The value of branding in a crowded market

03/08/2016 By Georgina Woodley

Brand Proliferation in Hotels: how much value does brand bring in an increasingly crowded market?

I was excited to have been part of the Hotels MegaMeet conference at the end of July, where I participated in a panel discussion on Brand Proliferation.  The topic of discussion centred on the idea that the world’s top 10 chains now offer over 115 brands, over 30% of which didn’t exist a decade ago.  But how much benefit do these brands bring in an increasingly crowded market?

Firstly, let’s think about brand and brand value.  Just what value does a brand name bring?  A brand name offers a promise of something.  And generally that something is known, in so much as the end user knows what they can reasonably expect from the brand –  they have trust in it to deliver to a known standard.  As humans, we are cognitive misers.  Our brains seek shortcuts in our decision making.   Whether it's choosing a beer to drink or a hotel to visit, a brand offers us a shortcut, represented in a word or a logo all manner of things we might well expect around service, facilities, experience and value.  To this end, a brand de-risks the end experience by providing a degree of surety about the experience.  A brand’s value is eroded when it fails to deliver its promise, or what consumers have reasonably come to expect from it, thus eroding trust.  For a hotel operator, a brand must surely drive volume and value.

But in order to do this, the brand must be known.  How does it get known?  Arguably, for most brands, the value builds over time as it becomes known for what it offers.  This can be as a result of its scale, simply the passage of time, or communications.  Hotels with scale through a high number of properties are more visible to the market, both in their physical presence, but also their online presence in the hotel industry generally.  But physical scale is not everything.  Small scale brands such as the Savoy and The Ritz have built strong and trusted brands through their longevity.  Newcomer brands can build trust and presence quickly via effective communications activity, whether intensive advertising or something that causes the brand to go viral.  But arguably to have any real value, a brand must be capable of communicating a point of difference, a reason to choose it above all others.

If you look at the dynamics in the hotel industry it’s easy to see why there has been a proliferation of brands, driven by both supply and demand.  On the demand side, there is a consumer trend towards mass individuality.  Consumers seek unique and new experiences.  Indeed, ‘experience’ is the new luxury for the younger generations in particular.  Yet subconsciously consumers still value the peace of mind that a known brand offers.  On the supply side, as hotel operators look to sell off physical assets, increasingly what’s left on the balance sheet is simply the equity of the brands in the portfolio.  They are therefore driven to manage the risk in the brand portfolio.  If one brand in the stable has a toxic social media incident that devalues the brand, there are others in the portfolio that can mitigate the overall balance sheet risk.  Accordingly, brand management needs to take consideration of the stage in the brand’s lifecycle, where priorities for the brand should differ markedly.

Our research shows that brand names in the hotel industry command a premium.  The Brand Margin® obtained in the Hotel Guest Survey, a large multi-country study spanning 25+ countries across five regions, uses the wisdom of crowds to assess just how much of a premium individual brand names bring over a comparable generic product.  In the luxury segment, the average price premium that a branded hotel brings is $86.16 per night above a non-branded hotel.  Naturally, this varies across brands, the highest premium being $112.61 and the lowest $67.55, with lesser known brands typically commanding a lower premium.  But it shows the value of a brand in driving increased value.

The traditional assumption is that a successful brand drives both volume and value. In the hotel sector, volume has historically been relatively easy to measure but value less so until recently.   All manner of things affects the premium a hotel can command, including location, seasonality, the skill of the sales team, as well as, of course, brand.   Brand Margin® finally allows us to isolate what a brand can bring to a party, all else being broadly equal.

Brands also seem to continue to have the higher pulling power in driving volume than online travel agencies (OTA).  Across the business and leisure segments, approximately 60% of bookings are still direct with the brand through one of the channels verses 25% made via OTAs.  And a large proportion are only considering the brand that they actually booked with, around 60%.  This seems more logical in the business sector, where around 40% of hotel nights booked are people staying for business events in the same hotel, but this singular brand consideration proportion holds equally in the leisure market.

However, extending the brand portfolio can be a double-edged sword.  Our research shows that attaching a new more value-based brand to an established luxury name serves to lift the value perceptions of the unknown economy option but has a detrimental impact on the value perceptions of the luxury brand.  Accordingly, the brand extension decision should be carefully considered.

On balance, there is no substitute for hard data in decision making.  BVA BDRC’s Hotel Guest Survey is the definitive source of insight on hotel brand health and market dynamics, conducted each quarter across 25 major travel demand origination markets.  It provides insights on brand positioning, brand drivers, emerging trends and the specific price premium that each brand can command. To subscribe to Hotel Guest Survey, or to learn more, get in touch.