Capital Ideas - Summer 2013 - page 13

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Capital Ideas |
Summer 2013
11
A
lthough approximately 12,000 US hotels have
changed their brands in the past three decades,
the question of whether or not an outlet benefits from
rebranding has until now largely been left unanswered
by hotel owners and academics. Chicago Booth Pro-
fessor
Pradeep K. Chintagunta,
along with Yi-Lin
Tsai of AIG and Chekitan Dev of Cornell University,
demonstrates that overall change in demand for a ho-
tel room is close to 5 percent after rebranding in the
US lodging industry, but that some properties aren’t
helped by a rebranding.
In their paper, “Assessing the Impact of Rebrand-
ing in the Hospitality Industry,” the researchers use a
unique dataset amassed by PKF Hospitality Research
of individual hotels across the country from 1994 to
2009, which allows them to observe at least five years
of data for every hotel property in the sample. While
controlling for several variables, including hotel fixed
effects such as location and size, and unobservable
factors relating to varying economic conditions over
time and geography, the team analyzes occupancy
rates, number of rooms occupied, total room revenue,
total hotel revenues, and revenue per room available.
The analysis overall suggests that the effect of re-
branding is positive. Mid-scale hotels that rebrand
seem to benefit more than upscale hotels.
Additionally, rebranding across “umbrellas” seems
to have a bigger impact than rebranding within the
same umbrella, for example changing a Starwood-
owned hotel (such as a Westin) to a Marriott-owned
one (such as a Fairfield Inn) has a bigger impact than
rebranding to a different Starwood-owned hotel (such
as a Sheraton). Further, when looking at the longer-
term effect of rebranding, beyond the first two years,
the researchers find that an increase in occupancy is
driven more by whether the specific property better
matches a brand than by the brand itself. The authors
recognize that these longer-term implications are only
suggestive, since properties whose rebranding efforts
were unsuccessful would likely have rebranded again
rather than stay with the brand for more than two
years.
The study also looks at the differences between
branded and independent hotels. The authors note
that branded hotel franchisees benefit from brand val-
ue, managerial advice, and prominence (because they
are listed on branded websites, among other reasons).
However, they lose flexibility in setting prices, run-
ning marketing campaigns, and selecting operational
and service options. Nonetheless, the results show that
on average, branded hotels attract more travelers than
independent hotels.
While the paper concentrates on the effect of re-
branding from the perspective of the hotel owner, the
authors say more research into rebranding is needed, es-
pecially from the point of view of the brand owner and
the owner’s decisions on price, capacity, and marketing.
—Robin Mordfin
Yi-Lin Tsai, Pradeep Chintagunta, and Chekitan S. Dev,
“Assessing the Impact of Rebranding in the Hospitality Industry,”
Working paper, May 2013.
Photo: Getty Images
When the name
of a hotel matters
MARKETING
Photo: Dustin Whitehead
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