16 Chapter 1 Overview
segmented, branding became increasingly im- ships operated best in a market environment
portant. By the late 1980s, without a recog- that was stable, somewhat homogeneous in
nized brand affiliation or a close relationship terms of demographic market segmentation,
with the lending community, owners/develop- and where travel influencers played a domi-
ers found it difficult to obtain permanent fi- nant role in transient business, group, and
nancing on a new hotel or resort. Lenders, leisure travel. Reservation affiliations are
believing that an established brand provided most effective in regional hospitality markets
greater economies of scale and established in- that do not have multiple brand competition
frastructure, opted for the lower-risk alterna- and when the goals and objectives of the
tive. In this brand-driven environment, the reservation organization are in alignment
independent hotels’ distinctive style and char- with the goals of the independent hotel own-
acter became a competitive advantage, but ers. A contributing element to the attractive-
only if they were able to meet recognized stan- ness of reservation affiliations has always
dards. As a result, the need for independent been the networking and camaraderie oppor-
hotels to be associated with a clearly defined, tunities for the professional management at
trusted brand became more critical than ever. independent hotels.
In the late 1990s, independent hotels, par- Reservation affiliations focus on tradi-
ticularly those in Europe, began to face the tional channels of distribution. Access to the
daunting costs of upgrading their technologi- Global Distribution Systems (GDS) is no
cal infrastructure and facilities to accommo- longer a competitive advantage; the GDS is a
date changing consumer needs. Such upgrades universal pipeline. The new competitive play-
as new property management systems, high- ing field is proprietary distribution channels
speed Internet access, two-line phones, in- leveraged by consumer segmentation, e-com-
room faxes, and leisure and health facilities merce technology and partners, and innova-
became critical to maintaining competitive- tive customer management programs.
ness. When coupled with ever-increasing costs In the new technology-driven and con-
of consumer marketing, these costs put un- sumer-empowered global market, the strength
precedented strains on independent hotels’ fi- and effectiveness of reservation affiliations
nances. As a result, these hotels became are challenged by new market and operating
increasingly focused on leveraging greater re- imperatives. The cost to compete against
turns from their reservation affiliation. chains will grow exponentially. As competition
intensifies, it is probable that local and re-
gional market share at independent hotels and
RESERVATION resorts will be drawn off by local and regional
AFFILIATIONS—A licensees of strong global brands. Independent
hotels, therefore, need to draw more national
CHALLENGE TO and international business to fill occupancy
EFFECTIVENESS gaps. This requirement runs counter to the es-
tablished business model and capabilities of
The relationship of independent hotels and reservation affiliations.
resorts to reservation affiliations has been The average room-night contribution of
long and generally successful. These relation- reservations companies to affiliated inde-
Section 1.3 How Well Does the Branded Distribution Company Allow Independent Hotels to Compete? 17
pendent hotels is less than 5 percent of avail- necessary to increase average room-night
able rooms (Preferred Research). contribution to affiliated independent hotels
At least four emerging factors are chal- to 15 percent—an average growth per mem-
lenging the effectiveness of traditional reser- ber hotel of at least 200 percent over present
vation organizations: performance levels (Preferred Research).
In response to this competitive environ-
1. The growing demographic and psycho- ment and the need for more cooperative and
graphic complexity of the global con- focused business relationships, a new hospi-
sumer market requires significant new tality business structure is evolving for all
expertise and resources in the area of seg- scales of hotels: the branded distribution
mentation and analysis. company.
2. The emergence of consumer direct-book-
ing Internet technology requires signifi-
cant new and ongoing investment. CHARACTERISTICS OF A
3. The new marketplace requires innovative
global brand management together with BRANDED DISTRIBUTION
resources to establish and maintain a COMPANY
brand in the face of intense competition.
To be competitive, a brand must attract The ideal branded distribution organization is
new development and must therefore be a conventional equity company with owner-
strong enough to convince lenders to ship shared (in some cases) by the individual
commit to permanent financing. Brand hotel owners, who have direct input into the
management also includes loyalty pro- corporation through an elected board of di-
gram management and the development rectors. This ownership structure creates a
of regional and global partners to true operating partnership and a sharing of
strengthen and extend the effectiveness energies toward the common goal of creating
of the brand. value through increased brand awareness and
4. The corporate objectives and governance room sales. Corporate profits must be ade-
policies of traditional reservation organi- quate to maintain technical and managerial
zations are influenced by the need to grow leadership and to support the shareholders’
and meet shareholder profit require- investment.
ments. These goals for growth can be at Unlike a reservations and representation
odds with the goals and expectations of in- company, a branded distribution corporation
dependent hotel and resort members. owns and builds a branded distribution net-
work asset that, in turn, provides services as
The traditional reservation affiliations set out in the diagram below. The sole focus is
must change not only their focus but also performance for the affiliated independent
their structure if they want to succeed in this hotels and resorts.
new competitive world. Joining such an organization is appropri-
The traditional reservation organization ate for independently owned and managed
must be prepared to respond to competitive hotels and resorts that want to keep owner
challenges by expanding resources and skills control but require effective and low-cost
Table 1.1 Hospitality Structures and Corresponding Brands
Flagged and
Types of Representation Reservation Reservation/ Branded Franchise
Business Firms (Group Services Sales Distribution Management
Structure Meetings Only) Only Affiliations Companies Companies
General • Primarily Trade-Focused • Consumer & Trade-Focused
Attributes • Primary Reservation Technology • Performance Focused
• Disparate range of abilities in: • Brand Management
• —Management Expertise and Depth • Quality Standards and Assurance
• —Marketing, Sales, and Reservation Support • Multiple Technologies
• Integrated Marketing and
• Technology Solutions
• Customer Recognition and
• Loyalty Programs
• Full-Service Provider
• —Purchasing, Technology
• —Recruitment, Training
• —Consultative & Design Services
• Management Expertise and Depth
Examples of ALHI Utell Flag Int’l Concorde Preferred Hotels Accor brands
Organizations, David Green Lexington Golden Tulip and Resorts Bass brands
Brands, and Helms Briscoe Pegasus/ Historic Hotels Worldwide Carlson brands
Management Hinton/Grusich Rezsolutions Leading Hotels (for profit) Cendant brands
Companies Krisam Supranational of the World Best Western Choice brands
TRUST Relais and Chateaux (not for profit) Four Seasons
Small Luxury Hotels Summit Hilton brands
Sterling Hyatt
SRS Hotels Mandarin
Steigenberger Marriott brands
Starwood brands
Wyndham
Relationship Client Client Member (some Member-Owner Licensee
of Hotel are Owners)
Owner to
Structure
Owner High High High High Low
Control
Room-Night Low Low Low-Medium High High
Production
Consumer Low Low Low High High
Focus
Overall Low Low Low Low High
Fees
18
