What's really behind today's brand blitz
28 MAY 2015 6:38 AM
Launching a new hotel brand isn't just about a good idea and a slick design. Consumers have to want new brands, and developers and investors have to be able to make it happen.
EAST LANSING, Michigan—What is the meaning of life? What does the future really hold for mankind? And should you brand your hotel or not?
There's no better place than a university setting to tackle deep, philosophical questions such as these, and that's just what hotel brand executives did during a panel discussion at the annual advisory council meeting of the Michigan State University School of Hospitality Business.
Executives from Red Roof Inn, InterContinental Hotels Group, Best Western International, Hilton Worldwide Holdings and Marriott International tackled the topic of hotel branding from both a 30,000-foot view and a closer perspective, digging into the question of what role brands play in today's hotel landscape.
How has the definition changed?
Jim Anhut, senior VP of the Americas design and quality for IHG, took a purist's approach on the concept behind branding.
"At its core, the definition hasn't ever changed; a brand is a promise, delivered over and over and over again," he said. "That can be one hotel; it can be thousands of hotels. But a brand is a promise, delivered consistently."
IHG's newest brand launch is the wellness-focused Even Hotels.
Ronald Stewart, senior director of owner and franchise services at Marriott, agreed with Anhut, further elaborating on one key factor in that definition that has changed over the years: size.
"Back in, for example, the Holiday Inn days when that brand was growing, you defined a hotel brand by focusing on distribution and a lot of product," Stewart said. "That's really part of the big change now. It's not about 'Let's get to 1,000 or 500.' It's about doing the right number in the right location and making it special."
As an example, Stewart cited automobile brands. "You have Chevrolet and Ford, which produce a lot of cars, and then you have Tesla, which is very focused and might not have as much distribution, but has customers who want it."
The latest additions to the Marriott brand family include AC Hotels, Moxy Hotels and Delta Hotels and Resorts.
Global hotel brand launches in 2015 already are on pace to hit a fever pitch. So far this year the industry has seen more than 15 new brand announcements. What makes the time right for brand launches is a combination of consumer preference, the real estate cycle and more, speakers said.
A strong brand forms the backbone, the speakers said, because it can help once the next downturn hits.
Andrew Alexander, president of Red Roof Inn, said timing—and that brand backbone—is key.
"If you're going into a new investment, I think we might be too close to the end of the cycle," he said. "If you jump in now thinking you have five years to ride the wave up and it doesn't matter if your brand has a foothold, that's just not going to happen."
His caveat? Strong parent companies can carry fledgling brands through the inevitable down cycle. "You need someone behind you supporting your brand, an organization that will carry the investment through," he said.
Red Roof Inn launched its new premium brand tier, Red Roof Plus, in late 2013.
Gary Steffen, global head of the Canopy by Hilton brand from Hilton Worldwide Holdings, said no matter where the cycle stands (he believes the up cycle will last longer than the next year or two), brand power has value.
"Why do we feel so confident launching new brands?" he asked. "It's because of our systems, our distribution and our frequent guests. That's why we will be successful and some of these one-off brands will run into trouble."
In 2014 Hilton launched its soft brand, Curio-A collection by Hilton, and lifestyle brand Canopy by Hilton.
The development side
Developers are a big factor behind the brand explosion, speakers said.
"There's a lot of pent-up capital," said Chris Burdette, regional director of North American development for Best Western International. "A lot of investors sat on a lot of cash during the downturn, and a lot of those people are very growth-oriented. … They're jumping back in again. And all the Wall Street businesses are very cyclical and always looking to take advantage of upswings for new growth for brands."
Best Western in 2014 launched its new lifestyle brand Vib.
Plus, the inherent dynamics of large parent brand companies with flocks of brands under them plays a role, speakers said.
"Many of our developers want to develop with us and quite honestly, they can't, because we're quite saturated in a lot of markets," Anhut said. "And the capital markets are actually allowing (new brand development), so it's just one of those moments in time."
Speakers said a new generation of hotel developers is excited by new brands.
"A lot of (developers) are comfortable with brands they've been with for a long time, but the second generation of hotelier that has come up through their family wants to make his or her own mark," Burdette said. Part of the Vib brand's appeal to the company, he said, is that it's targeted for development in urban center markets, which haven't been core Best Western markets.
However, while developer appetite for new brands might be strong, the process of growing a brand is different in today's asset-light environment, speakers said.
"It's a real conundrum for those of us with publicly traded companies that are explicitly asset-light," Anhut said. "Today it's about reaching out to developers to join up with them to help accelerate the distribution and allow us to put a balance sheet at risk—not necessarily capital at risk—to make things happen. Brand building is not for wimps in this business. It takes a long time because it's so capital-intensive."
He and other panelists cited examples of deals that characterize the current methods of brand growth, such as Marriott's acquisitions of the AC Hotels and Delta brands, plus other home-grown new brand concepts that also include soft brands.
For Red Roof Inn, Alexander said the brand has leverage because it owns and develops properties in addition to franchising them.
"We couldn't have reached our level without significant corporate ownership. Our test kitchens are the best thing we have," he said, referring to the company's owned properties.
Stewart summed it up: "Guests want a change, ownership groups want a change and shareholders want a change," he said. "So we are looking at how to create value for all those different groups."
The consumer side
The speakers agreed consumer sentiment drives brand growth, and reaching customers where they are is the key to helping new brands ramp up.
"The customers are driving all this; let's just be honest about it," Steffen said. "We all research this customer mindset and we know that they want unique experiences; they want an unbranded brand experience. From Hilton's standpoint, we're leveraging our consumer base, and they're telling us they want the segment that we weren't in."
Anhut agreed. "Consumers are bored with some of the old stuff out there," he said. "There's a big base of a more youthful customer that the big companies don't want to lose, so we need something to attract them."
Once the product launches, reaching today's hotel brand guests is different than it was in the early days of brands.
"It comes back to what we were saying about a brand promise," Steffen said. "People talk about brands a lot differently today. You don't need billboards and traditional media buys. Social media is where people talk, and we all have to make sure we're making the right kind of noise about our brands and then deliver on that promise."
Alexander said that approach is the same whether a brand is targeting a luxury-minded millennial who wants a totally unique experience or a traditional economy hotel guest.
"We know we have to deliver our promise consistently every time, and we spend a lot of time on social media validating that," he said. "The truth comes from these new social (platforms) much more than it did from the old, traditional surveys."