Brand proliferation has become a fact of modern life.
Walk into a large supermarket and you will be confronted with perhaps 15 types of shampoo, a dozen kinds of toothpaste and maybe ten flavours of yoghurt.
What's driving this proliferation of brands and sub-brands?
Marketers will tell you that it's all about shelf space and mass customisation – making sure every market segment is covered.
614 hotel brands
A similar phenomenon has gripped the hotel sector for a number of years.
Indeed, the proliferation of hotel brands is an incontestable reality. There are now 614 hotel brands belonging to 190 hotel companies worldwide, according to statements by Jean-Paul Herzog, former president of the EMEA region for Hilton hotels, who was speaking at the HOTCO conference held in Budapest on 30-31 January 2017.
In the last five years alone 25 new brands have entered the market place and, in Europe, there are 342 brands operated by 28 chains.
The world’s 10 largest hotel chains now offer a combined total of 113 brands at various price points, 31 of which didn’t exist a decade ago.
And there’s no sign of this proliferation slowing down, as developers scramble to build new properties, buoyed by high occupancy levels and cheap financing.
Loyalty programmes need more brands
If you listen to the CEO's of major chains they will tell you that the main reason for new hotel brands is to better serve an existing customer segment or to appeal to a broader customer base with new product offerings.
Also, hotel companies have an interest in offering a maximum number of possibilities to guests in order to reinforce loyalty to the chain.
Thus, adding more choices for loyalty programme members to 'earn' and 'burn' points is clearly a driving factor behind launching new brands.
With multiple brands, hotel companies can better compete in more market segments and tailor their offerings to specific demographic segments and local preferences.
Lifestyle for millennials
As has been widely documented, hotels are trying to appeal to a new generation of travellers, supposedly in search of 'authenticity'.
They want unique and hip places to sleep, not cookie-cutter facsimiles of hundreds of other hotels, according the marketing rhetoric of the big chains.
These so-called 'lifestyle' hotels are the hot, new growth segment in the industry, designed to attract millennials (travellers between the ages of 18 and 37) who aren’t interested in marble bathtubs but might enjoy beanbag chairs.
“The big hotel chains are in the business of pretending they aren’t big chains. They want you to think they are boutiques,” notes Pauline Frommer, editorial director for Frommer’s, a travel guide company. She adds that, “This dizzying array of brand names is a good way for them to hide. The vast majority of the public is not going to keep track.”
As examples, over the past three years, Marriott has launched Moxy, Hilton has created Canopy, Tru and Tapestry Collection, Best Western has added Vib, Glo and BW Premier Collection and IHG purchased Kimpton, giving a substantial boost to its boutique segment.
“The Internet has driven people to more niches. Everything is more segmented,” remarks Best Western CEO David Kong.
Development considerations a major factor, however….
However, as noted above by Ms Frommer, it's unlikely that the average consumer can keep track of the ever-increasing number of hotel brands and their particularities.
Meanwhile, there is another important driver of brand proliferation lurking in the background that has nothing to do directly with better serving guests.
In fact, development considerations are also an important factor, if not the important factor.
Through issuing new brands, the big chains can open up expansion opportunities in existing markets that might otherwise be blocked by non-compete clauses in franchise or management agreements with the existing hotels.
Also, a bigger brand portfolio may allow a hotel company to attract hotels into its network that would otherwise be unable to meet brand standards by allowing them to convert to a more flexible brand that does not require significant investment.
This aspect has been a particularly important driver for the soft brands of the major chains that have entered the market in recent years like Marriott's Autograph Collection.
Leverage versus OTAs
OTAs are also a factor driving brand expansion.
As explained by the CEO of one of the big-ten chains, having a denser network of hotels at a given destination can increase the bargaining power of a hotel group vis-à-vis an OTA when negotiating commissions and room availability requirements.
Finally, major hotel companies have become “asset light,” as evidenced yet again by Hilton’s decision to spin off its hotel holdings into a REIT. Expanding licensing opportunities allows hotel companies to replace cash flow from owned or leased hotels with franchise and management fees.