Can you tell the difference between Tempo, Motto and Canopy, which are separate Hilton brands? Do you know what chain Atwell Suites is part of, or what the difference is between Atwell Suites, Staybridge Suites and Candlewood Suites? Did you know that there is a single hotel chain with 44 different brands? Did you know what frequent guest account number to give if you showed up at a Matra, Adagio or Mantis hotel?
Every time a hotel chain adds a brand, as when Marriott adds City Express as its 31st brand or Hilton launches Spark - a cheaper version of Hampton Inn, with hints of light purple - consumers react with confusion. How is it possible that we need more hotel brands? Don't the big chains already have more than enough?
Customers simply don't know which hotel brands belong to which chains, or what each brand stands for. This confusion must mean that there are too many brands, and yet the brands keep expanding, which must mean that the chains must believe that 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?
Skift's Sean O'Neill interviewed Cornell hotel management professor Chekitan Dev, who argues that there really aren't too many brands.
In 1990 there were "about 10 million hotel rooms worldwide and about 300 brands", giving "a brand coverage rate 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 1,000 rooms".
Only 20% of the world's rooms were branded in 2000, or about 2 million rooms. This gives us a brand coverage ratio of 0.15. In 2020, around 40% of all hotel rooms in the world were branded, i.e. around 7 million rooms, giving us a brand coverage ratio of 0.14.
Therefore, according to this more precise calculation, the brand coverage ratio has remained virtually stable worldwide over the last two decades. By this measure, the hotel industry does not have an excess of brands.
On this point I think Dev misses the point. The problem is not that there are too many branded hotel rooms, but the number of different brands (the "coverage ratio" would be the same whether all rooms were 300 brands or 30) and in particular the number of different brands in each chain. No one can keep track of the number of brands that are part of Hilton versus Marriott, not even the executives of 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, or market power in negotiating with buyers".
Chains introduce brands to expand the number of hotels that pay them commissions. It is true that hotels join brands to influence suppliers, but they also do so to gain access to a marketing platform that allows them to reach potential customers. A hotel can often compete better to attract customers, and therefore fill more rooms at higher prices, if it is part of a recognisable and desirable brand with loyal members.
And while it is more effective to advertise a brand than an individual hotel, brands often receive little advertising investment. In fact, that is literally Marriott's justification for brand expansion.
When Marriott acquired Starwood, there was much speculation that some brands would be dismantled or ended. But that was not foreseen. In fact, then CEO Arne Sorenson explained that they didn't even need to spend on marketing for 30 brands and that marketing is a brand's biggest expense..
It is commonly thought that a brand needs to invest in marketing in order for customers to understand its identity and build trust in the brand. But Sorensen argued that brands don't even need separate identities. And they had no plans to increase brand-specific marketing.
Instead, they had a loyalty programme. Their members would log on to Marriott.com, see what options were presented to them and choose among them. Marriott bought Starwood to leverage themselves so that their counterparties and customers would have no choice but to deal with them. And the more brands they offer, the more price and performance options. Customers may not understand them all, but there is a niche for everyone.
However, Marriott's technology has not always matched the number of options it offers in a given market. Some hotels seem to have lost prominence because there are simply too many options. Poorly trained telephone agents do not even always find the hotels that are being asked about.
Brands need clear definition and understanding to be valuable.
To earn additional revenue, customers need to understand what a brand stands for. They need to proactively want to book a hotel brand over the competition.
At a minimum, customers need to understand that a brand is part of a particular chain in order for them to choose it for the loyalty programme. In fact, it is a very small subset of members that could identify each brand as part of the programme.
However, more brands means being able to have more hotels in the same market. That increases revenues (e.g. management fees). More brands means more hotels and rooms, more rooms means more members, more members support the marketing of more rooms, and more customers for co-branded credit cards.
And the removal of brands would necessarily mean the removal of some hotels, either because some properties do not meet a brand's standards or because some owners would be unhappy with the change.
In 2020 I predicted that we would see elite promotions (to drive business), that full breakfast would be slow to return (cost resistance) and so would housekeeping (cost resistance), while services such as swimming pools and gyms would largely return (because the cost of building them had already been incurred). This has largely been the case and, indeed, cost reduction in breakfast has been a key issue.
The modern hotel chain seeks to maximise revenue from hotel owners, and hotel owners seek to benefit from the chain brand to attract customers while spending as little as possible on them. When they lease 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 demanded investment and policed it. But in recent times the vigilance has diminished and chains have allowed hotels to skimp, either out of sympathy for the plight of owners, or for fear that owners would leave and find it harder to attract new ones. This maximises short-term revenue, but degrades brand value, which is, in fact, the chain's only long-term value.
The authors are responsible for the choice and presentation of the facts contained in this document and for the opinions expressed therein, which are not necessarily those of Tourism and Society Think Tank and do not commit the Organization, and should not be attributed to TSTT or its members.