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 Maybe
there is merit to giving this some
consideration. Here is why...
First, lets
consider what has changed recently that might
make this a serious consideration, franchisor
vs. independent hotelier.
• Internet, internet, internet... As Thomas L
Friedman suggests, in his recent best selling
book 'The World Is Flat', technology has
flattened the world. Indeed we can 'see'
everywhere, 24/7, and with great detail we can
communicate globally, 24/7.
This means for the hotelier that any property
anywhere can now easily and quickly be located
in a manner that was simply not a possibility
just a few short years ago. An independent
property can now more easily present their
intrinsic and unique features in greater and
more appealing detail than before; in a
customized manner. And realizing that content
rules the roost here, the more content we
provide in greater and more compelling detail,
the more likely to convert shoppers into buyers.
The playing field has also been flattened.
For the franchisor this change means the
visibility that they have traditionally provided
can be easily challenged and therefore it likely
has lost some value; their one size fits all
branding may not be a custom enough of a fit for
a truly unique and appealing property, and/or a
property in a truly unique and appealing
location.
• 3rd Party Re-Sellers.... Let's face it, they
have become experts at providing an abundance of
location and product information to help sell
our properties; from packaged theme parks, to
corporate business meeting solutions. There is
virtually nothing off limits for these
aggressive marketing companies. Franchise
companies may be strong at promoting their
'brand' on a national level, but when it comes
to local integration of all the destination
area's features and property amenities, the 3rd
parties have it down. Even small weddings,
anniversaries, class re-unions can be booked
through a partnership with Travelocity through a
website portal, (www.Groople.com), partnered
with local food and beverage facilities and
entertainment attractions that you may not have
even considered.
Another item the 3rd party resellers have really
taken a lead in is their rating systems. Expedia
recently created the most comprehensive and
successful model; likely everyone will soon have
a standardized customer rating system.
Even the franchised hotels have to be concerned
with this; they can no longer simply stand
behind their brand name. Suddenly 'Trip Advisor'
with their motto 'Get the truth, then go!' has
become the savvy traveler's best friend for
evaluating hotels, (www.tripadvisor.com). Even
AAA and Mobil Travel Guide have become more
valuable selling tools, especially for the
independent hotel.
And the last consideration when examining the rd
party resellers is realizing the worth of their
strong internet visibility. This is particularly
important in many popular destination locations
where the competition is fierce. Recently we in
one such market were successful in achieving an
82% production with 3rd party resellers, without
any loss of net ADR. I feel production can
easily reach 75% in similar locations. In
commercial locations more than 35% of our
reservations were from these same 3rd party
sources. The argument that 3rd party resellers
with their heavily discounted rates were just a
temporary remedy and merely a comeback recovery
tool after 9-11 has faded into history. They
have become 'package' and 'partner' experts in
the sales and marketing of our guest rooms.
That brings me to another important topic with
rd party resellers, net ADR. I made a careful
examination of the 3rd party discount costs
compared to our more traditional GDS and TA
reservations. I found that typically our ADR
appears higher for GDS / TA reservations when
compared to the ADR for 3rd party. But I also
found that when I compared apples to apples, net
revenue for both revenue sources, that the
expense for 3rd party resellers is actually the
same or less, as represented in the following
examples:
As you can see
the best bargain is certainly our 'direct'
channel, but surprisingly the second best is
often the 3rd party channel; in this example a
savings of $3.25 over our GDS or franchise
source reservations. A recent phenomenon, with
last year's de-regulation of the GDS and the
very competitive market for therd party
re-sellers, is the negotiability of the GDS and
3rd party discount percentages. In my recent
experience I was successful in obtaining a 19%
discount rate with a major 3rd party name brand,
or in the manner that they prefer to view it, a
23.5% markup margin with reseller parity.
It can all be confusing and certainly is in a
state of rapid change; change that often can
bring opportunity.
• Property Management Systems... . The PMS has
been long considered a sacred component of the
franchisor's offerings by the property operator.
Indeed it has been the owner's and management's
security; their means of connecting to the
revenue pipeline; their means of managing their
property, front and back of house.
While their sheer size and leverage can allow
the franchisor to develop strong new management
software products, there is now also a plethora
of new off the shelf property management
systems, (PMS). Some also offer very powerful
business intelligence modules integrated into
their software that are often more powerful and
dynamic than anything the franchise has to
offer. With these new PMSs' available there are
now many more reasonable priced solutions. No
longer does the large franchisor have a corner
on the market.
