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Business Affiliation in Hotel Industry

By Abhishek Pandey

Business affiliations, which indicate either a chain or independent ownership of hotels, also categorize the hotel industry. These classifications are the most easily recognizable by consumers with regard to such features as brand name, structural appearance, and ambiance. Long-lasting marketing effects develop brand loyalty and acceptance that are most important to the long-term profitability of a hotel.

When asked to name several chain operations (a group of hotels that follow standard operating procedures such as marketing, reservations, quality of service, food and beverage operations, housekeeping, and accounting), most people would probably mention Holiday Inn, Marriott, Sheraton, Days Inn, Hyatt, Hilton, Fourseasons or Econo Lodge. Students should stay up to date regarding developments in the industry, such as acquisitions, restructuring, and other changes in these organizations. This information, important to know when making career decisions, can be obtained from trade journals such as Hotels (published by Cahners, Des Plaines, Illinois), whose annual July issue includes a listing of hotel chains, addresses, and the number of rooms.

Chain affiliations, which include hotels that purchase operational and marketing services from a corporation, are further divided into franchisee, referral, company-owned properties, and management contract companies. Franchise corporations offer support to the franchisee, who is the owner of the land and building, in the form of reservation systems, advertising, operations management, and management development. In return for these services, the franchisee pays fees for items such as initial startup, rental of signs and other equipment, use of the corporation’s reservation referral system, and national advertising.

Anyone wishing to enter the hotel business by investing in personal funds wants to be sure of realizing a profit. Perhaps due to lack of experience in operating a hotel or motel, a lack of business acumen, a poor credit rating, or limited knowledge of real estate development, this type of entrepreneur may need to seek the guidance of others. He or she can receive direction from a corporation, such as Days Inn, Sheraton, four seasons, or Hilton, concerning land, building, and management development.

Sometimes a hotel organization chooses to become a referral property—that is, to operate as an independent in association with a certain chain. Because the property is already physically developed, the entrepreneur may want assistance only with management, marketing, and advertising, or reservation referral. Likewise, the fees are based on the services required. The chain’s quality assurance standards must, however, be met by the referral property.

A company-owned property, a hotel that is owned and operated by a chain organization, allows the hotel company developer to act as an independent entrepreneur. The hotel company developer operates the hotel property in competition with all other properties in the area. It uses its own expertise in site selection, property development, marketing and advertising, and operations management. The hotel company developer recruits talented professions into the organization to manage such properties. It uses the chain’s reservation system. The hotel company developer may set a limit on the number of franchises so that a majority of the properties remain company-owned

A management contract property, a hotel operated by a consulting company that provides operational and marketing expertise and professional staff, is similar to a referral property. Several management contract organizations develop business relationships with existing hotels and operate the hotels as their own. Their business relationship requires financial accountability and profitability. Management contract companies may choose to operate each hotel as a member of a franchise or as an independent.

Hotel brands are an important part of the lodging industry, especially in consumer marketing. Branding allows a hotel company to create a concept in the mind of a consumer. This mind-concept helps the consumer classify a hotel’s offerings. For example, a fictitious brand such as the Hotel Flower Chain may have three distinct offerings in its portfolio of lodgings: the Tulip Extended Stay, the Rose Limited Inn, and the Violet All-Suites. Another fictitious brand such as the Timber Chain may have seven more brands in their chain with similar facilities, such as the Pine All-Suites, the Maple All-Suites, the Sunset Extended-Stay Suites, the Timber Express, the Timber Grand Hotels, the Timber Falls, and the Pine Limited Service. Each of these brands has distinct product and service offerings such as communication via website, reservation service, reservation reward point program, room accommodations, food service, personal fitness, and business equipment, and meeting and convention facilities. Therefore, when guests have certain needs for business or pleasure travelling, they can match them up to a certain brand. The following is a list of major hotel brands. Further information can be accessed on each of the hotel companies on the Internet.

An independent hotel is one that is not associated with a franchise. It provides a greater sense of warmth and individuality than does a property associated with a chain. Independent hotel characteristics include an owner who functions as a manager, room rates similar to chain properties, rooms decorated in different styles, and inviting dining rooms. These hotels may be residential or commercial, with locations in the center city, suburbia, along the highway, or near an airport. The number of rooms can range from 50 to 1,000. They may offer full services to the guest, including suites, dining room, room service, banquets, gift shop, beauty shop, athletic facilities, swimming pool, theatres, valet services, concierge, and airport shuttle service. Some older independent hotels have refurbished their suites to capture a share of the all-suites market.

With all of these advantages, why aren’t all lodging properties independent? The answer lies with the U.S. economy. The development of large chains and of smaller properties often brings tax advantages and improved profits to investors. Millions of dollars in capital are required to develop a 2,000-room full-service property. Business, financial, and managerial expertise is more readily available in a company in which there is a pool of skilled experts. Large corporations can also offset financial losses in certain fiscal years or from certain properties against the financial gains of other companies or properties in their diversified portfolios. The independent entrepreneur operates his or her business without the advantages of consultation and assistance. This person may have worked for a large chain or gained a lot of operations and development experience in the industry. He or she may also purchase a hotel property to balance an investment portfolio. As for any financial investment, the entrepreneur seeks a professional to manage and operate the establishment. The person chosen for this job must manage all aspects of the business: room, food and beverage, housekeeping, security, maintenance, parking, controller’s office, and marketing and sales. All business decisions on expenditures must be coordinated with a profit-and-loss statement and a balance sheet. Every sale of a guest room, every guest purchase of food and beverage, occurs because the management of that property has been able to market and manage the property effectively. The challenge of managing an independent property can be overwhelming. It can, however, also offer enormous satisfaction and financial independence.



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