Marriott, Hilton and Big Hotel Chains Are Jeopardizing Their Entire Business Model, How Much Is Left?

Sean O’Neill interviews a hotel marketing professor who believes hotels are underinvesting in their brands in the current environment, much to their detriment. Even one of the highlights of brand investment he cites, Disney, has been diluting the brand by removing experiences from accessible price points. But Disney is one of the good ones. It’s the Marriotts and Hiltons of the world that are especially problematic.

Hotel chains and hotel owners have different incentives. A hotel chain benefits from a strong brand. That attracts guests, which they can deliver to hotels. It attracts a revenue premium as well. And it serves as a short-hand a guest can use to know what they’re getting in terms of experience for their money.

A hotel owner, though, is happy to pay for the guest to stay at their property. But outside of repeat business, once the hotel owner has got the reservation their incentive is to spend as little money as possible servicing the guest or – in some cases – even maintaining the property (though this can affect resale value).

If a chain enforces brand standards, and fines hotels that do not live up to them, they can align incentives.

  • The brand standards are upheld
  • So guests staying at a brand trust that brand, and will stay at other hotels in the chain

But if a chain doesn’t enforce brand standards, the brand gets diluted. Guests used to think the brand stood for a certain level of quality, but they learn that’s not the case. When one hotel doesn’t uphold standards, it may not hurt that hotel but it hurts other hotels the guest might have stayed at which share the brand, and it hurts the value of the brand itself which is what the chain markets.

  • Chains have a short-term incentive to look the other way because that maximizes revenue for them. Hotel owners want the benefit of the brand at lowest cost. If chains impose costs on owners, the owners will go somewhere else, to a different brand. So being ‘easy for an owner to work with’ the chain can sign up the most hotels, and generate the most fees.

  • That’s a long-run destruction of value for the chain. The hotel owner pays a chain to rent its brand, but if the brand has less value fewer owners will receive benefit for the fees. Owners sometimes talk about a loyalty program member as a “lead” and the chain’s website as lead-generation. If guests don’t value the brand, they don’t go to the chain website to choose it over competitors, and they no longer have the reputation or customer base to sell. Hotel loyalty program devaluations further the problem.

Before the pandemic we saw a shift away from enforcements of some brand standards. For instance the Grand Hyatt San Francisco started experimenting with the elimination of room service. This wasn’t just a Hilton, Hyatt or Marriott dropping room service in exchange for a grab-n-go market, this was a more premium brand sacrificing higher standards for lower costs. Hyatt also dropped guaranteed turndown service as an elite benefit to lower housekeeping costs.

But the pandemic accelerated these trends. Owners were demanding lower costs and relaxed standards. The Marriott acquisition of Starwood led the Bethesda-based company to promise owners lower costs. And the amalgam of 30 brands made no sense, so they leaned into their loyalty program and website and having a presence everywhere rather than any clear brand messaging.

Chains like Marriott started enforcing the brand standards that existed far less. It wasn’t just about suspending standards for a period while business dissipated as a result of the pandemic. Once standards were officially returned they were policed less than ever. It wasn’t just club lounges not re-opening (that wasn’t a violation of a standard) and housekeeping standards relaxed (again, consistent with the rules) it was hotels not re-opening food and beverage outlets when the chains said those should be open, and properties doing an inferior job actually cleaning rooms. They kept fewer housekeepers and expected them to service rooms more quickly.

It’s this short-run sacrifice of brand standards, both de jure (reduced standards) and de facto (lack of enforcement) that has made individual owners happy in the short-tun but is sacrificing any long-run value for chains.

That lessens the gap between Airbnb and a hotel. If you’re not going to get daily housekeeping, or even a thoroughly cleaned room, and the hotel is going to add destination or resort (or energy) fees – and isn’t going to offer full service food and beverage on property – then how is it a better, more seamless experience than Airbnb, fees and all?

While a hotel chain’s customers are property owners, and guests are the product not the customer, it’s a dangerous game that many chains are playing focusing on short-term revenue from owners and risking long-term value for shareholders.

When the Marriotts and Hiltons of the world actually owned the hotels that they marketed, there was better alignment of incentives for maintaining and extending their brands (and they found it much easier to deliver promises to guests on-property). An ‘asset light’ model where the chain simply rents out the brand can work – but needs a laser-like focus on defending and growing the value of the brand, not merely living off of and depreciating it.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »

Pingbacks

Comments

  1. As a brand standards auditor myself, I see many of these issues on a daily basis. That being said, it’s clear to me that most of you haven’t worked a day in a hotel in the last 24 months. Ever heard of supply chain issues? Hotels will order soap, will be told it will arrive in two weeks, and it will arrive three months later. Good luck trying to satisfy a guest with that. The staffing shortages and turnover of employees is astronomical right now. While it would be great to double everyone’s hourly pay in a fantasy scenario some academic comes up with, hotels still have razor thin margins. I can tell you, as an insider, Marriott does take action when a hotel isn’t meeting standards and those standards are being increased once again. It’s difficult to enforce those standards when hotels are faced with so many obstacles.

  2. The drop in hotel standards appears more marked in USA than Europe.
    Hilton gold gets you free breakfast and an often an upgraded room in Europe. In USA, the food credit is a joke not covering the cheapest breakfast even before coffee or juice is added to the picture. Room rates have rocketed but the service is noticeably substandard.