Indeed, some of the more visionary PMS suppliers
have leapt from being just software companies to
becoming full service PMS companies, with
insightful marketing and dynamic technological
support that wasn't there before; with 3rd party
and GDS connectivity and integrated room's
inventory management; customized revenue and
yielding management tools. Simply put, they
realize that if they can provide intelligent
business information that supports their product
and the utilization of their technologies, they
have placed themselves in a great spot in an
evolving marketplace. There are some excellent
and scalable PMS solutions to choose from;
perhaps most importantly they can often be
custom tailored to your product for a perfect
fit.
• Condo Hotels... In the laws of supply and
demand we all know that the more 'supply', the
less the 'demand' and revenue opportunities. The
hospitality industry is going through a profound
increase in supply. But surprisingly not from
new construction. Rather it is the multitude of
resort condominiums and timeshare properties,
(often referred to as 'vacation ownership'
properties) and condominium associations. For
the first time these 'CondoTels' can be easily
marketed to the user with new software and
internet connectivity. A process that simply was
not reasonably feasible in the past. Suddenly we
have a great many more guest rooms, or two room
suites, available in the market place and many
of them are in great resort locations.
LeisureLink, (www.LeisureLink.com), a relatively
new company with full GDS and Travel Agent
connectivity, has taken a bold step to capture
this market, and indeed they have created their
own independent market segment 'GDS' to service
their new customer base.
With 'CondoTels' on the market they will
primarily impact the leisure travel market, but
will likely have some strong effect on the
corporate/commercial traveler with multiple
night stays. The independent hotelier and
franchise company's market shares will likely be
substantially impacted, particularly 'extended
stay' properties.
• Numbers don't lie.. . Ok, some things have
changed, but what about real costs and benefit
comparisons to being an independent hotel vs. a
franchised hotel.
Let's look at some averages for a mid scale 150
unit properties, along the line of a Comfort
Inn, Holiday Inn, Radisson, Hampton Inns &
Suites, Ramada, or Marriott. Let's keep it
simple with an annual occupancy of 65% and an
ADR of $75, 10% of the guests are on a loyalty
plan, 25% are from 3rd party sources, and 15%
are from the property web site. All these
considerations affect the outcome. You can see
how it compares in the following model1,
Independent vs. Franchise Expenses2.
1 This business model is based on a three year
term comparison of franchise expenses vs.
independent management expenses. The initial
franchise start up fees and the initial PMS
(property management system) training and start
up expenses are amortized over the three year
term in their respective areas in the
comparisons. While the franchise expense
information obtained for this comparison was
from publicly available sources including the
Uniform Franchise Offering Circular distributed
by the FTC, we have for the sake of simplicity
averaged some of the information. Additionally
some individual franchises fees may vary greatly
with revenue and we recommend contacting the
specific franchises being considered for actual
costs as they may relate to your revenue. 2 The
Federal Trade Commission regulates the sale of
franchises. Information regarding each franchise
fee structure was obtained through a disclosure
document known as a Uniform Franchise Offering
Circular.
Franchise operations indeed have the laws of
averages set in their favor, like insurance
companies and the gaming industry, they do the
math, and they know just how much 'revenue'
based fees the market will bear when considering
the value to return ratio for the services they
offer. That is OK; everyone is in business to
make a living, you provide a service, you
deserve to be reasonably compensated.
But admittedly there are many considerations,
with product value and brand image ranking near
the top. And as an example for mid-range
properties, franchise fees of half million
dollars in fees for a three year period, would
also be near the top.
It is fair to say there are a great many 'good
fits' for franchise operations and property
owner / investors. But with the quickly changing
topography of our cyber centric culture it begs
to ask the question is the property franchise
you have or the one you may be considering a
'good fit', is it optimal? Or is likely that
other more dynamic independent custom tailored
solutions would be a better fit; solutions that
provide the benefit of a sharper marketing edge
that may indeed be a necessary component for
financial success? If you have multiple
properties should you consider your own
independent 'branding'?
All things considered, alternative independent
product distribution and marketing options are
at a minimum a bargaining point when negotiating
franchise fees; on the other hand, they may
indeed well be the best product marketing
business solution, bringing the best ROI.
Craig W Cooley
Intellatech Marketing Services
Web:
www.intellatech.com
Electronic mail:
CraigWCooley@comcast.net
Telephone: 310-254-5871
FAX: 323-843-9465
Address:
Intellatech Marketing Services
10815 Rose Avenue, Ste 6
Los Angeles, CA 90034
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