chapter  4
32 Pages

Branding, brand equity, and brand extensions

ByWoody G. Kim

Brand management is a topic of considerable interest for both academia and industry. Building and managing strong brands is considered to be one of the crucial tasks of brand managers for the success of any hospitality and tourism organization. Strong brands provide a series of benefits to service firms, such as greater customer loyalty and higher resiliency to endure crisis situations, higher profit margins, higher market value (O’Neil and Xiao, 2006), more favorable customer response to price change, and licensing and brand extension opportunities (Keller, 2001). Ries and Ries (1998, p. 2) argue that branding has possibly been one of the most critical marketing strategies that serve as ‘the glue that embraces the wide range of marketing functions collectively.’ In the past 20 years, the hotel industry has observed the proliferation

of new brands. The rapid growth in hotel branding, totaling approximately 285 brands around the world in 2006, poses some problems to customers. Many hotel guests are confused with an explosion in the number of brands, and they may not be able to distinguish many similar brands offered by different hotel companies, in the same price range. According to Hotel & Motel Management magazine (2004), the total number of lodging brands in the extended-stay segment alone was over 25. For example, Residence Inn by Marriott was the front-runner in this segment, closely followed by Homewood Suites by Hilton, Extended StayAmerica, and Candlewood Suites by InterContinental. There are plenty of newly launched hotel brands such as Starwood’s

‘XYZ’, Choice Hotel’s chicCabmira Suites and InterContinetal’s Indigo (Weinstein, 2005). Starwood typically focuses on operating luxury brands, namely, St. Regis, the Luxury Collection, ‘W’ and upper upscale segments such as Sheraton and Westin. It developed Four-Point brand categorized as a midscale hotel with food and beverage (F&B) in 1995, and the brand was successful with a rapid expansion in positioning in the mid-priced market. Starwood recently introduced a new brand, Aloft, in a select-service hotel segment developed by W Hotel’s development team. Shortly after launching ‘Aloft,’ Starwood introduced another upscale extended-stay brand, Element. It intends to be positioned closely to an upper upscale brand,Westin. Nylo is another newly launched hotel brand in a boutique hotel concept. Nylo hotels’ primary market segments are business travelers and weekend leisure guests in their early 20s to mid 50s (Nylohotels, 2007). Nylo hotels feature 24-hour restaurants, bars, libraries, business centers, and game rooms. Evidence suggests that independent hotels have lost ground in mar-

ket share to branded hotels. A study by Forgacs (2003) showed that branded hotels in the United States accounted for more than 70% of the total room supply in 2000, as compared to approximately 61% in 1990. Forgacs (2003) also revealed that branded hotels in the United States led by American hotel chains has spread to all over the world and dominate the total room supply; more than 70% of the hotels in

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the United States have a brand name relative to 40% in Canada, 25% in Europe, and approximately 10% in the rest of the world. The significant increase is attributed to the benefits associated with branding. Previous research disclosed that a majority of business and leisure travelers preferred to stay at branded hotels rather than at ‘unflagged’ operations (Yesawich, 1996). Hotel guests perceive relatively lower risk when they choose an internationally well-recognized brand than when choosing an independent hotel. Compared to independent operations, branded hotels have competitive advantages in trusted brand names, sophisticated revenue management system, and frequent guest programs. In addition, obtaining financing for a branded hotel is much easier than for an independent hotel (O’Neil and Xiao, 2006). Lending institutions are generous in financing a hotel project affiliated with an internationally recognized brand. Keeling (2001), as reported in O’Neil and Xiao (2006), stated that obtaining financing for an unflagged hotel, however, is a challenge owing to more strict underwriting criteria and higher interest rates. As in the lodging industry, building and managing brands has

become a main focus of restaurant brand managers and marketers. Many restaurants are restructuring their corporate missions to reflect branding orientation rather than product orientation (Muller, 1998). Siguaw et al. (1999) argued that developing a clearly defined brand personality for quick-service and casual dining restaurants is an overriding goal of restaurant brand managers. They maintain that unique brand personality can serve as an effective vehicle by which to distinguish one restaurant brand from another. Njite et al. (in press) studied how consumers perceive restaurant brands and explored to identify brand dimensions specifically attributed to fine dining restaurants. They also investigated the extent to which these restaurant brand associations are prioritized in preference among fine dining restaurants. Branding has recently started to be considered one of the top issues

and challenges facing the tourism industry. It was not until 1990s that branding as a concept in tourism destination marketing started drawing attention from tourism practitioners (e.g., top mangers of destination management organizations) and academics (Blain et al., 2005). Ritchie and Ritchie (1998) define destination brand as: ‘a name, symbol, logo, word, mark or other graphic that both identifies and differentiates the destination; furthermore, it conveys the promise of memorable travel experience that is uniquely associated with the destination; it also serves to consolidate and reinforce the recollection of pleasurable memories of the destination experience’ (Goeldner et al., 2000, p. 653). Despite significant works about branding as a concept in tourism destination marketing, research on destination branding is relatively new and more is needed to further implement the concept. The rest of this chapter is structured as follows. Section 2, back-

ground, starts with basic definitions of popular terms in the brand

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literature: branding, brand equity, brand extension, and co-branding. The benefits and pitfalls of using brand extensions and co-branding strategies in the hotel and restaurant industry are described. Three different approaches to brand equity measurement and review of previous hospitality and tourism studies follow. Section 3, application, presents hospitality firms ranked among the top 100 global brands. It illustrates the case of hotel and restaurant companies that have successfully adopted brand management strategies. Section 4 describes suggested directions for future research, followed by a concluding section.