There's been a flodding of research over the last several years about the increasingly blurry debate of branding a hotel and the benefits it provides to both the owner and the operator. In general, every owner and operator is different as are their circumstances and needs and a plethora of factors have to come together to guide the decision making on "how and whom to proceed with" for both parties. For starters, any owner has to make a fairly realistic self-analysis of the owning entity including its origin, business model (independent, institutional investor, REIT or private equity group), capabilities (experience owning single asset or multiple branded-properties, talent, systems), priorities and vision for the future including anticipated holding period for the investment to kick-start the process of identifying the right solution.

WHY THE MAD RUSH TO BRAND?

Historically it was assumed that a small hotel owner might be best served by not relinquishing any control to an operator. While a large hotel owner who has financing needs and who wants to expand and scale the business would be best served by a franchisor or international manager who can provide the requisite recognition along with the reservation, marketing and loyalty support. In recent years, the "rush to brand" assets have been partly fuelled by the need to secure funding. This is especially true in light of the restrictions in the current lending environment.

LOCATION

At Bridge.Over any "To brand or not to brand" analysis for an owner invariably starts with a location analysis. An urban or resort destination could thrive with independently, non-branded hotels but a secondary market or airport location screams out for a branded operation. Up next, the financial value of bringing in a brand or a professional management company should certainly be at the core of every owner's decision making process. Will a brand drive your revenue sufficiently to cover the associated expenses like royalty fees, distribution fees, IT technology fees, etc.? If the incremental revenue/profitability does not exceed the affiliation costs then you have your answer.

THE COST BENEFIT ANALYSIS

Owners also need to look carefully at their own customer base. If a large percentage of your hotel customer base is local, perhaps the value add of bringing in an international operator might be limited compared to investing and focussing on building your own brand. The idea is to really have a sound understanding of your business dynamics before commissioning an operator selection exercise so you can avoid being short-changed by a just good-looking reservation system, expensive loyalty program and clever marketing promise.

DON'T IGNORE THE BENEFITS

Owners should at the same time not be oblivious to the benefits of having a branded operator. For instance the additional distribution that a brand can afford is unmatched. As an example, your hotel might already be getting your fair share of the existing market demand, but you may be able to capitalise on brand distribution channels, frequent guest programs, revenue management, sales force, promotions and attract a new market of guests that otherwise may not have been possible to target.

TERMINATION UPON SALE

Finally, resale of the property should be another important consideration when entering into a management contract as they could be cumbersome to terminate in the event of sale. Historically, a property encumbered by brand and management would typically sell at a discount to an unencumbered property, primarily because new owners often feel that they can get into a more favourable contract that they negotiate on their own rather than one they inherit from a previous arrangement. However, in the luxury segment, the brand is often the key value financial driver, so owners may also be willing to pay a premium to get a branded asset.

THE OPERATORS VIEW POINT

From an operator's perspective, choosing to manage the hotel or not would be primarily driven by how the hotel fits within its portfolio as well as and perhaps (more vitally) how much fees they can drive from the operations. For brands that have multiple sub-brands in their umbrella the choice would also be dependent on the fit they envisage for the specific property in question. Above all else, location is a deal maker or breaker for operators as well because in some cases they have a clear mandate to have a presence in certain cities of the world in which case they will be more agreeable and willing to negotiate to terms proposed by the owning company to manage that trophy asset in a gateway city. The inter-play between operators and owners also displays very different dynamics in the budget or mid-market segment as against luxury segment. A mid-market offering has a higher likelihood of seeking to standardise its offering as against a luxury hotel which needs to preserve its identity and hence is more likely to be happier with its own white label, luxury brand or similar. The million dollar question any owner should answer is who can add most value and at what cost base?

Bridge.over is a boutique strategy consulting firm dedicated to solving business challenges for hospitality visionaries across the globe. Sought after by hotel owners, investors, sovereign funds and management companies alike for its entrepreneurial way of thinking, Bridge.over is an ideal partner of choice for companies seeking fresh ideas for change and improvement from London to Dubai to Beijing. To learn more, please visit bridge-over.com