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SkiftX recently published Soft Brands: Weighing the Risks, Rewards, and Realities, in partnership with TravelClick. The Insights Deck takes a close look at today’s soft brand business landscape and the risks and rewards of joining one.
The soft brand movement has gained momentum over the last few years. Corporate brands such as Marriott, Hilton, Hyatt, Best Western, and IHG have grown their collections of independent hotels to modernize their images and consolidate the global independent hotel market. The growing popularity of soft brands stems from traveler demands for authentic, local experiences, and owners and operators who are looking to drive customer loyalty and strengthen their financial capital.
However, there are a number of considerations for hotel owners and managers that make the decision to join a soft brand complex –– and there’s a strong business case for remaining independent.
SkiftX spoke with George Jordan, SVP of operations of Oxford Hotels and Resorts, a full-service hotel management company with a portfolio that includes independent lifestyle properties, as well as properties affiliated with brands such as Hilton, Marriott, Wyndham, and IHG, to get his perspective on the benefits of remaining independent.
SkiftX: Why do you think staying independent has value in today’s hospitality landscape?
George Jordan: Many Hiltons, Marriotts and other chains are virtually identical from one city to the next, which in and of itself is not a bad thing. There is some comfort knowing that brand standards meet the guest’s expectation. Similarly, the McDonald’s french fry is the same in Times Square as it is in Yuma, Arizona. There are times that’s exactly what you want. But there are times corporate branded properties might feel a bit sterile or cookie-cutter. These brands realize that today’s travelers want authentic, local experiences. They’re not necessarily tied to a brand name, and they want to stay at hip, cool hotels. Let’s face it, when we think about hip and cool, we don’t think about Marriott or Hilton. We think about LondonHouse, Hotel Versey, The Godfrey Hotel, or Hotel Felix.
Fortunately, digital technology has leveled the playing field for independents. Online travel agencies, fare aggregators, and metasearch engines completely changed how a customer books. There are a lot more ways to reach the customer even compared with 10 years ago.
SkiftX: Why have you made the decision to keep the independent properties under Oxford Hotels and Resorts fully independent?
Jordan: When you don’t have to worry about brand fees, loyalty points, and brand standards, you can do what you want to do. When you can do what you want to do, you’re more flexible, more nimble, and more authentic, and you don’t have those heavy cost burdens.
We opened Hotel Felix in 2009. If you can recall, 2009 was not an ideal time to open, or even operate, a hotel. Hotel Felix launched as an eco-friendly lifestyle property. We were able to launch a website in conjunction with iHotelier and TravelClick and achieved a 75 percent occupancy in the first year.
As an independent, non-union hotel, our cost structure was such that even as a new hotel, we could actually undercut the market and buy market share during what was arguably one of the most tumultuous periods in hotel operations.
SkiftX: Have you seen any other benefits of staying independent?
Jordan: It’s expensive to be branded or soft branded, because you pay, pay, and pay again. You pay for the franchise fees. You pay the market fees. You pay hidden fees that are billed to enter your franchise agreement. You pay for marketing, loyalty, and any other outright brand fees. You also pay because the brands –– even in the case of soft brands –– insert themselves into your business with specific brand standards. Our calculations say that you need to have a 13 percent increase in rate with no drop-off in occupancy whatsoever in order to just break even for the cost of those brand affiliations, so it becomes a question of math. Once you take all of these items into account, you have to ask yourself, “What’s the cost benefit here?” An independent hotel with a lower cost structure also has the ability to easily adjust its rates when there are strong and weaker demand periods. We’ve seen this work very well for us at Hotel Felix, and certainly at The Godfrey in Chicago and Boston.
SkiftX: On the other side, what do you think are some of the biggest upsides to joining a soft brand?
Jordan: There are many different variables that go into why an owner would want to join soft brand. Sometimes it has to do with the market that they’re serving, especially if it’s very competitive. Financial benefits obviously play a major role as well. It could be that those financially backing the property are mandating a brand affiliation to make sure that it’s going to deliver on heads in beds.
SkiftX: Does Oxford Hotels and Resorts offer any loyalty programs? If not, do you find that this affects your business?
Jordan: I believe there are other ways to define loyalty programs beyond the standard definition. The Godfrey Hotel, which is a property in our portfolio, does not have its own internal loyalty program at this point, but through the power of the internet, there are other ways that points and loyalties can be drawn. We have a partnership with The Guestbook, a cash back hotel loyalty program that rewards members for booking direct. Another one we use is Stash Rewards. We’ve also been very successful creating proprietary sticky rewards programs that allow for “private sale” rates just by having customers give us an email address or Facebook profile –– we create a gate into the rate fence.
For some independents, it may be that if you book a property 10 times on Expedia, your 11th booking is free. It could be that guests get discounts through their frequent flier program. It could be something as small as asking a guest to book through their Facebook profile, or simply provide an email address to be entered into a members only rate structure. That’s instantaneous loyalty. There are many, many different ways to drive loyalty to a particular hotel.
SkiftX: What advice would you give to other independents to ensure the reach of their property or portfolio?
Jordan: First and foremost, you need to have great partnerships to make sure that your presence is online in front of travelers and travel agents, and that you have valuable real estate on an OTA. This should be supplemented with a sales force that can land and hold on to corporate accounts and group blocks.
A strong marketing presence is key. There’s an abundance of digital advertising options out there that should be coupled with quality public relations, an engaging social media presence, and strong direct sales and merchandising channels. But even if you have all these things in place, your product still has to be right for the market and the consumer that you’re targeting.
Download the SkiftX Insights Deck, Soft Brands: Weighing the Risks, Rewards, and Realities, to learn more about today’s soft brand business landscape, the risks and rewards of joining one, and how the concept may evolve in the future.