Is the UK Hotel Market at 'Peak Brand'?

27 October 2016.

Brand proliferation has reached epic proportions.  Just ten years ago, brands including DoubleTree by Hilton, aloft and Hotel Indigo either had no presence in the UK, or didn’t exist full stop.  It is showing no signs of letting up, and is fuelled by both consumer demand and supply-side factors.

It’s being driven by consumers’ insatiable demand for new, unique and differentiated experiences.  Middle of the road no longer interests increasing proportions of hotel guests, most of whom are no longer married to one particular level of the market, instead selecting the property that best suits the occasion.  Brand houses therefore need to appeal to as broad a church as possible, so they spread the net far (further still with ‘soft’ or ‘collection’ brands) to allow more properties into the system, increase scale and support the value of the frequency programme.

Selling property may well have de-risked hotel brands and allowed them to specialise on running hotels, rather than managing portfolios, but it has reduced the value of the balance sheet. Brands are now the assets, so companies have to make sure that they have enough of them.  They need brands at different stages of the classic life cycle to protect their long-term position and ensure all their eggs are not placed in just the one basket.

But ask any consumer directly if brand influences their choice of hotel and they’ll probably say no; so why bother?  With so much information available online, all the important aspects of product and service can be assessed with just a few clicks, and consumer reaction to those aspects can be seen without too much effort through review sites.  Consider this – the top ten most-used sites by British travellers booking hotel rooms contain just two hotel brands.  If OTAs are reaching larger parts of the market, why should the hotelier not just go it alone?  I’m sure the cost line elimination such a decision would support wouldn’t be at all unwelcome, with franchise agreements typically structured around the market as it was 40 years ago.

Two key words, in the previous paragraph, strike me as crucial – “directly” and “effort”.  Ask anyone a direct question about what influences them, or their intentions, and, odd as this might sound, you’re not going to necessarily get a correct answer – just ask any polling company active during the last three significant UK elections.  Ask me if advertising influences me and I might deny it.  Ask me if it influences other people, and my response is very different.

“Effort” is the other word, and herein lies one of the key powers a brand can still harness even in the age of the OTA.  When it comes to making decisions, we are cognitive misers.  Our brains take any available shortcut to avoid expending effort.  A brand is the ultimate shortcut – it gives us messages and perceptions of what we can expect at a property with just a name and a logo, saving us the effort of looking into the specifics.  Even if we book via a third party, the brand can be crucial in the decision-making process.

But never mind that, there’s something really important that is still being overlooked.  How much more, if anything, could be charged for a hotel room if it were branded?

A myriad of factors influence the rate a hotel achieves.  Brand is one of them, but stripping out the impact of brand from seasonality, location, skill of sales team – and suchlike – had not really been considered since we launched our Brand Margin^® methodology into the hotels sector last year.  We’re about to release the second wave of reports, and – reassuringly for the brands (and operators thereof), the data show that brands can add value – and quite a lot of it.  Even when we looked at the youngest travellers in our sample, to get a feel for what the future holds, we found they perceive brands to add even more value than the older groups.  They may not be loyal to specific brands, but they see value in brand as a concept and that is half the challenge.

Some of the less well-known brands – particularly those in the fairly crowded midscale – must be wondering what exactly they can bring to the table if they don’t have national coverage, recognition beyond these shores or a clear advantage or specialism, such as M&E, to set them apart.

But are we near “peak brand”? I don’t think so.

There are some parts of the market not yet served, and some of the brand houses don’t have every box ticked so as long as these drivers remain, and as long as the brands can be positioned correctly to support consumer demand, there’s no reason to think the wagon will stop just yet. We may see the occasional brand disappear, but the main drivers are all suggesting there’ll be others along to replace them, even if the rate of growth slows a little.

The Method

The 2016 BVA BDRC Brand Margin^®/Advantage report is available now in 20 countries.  It provides fundamental, tangible brand performance data and should be the first point of call for anyone facing a brand selection decision.

BVA BDRC Brand Margin^®

• Strips out other factors to report, in currency terms, the price premium that a brand could add to an unbranded (identical) product – how much more (or less) might consumers pay for a room if it flew under flag X or Y
• Compares brands with one another to determine which adds most value in the minds of the only people whose opinions matter – the consumers
• Considers three locations – “metropolitan”, “resort” and “provincial”
• Uses indirect questioning to remove bias and misrepresentation
• Sits within BVA BDRC’s Hotel Guest Survey, allowing demographic cuts and usage comparisons.

You can also learn more about BVA BDRC's hotels and hospitality insights at our annual Hotel Insights Forum.