Business

When the name of a hotel matters

Pradeep Chintagunta finds that rebranding can benefit some hotels

By Robin Mordfin     
July 01, 2013

From: Magazine

Although 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 Professor Pradeep K. Chintagunta, along with Yi-Lin Tsai of AIG and Chekitan Dev of Cornell University, demonstrates that overall change in demand for a hotel 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 Rebranding 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 rebranding 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 value, managerial advice, and prominence (because they are listed on branded websites, among other reasons). However, they lose flexibility in setting prices, running 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 rebranding from the perspective of the hotel owner, the authors say more research into rebranding is needed, especially from the point of view of the brand owner and the owner's decisions on price, capacity, and marketing. 

Yi-Lin Tsai, Pradeep Chintagunta, and Chekitan S. Dev, "Assessing the Impact of Rebranding in the Hospitality Industry," Working paper, May 2013.