What’s your brand really worth?By James Bland
The purpose of a hotel brand, at its core, is to allow the owner of a hotel to increase the number of rooms they sell and the rate at which they sell them. It’s no different from the purpose of any other brand – maximise value and increase volume. Marketing 101.
Classic measures of brand health look at awareness, usage and preference. These are great measures for assessing performance, but they only tell part of the story. To really understand the true value of a brand, you need to establish the premium that people are willing to pay to choose that brand over the alternatives.
The abundance of demand data won’t do the job in this regard. Big data – such as actual room rates achieved by different brands – won’t tell the full story because those rates are influenced by so many factors: seasonality, location, product specifics, and even the skill of the revenue management team.
To tell the true story of a brand, we need to strip out those other factors and uncover what the brand itself adds to (or even subtracts from) the price of a room. The only true judges of that are customers, and although they won’t tell you directly, we researchers have some tricks to get them to reveal it nonetheless.
Our Brand Margin® methodology was born in the world of FMCG, where products are generally more homogenous and more consistently priced. There is often an intrinsic, underlying price, and we use that to assess the additional revenue a brand commands in percentage terms. We do so by asking respondents to answer with a perceived price that they think other people – and that’s crucial – would be prepared to pay.
That approach doesn’t work with hotel rooms.
Firstly, they’re not as directly comparable. We use four tiers for analysis at BDRC, as we’ve found that four allows relevance of competition whilst still accounting for practicality of data collection. Yet even assigned to these handy boxes, there is still a huge difference between a Holiday Inn Express room and a room with Tune Hotels. We can’t, therefore, assess brands against a common product in the same way we could for a tin of beans.
Secondly, they aren’t consistently priced. The same product sells for different prices depending on when you book it, where it is, which channel you book through and, in some cases, where in the world you live. This means that, from a research perspective, assigning an intrinsic value will introduce bias at every turn. Brands deliberately offering a more limited service (easyHotel, ibis Budget) will suffer hugely by comparison, while brands offering a fuller service (Hampton by Hilton) will have their values inflated.
So, we had to adapt Brand Margin® for hotels. In short, we don’t ask respondents to answer with a price; we ask them to answer with a difference. We use a set of boundaries common to each of our four tiers, but phrase the question in terms of comparing a like-for-like product. We also ask about hotels based in different locations, since geography has such a huge bearing on price.
The result is a measure of the additional value a hotel brand adds to its own rooms in the minds of customers, and it’s pretty powerful stuff. Finally, there is a metric that brand managers can take to their CFO, or that owners will understand. We think of it as the missing piece in the puzzle; we know how many rooms one can fit into a hotel, we know what it costs to affiliate with a brand and now, through Brand Margin®, we know how much that brand could add to your selling price.
Want to know which brands lead the way? You can find out here…