 300 brands or 30) and in particular the number of different brands under each chain. No one can keep straight the number of brands that are part of Hilton versus Marriott, even the executives at those chains.
Why Are Brands Proliferating?
Dev identifies the reasons for brand expansion as:
- “desire for a predictable product and service experience”
- “economies of scale in advertising and distribution”
- “market power in negotiation with buyers”
Chains introduce brands to expand the number of hotels paying them fees. Hotels join brands for leverage with suppliers, sure, but they join brands in order to access a marketing platform to reach potential guests. A hotel can often better compete to attract customers, and therefore fill more rooms at higher prices, if they’re part of a recognizable and desirable brand with loyal members.
Marriott Doesn’t Think They Need Brand Differentiation Or Advertising
And while there’s effectiveness in advertising a brand rather than individual hotel, often brands see little advertising investment. In fact that’s literally Marriott’s justification for brand expansion.
When Marriott acquired Starwood, there was a lot of speculation about whether some brands would be collapsed or ended. That was never in the cards. In fact, then-CEO Arne Sorenson explained that they didn’t even need to spend on marketing for 30 brands and marketing is the biggest expense of a brand.
Normally you think a brand needs to invest in marketing so that customers understand its identity, and build trust in the brand. But Sorensen argued brands don’t even need separate identities. And they didn’t plan to ramp up brand-specific marketing.
Instead, they had a loyalty program. Their members would go to Marriott.com, see what options were presented to them, and choose from those. Marriott bought Starwood for leverage so that their counterparties and customers would have no choice but to deal with them. And the more brands they offer, the more choices of price points and features they offer. Customers may not understand them all, but there’s a niche for everyone.
Marriott’s technology, though, hasn’t always scaled to the number of choices they offer in a given market. Some hotels have seem themselves de-emphasized because there are simply too many options. Poorly-trained phone agents don’t always even find the hotels you’re asking after.
Brands Need To Have Clear Definition And Understanding To Have Value
In order to earn a revenue premium customers need to understand what a brand stands for. They need to proactively want to book a hotel brand over its competition.
At a minimum customers need to understand that a brand is part of a given chain in order for them to choose the brand because of the loyalty program. It’s a very small subset of members, indeed, who could identify each brand as part of the program.
However more brands means being able to have more hotels in the same market. That grows revenue (eg management fees). More brands means more hotels and rooms, more rooms means more members, more members support marketing of more rooms – and more customers for co-brand credit cards.
And shedding brands would necessarily mean shedding some hotels, either because some properties don’t meet the standards of a brand or because some owners would be unhappy with the change.
There’s A Huge Conflict Between Chain And Hotel Owner, Degrading The Value Of Brands
In 2020 I predicted that we’d see elite promotions (to drive business), full breakfast would take time to return (resistance to cost) and so would housekeeping (resistance to cost), while amenities like pools and gyms would largely return (because the cost to build them had already been incurred). That’s largely been true, and indeed cost reductions at breakfast has been a key theme.
Understand the modern hotel chain as looking to maximize fee revenue from hotel owners, and hotel owners looking to benefit from a chain’s branding to attract customers while spending as little as possible on those guests. When they’re renting the brand, they want the benefit without having to make the investment. The ‘asset light model’ creates a conflict of incentives between brands and owners.
Historically chains required investment and monitored to make sure it was happening. But more recently the monitoring has fallen off, and chains have allowed hotels to skimp either out of sympathy for the plight of the owners or out of fear those owners would leave and they’d have greater difficulty attracting new ones. This maximizes revenue in the short run, but degrades the value of the brand – which is, effectively, the only value of the chain in the long run.