Wednesday, September 11, 2013

ADVENTURES IN THE REBRANDING OF HOTELS

It may be emotionally satisfying to “start over” in business, as it is in life. Change can either bring positive transformation or markedly worsen the fate of a troubled asset. The franchise “flag” a property files, means more than simply a brand identity. It affects marketing,  rewards programs,  and other guest incentives and offerings. A botched re-branding can destroy the top line in a manner that outweighs any savings in royalty fees or renovation costs. For a hotel property that has had either a bad public perception or a damaged brand, re-branding may be the only way out of a troubled history. 

My career as a Hotel Director of Sales and Marketing was greatly devoted to addressing the immediate and short term consequences of a hotel franchise changes. Often the reasons are based on the calculus between spending additional investor monies to keep the current name on the door, or shopping for a different brand. Unless the “reflagging” decision is the offshoot of an ongoing or completed renovation, the usual outcome is to accept a franchise that charges less in franchise fees, that demands less in capital investment over the course of a franchise agreement. Often it’s actually an emotionally driven decision. Conflicts between owners and franchisors can becomes toxic, with human nature driving the divorce. 

FACTORS TO CONSIDER

Direct Costs - The direct costs of a franchise conversion  is not an inexpensive decision. Exclusive of construction ,  the direct cost of a franchise change includes marketing materials, changed in-room amenities and supplies, and a completely new reservation interface and property management systems. 

Indirect Costs – Writing off years of marketing investment is a steep price to pay. A franchise is the first thing constituencies consider when looking at a property. This identification seems very real when the change is discussed in a focus group setting. Frequently a perceived brand “downgrade” trumps the significant owner investment that was made, to meet a succeeding franchisor's requirements. 

Why? - Is it really a question of a franchise under performing? Often the market is really the reason? There is a need to analyze whether the conversion is going to work any better than the current brand. It’s a 50/50 proposition , if not accompanied by a serious look into the other factors driving the softening of a property’s business. 

ANALYSIS 

Hoteliers re brand for similar reasons. A common scenario is when multiple properties have been re-flagged because of a changed relationship with a particular franchise company, or when the property is a new acquisition. Obviously it’s easier to negotiate more favorable franchise fees and concessions if an operator already pays franchise fees for multiple locations. 

Technology has driven many sea changes in booking practices over a professional lifetimes. These have consistently eroded “flag contribution” to the top line. To those who began in the era before online travel agencies, it’s easy to assume the “return on investment” from a brand is deficient. Franchisors have struggled with adjustments to an era where the Internet has reduced their importance, with frequent shifts in the management of multiple brands, often opening the door for more stable flags, in courting hotel owners. 

It’s costly to reposition any asset. The costs of exiting ongoing agreements are significant. Decisions are made, without considering the costs of conversion. Civil court dockets are littered with cases of jilted franchisors going after properties that refused to complete the removal of their signs in a timely manner. One notable case occurred in the Dallas market,  when months after the termination, a property still was using the gamut of logo items, (including exterior signage) while residing on a busy highway near Texas Stadium. The costs of replacing every logoed item, is one that if not considered comes with a breathtaking sticker shock. That one consideration has been known to stop a conversion in its tracks. 

It can be a dramatic process that often triggers unforeseen turnover . As a manager who has survived multiple conversions from upper tier to a lesser brands, I have seen how difficult it is to retain superior sales talent. Whatever the rationale of the decision, a perceived franchise downgrade affects team member and guest satisfaction negatively, even when the product has been markedly improved.  

Sometimes a market is simply deficient. Sometimes it’s the tide that is sinking every boat. From a marketing perspective, it is often not about the franchise. It’s about finding a market niche, and using offerings and pricing to obtain market share. Before waving the white flag, it’s a good time to consider if the enemy is oneself. There is a reason why many sports franchises never seem to make it, even when they change cities. Most devoted fans will attest to the issue being ownership issues that are never resolved no matter who the coaches and players might be. 

SUMMARY

Transitional staging issues are a primary consideration. One notable litigation generator for hotel management companies is getting owners caught without a brand and reservation system, and decimating a hotel’s business. Even with a flawlessly executed conversion there is a structural decrease that stretches on for one or two years. Cessation of a property’s reservation system, web site, and online travel agency interfaces , creates a structural time lag until a new brand begins to significantly contributes to the top line. Declines in revenue are more pronounced in properties that previously enjoyed affiliations with strong rewards programs and loyalty amongst business travellers. 

There are times a hotel's brand is irretrievably damaged in a market. In the case of a new owner, it is often far easier to resolve a laundry list of accumulated grievances within a local market by changing the name on the door. Whether it is in the world of hospitality or another business that is a franchise,  due diligence is  one investment that pays off . In the final analysis, a brand is both the most crucial factor to an asset's top line and an integral part of an it's narrative. Like any marriage, changing that identification in haste, causes years of regret later.

MANY BLESSINGS - NOEL