Those seeking the right places to stay when traveling, whether it is a leisure vacation or a business trip, are in luck. A variety of brands have now been developed in the lodging industry, tailored to serve diverse consumers who have certain demands based on budget, expectations, and travel needs. This has brought much attention to the travel and tourism industry over the past two decades as many different brands have been added to hospitality organizations’ portfolios. As a single brand cannot meet the demands of all travelers, hotel organizations have turned to brand segmentation. Brand segmentation refers to developing separate brands based upon certain standards and regulations while still maintaining to represent an entity of their parent organization. Chris Arnett, field service director for Choice Hotels International, understands this concept very well and explains that “Choice builds brand loyalty by offering guests the amenities they want without making guests pay for things they don't want. Each brand offers different amenities and service levels to meet the needs of that brand's typical guest. So they're not trying to be all things to all people. The different brands help us achieve this goal.”
The hospitality industry has done much research in building many brands and giving travelers several options in choosing the lodging accommodation that is perfect for them. Brands are targeted to tailor to consumers ranging from economy brands up to the luxury market. Moreover, brand segmentation has allowed hospitality organizations to further expand because they are able to reach a wide range of customers through extensive brand segmentation. A number of hospitality organizations own and manage up to ten different brands and are still growing. Chris Arnett agrees with the idea of offering various brands under one organization when he says “hotels of various sizes and service levels have existed for many years. Companies like Choice and Marriott see the advantage of tying those different sizes and service levels back to one umbrella brand. The tagline ‘by Choice Hotels’ is used for all of its brands, and Marriott uses its name for its brands as well. No matter what the brand, Choice or Marriott stands behind that brand." Each market level has its own set of characteristics that distinguishes itself from other market levels. Whether it is economy, midscale, upscale, or luxury, each level is differentiated through its services, amenities, price, and quality.
Various Brand Segments
The economy brand has been developed for the budget traveler in which the market segment does not rely on producing luxury accommodations but rather focuses on producing quality rooms at a low price. Econo Lodge and Rodeway Inn developed by Choice Hotels International, Travelodge and Super 8 Motel developed by Cendant, and others including America’s Best Value Inn, Motel 6, and Red Roof Inn, all serve as examples of the economy market. The customer in this market segment is not requesting exclusive services or accommodations but is looking for a low rate. Hoteliers experience low costs per room because they are not offering certain amenities such as complimentary continental breakfast, wireless internet, or a fitness center. Instead they are offering a quality guest room at a low, affordable price. This accommodation is appropriate for the traveler whose stay will be for a short period of time, and is not in need of many amenities or additional services.
The midscale market provides travelers with quality accommodations and amenities while paying a reasonable price. The rooms are most often interior corridor and spacious. This market offers many complimentary amenities and services such as breakfast, Internet access, food and beverage accommodations, and access to business and fitness centers. Such brands in this market include Hampton Inn, Holiday Inn, and La Quinta Inn. This particular market segment is the most prevalent as these brands best serve the common needs of consumers, but is still not too pricy. In addition, it is more available for franchisees to build and develop because costs of construction often are at a reasonable level, which can be covered by the room revenue of this market level.
The extended stay market is a new market segment that has experienced large growth over the past few years. Each major hospitality organization has released a brand that features guest rooms for the purpose of extended stay. These guest rooms usually comprise of bedroom, sitting area, and kitchenette or bar. Marriott has released Residence Inn, Towne Place Suites, and Spring Hill Suites. Intercontinental has released Candlewood Suites and Staybridge Suites, while Choice Hotels International has released Mainstay Suites, Comfort Suites, and Suburban Extended Stay Hotels. Extended stay brands are further being developed to provide a home-like atmosphere for travelers looking to stay for an extended period of time and who are in need of more suitable accommodations. These properties are more prominent in destination markets such as Orlando, Florida, where the consumer tends to spend at least four to six nights.
The upscale market segment generally includes hotels that provide full service and rooms which contain more ergonomic furniture and modern design. The room rates are much higher than that of the economy and midscale brands as this market segment offers more in terms of services. Some services, such as food and beverage or Internet access, are not usually found to be complimentary; however they are higher in quality than that of the midscale segment. Travelers that are looking to stay in more attractive accommodations with higher levels of service and plenty of amenities are sure to choose an upscale hotel such as Wyndham, Crowne Plaza, Marriott International, or Hilton.
Lastly, the luxury market includes hotels that are luxurious and feature the best accommodations in the lodging industry. The guest rooms are designed to be very spacious and comfortable with a modern upscale design. All hotels are full service and have amenities and accommodations that are quite lavish. Services found in this market level that are not found in others are concierge services, spa, recreational activities, and entertainment. This segment is intended for travelers willing to pay premium prices for first-class accommodations and service. Well-known brands in this segment include Ritz Carlton, Conrad, and Four Seasons.
Hotel companies continue to develop and release more brands despite the overwhelming amount of brands in each market segment. Choice Hotels International is currently building its latest brand, Cambria Suites, which is expected to debut early next year. This brand is expected to compete with Hilton Garden and Courtyard. Intercontinental has also developed a boutique hotel concept called Indigo Hotels, where the boutique hotel concept operates under franchise standards and reservation system. Hyatt International is now introducing its new brand, Hyatt Place, into the lodging industry. Hyatt Place is an all-suite property that is to serve the upscale market segment but offers lower prices than its flagship, Hyatt Hotel. Thus, consumers need not worry if they have not found a brand that fits them yet because there are new brands entering the industry.
The Independent Approach
Not all hoteliers consider operating a hotel under a specific brand name. Some hoteliers believe in operating independent or boutique properties, relying on their own marketing and Global Distribution Systems (GDS). The GDS allows the hotel’s reservation system to directly connect with travel agents and Internet consumers through various online networks. Each year hotels experience a rise with reservations placed through their GDS, which calls for independent hotels to choose their GDS carefully in order to maximize room revenue. Franchised properties, on the other hand, are given the GDS supported by the franchise. According to Peter O’Connor and Gabriele Piccoli of Cornell University, the leading GDS online companies in 2003 were Expedia and Travelocity, leading the marketing in highest grossing revenue. A strong GDS system allows for independent hoteliers to occupy hotel rooms with consumers who are willing to try their unique services and entrust in their marketing campaigns.
Independent hoteliers believe that separating themselves from the norms of branding and positioning themselves as a unique hotel is a more effective strategy than building a hotel to specific brand standards and regulations. The idea is to position the hotel as one that can fulfill the same quality and demands of its franchised competition while portraying an exceptional distinctiveness. This strategy allows them to be creative and go outside the box in business development. The independent market segment appeals to many consumers who are willing to experience unique accommodations and recognize that quality and service does not need to be supported by franchise standards and regulations.
The idea of brand segmentation is for the hotelier to develop a great brand and offer that same brand quality and service in different destinations, which in turn will encourage customer loyalty. Having many different brands that represent various levels of service and accommodations allows travelers to choose a brand that is perfect for them. Dr. Jiang and Dr. Rao (2002) support this idea when they state “The strategy of brand extension is aimed at encouraging customers to patronize a brand family on various occasions.” Regardless of their destination, vacationers are sure to find a brand that suits them best.
*The various brands and their market levels discussed in this article were all contributed by the Smith Travel Research report for 2006.
Anand Patel can be reached at firstname.lastname@example.org.