Hotel Branding and Management
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Why the hotel branding and management decisions are so important
One of the first decisions in the hotel development or acquisition process can have a lasting impact on the success of the project: whether the property should be branded, and whether that brand should manage the property. The hotel’s brand will be a defining part of the profitability, image, and value of the hotel, and there may be no other decision that has a greater effect on the future of the property. Similarly, the management of a hotel can enhance the value of the brand, protect the owner, or detract from the value of the hotel — by as much as a 50% swing.
The 3 fundamental questions
While a hotel owner will live with these choices for years – if not decades – owners and developers often fail to ask three key, threshold questions:
- Should the hotel be branded?
- If it is branded, which brand?
- And if it will be branded, should the brand manage the property?
We recognize that there are many voices in the decision. Lenders or other investors may be more comfortable when a hotel is branded and may feel that a brand manager will better operate the hotel. Some investors may be predisposed to one brand or another (often based on personal experiences as a guest, rather than an owner), and may have preconceptions of the ability of hotel ownership to operate the property. However, even where these strong voices have input, the owner or developer should consider the pros and cons of brands and brand management.
4 options available to hotel owners for branding and management
At the outset, there are four basic choices available to an owner:
- Management by the brand, where a single firm will agree to operate the hotel under a specific brand, and the owner essentially hands the property over to the manager with oversight rights, and obligations, defined in a management agreement.
- A franchise with a third-party manager. Here, the owner enters into two agreements, one of which is a license agreement with the brand, giving the owner the right to operate a hotel under a specific brand, and a second with a third party manager who will actually operate the property.
- A self-managed franchise. In this case, the owner obtains a license or franchise to operate under the brand but manages the property itself.
- Finally, an unbranded hotel, operated either by a third party manager or by the owner.
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