    On a recent trip to California – Embassy Suites website goes on about its great evening social – which we found is no longer offered – 2 drinks coupons is not an evening social. Wafting stink of cannabis when sat on balcony.
    A return visit to a Doubletree hotel – now charging for parking, had not replaced any of the towels in the room, the pool was too filthy to use and the nearby bins were overflowing with trash and alcohol bottles. The receptionist shrugged and really couldn’t care.

    We found ourselves “downgrading” to Hampton Inn for our overnight stays when we just needed a clean room. The standard was more reliable, pricing more competitive and the facilities were as good as supposedly “full service” neighbouring hotels.

  3. @Joe the Brand Standards Guy-you are correct, most of us haven’t worked in a hotel in the past 24 months, we’re just the paying customers & yes, we certainly have heard of supply chain issues. The problem is that the hotel industry has been crying wolf for 24+ months about the cooties & using that as cover for dropping those very brand standards you say you audit. I don’t know how many times I have checked into a property & asked the front desk clerk, ‘waters are in the room?’ only to be told, ‘we can’t put waters in the room anymore because of the cooties’. Funny the cooties didn’t stop them from putting coffee/tea in the room, so the real reason was to cut costs. THAT is why so many people here are calling BS on the hotel industry-while you may truly have staffing shortages & supply chain issues, you’ve spent the past 24+ months intentionally devaluing your properties & brands. Like I said before, at some point you’re not only going to want my business again, you’re going to need it.

  4. I agree with Simon’s comments. We spent 10 days in Spain and Greece this summer and hotel services/standards felt back to normal – clean property and rooms, daily housekeeping, normal breakfast buffets, friendly staff, lounge, etc.

    Contrast that with a recent weekend trip in the US at a Residence Inn property. No housekeeping (and it was a PITA to request extra towels – had to do it 3x over several hours before the request was fulfilled). Used towels and trash overflowing in the hallways. Multiple people at the front desk didn’t seem to have any interest in customer service and only doing the bare minimums. Sad thing is that this property was fairly new, likely built within the past year.

  5. I could go on a diatribe about America post covid. Sell outs and mergers didnt help prior to this mess.

  6. As a Franchisee and a hotel owner, I want to make sure every consumer/guests understands this. Most hotel owners in last 2 years have fought an uphill battle with supply chains, employee retentions, inconsistent brand standards and lack of communication of brands to their customers, our guests. While our revenues were cut to 1/3 our brands/ franchisor made profits in last 2 years. So anybody who thinks owners are cutting sort on services, the reason is because we pay brands lot of fees in direct and indirect ways. We pay brands like Marriott and Hilton not only Franchise fees, but are also mandated to pay above market prices for every single item we purchase for the hotel… starting from shampoos, Lenins, food items to furnitures, so brands can get commissions from the vendors. Our margins of operations have become negligent due to Brand’s greed, hence our guests have to pay price by sacrificing on amenities or standards. May be one should do research on how this industry works and what is the real reason for guest dissatisfaction.

  7. No one requires @Hotel Owner to license the brand of a major chain. They do it for marketing, because they believe it’ll bring them more and higher-paying customers. They do it because they believe it will be a net revenue generator.

  8. Hotel owner adding my two cents. The brands only care about fees. Not the property or quality. They can only collect these fees by more hotels right next to each other. That’s what dilutes the brand. Hotels can’t invest in the property or staff since 20/30% of every booking is lost in commissions and fees. If the brands actually cared, they would address this. Choice hotels actually made a profit during the pandemic when every owner was underwater fighting to stay in business.

  9. I forgot to add. They force hotel owners to buy very crappy sheets and products at very high markups. While the brands get kickback money in the millions in the form of event sponsorships. Choice makes over 60 million in revenue a year in these bribery scheme.

  10. You are missing the point. Your concerns are brand values and guest experience. The hotel owners are fiancially responsible for maintaining these standards and creating guest experiences.. What I am stating is there is a reason for the dissatisfaction. You should certainly dig deeper into the why.

  11. @hotelowner he doesn’t actually care why. He wants his free points and room upgrades. No actual clue how the industry works. He thinks the solution is more government. More IRS auditors. More fines.
    His answer is you signed the contract it’s your problem.
    But it isn’t just owners problem. It’s the guests too since you are obviously wrote an article whining about it. Fair Franchising needs to be addressed. Aahoa fighting with Marriott is just the start of this battle.

  12. @Hotel Owner,

    “As a Franchisee and a hotel owner, I want to make sure every consumer/guests understands this. Most hotel owners in last 2 years have fought an uphill battle with supply chains, employee retentions, inconsistent brand standards and lack of communication of brands to their customers, our guests. While our revenues were cut to 1/3 our brands/ franchisor made profits in last 2 years. So anybody who thinks owners are cutting sort on services, the reason is because we pay brands lot of fees in direct and indirect ways. We pay brands like Marriott and Hilton not only Franchise fees, but are also mandated to pay above market prices for every single item we purchase for the hotel… starting from shampoos, Lenins, food items to furnitures, so brands can get commissions from the vendors”

    Are you required to use the brand’s shampoos etc.? I’ve stayed at some properties that use local products, which I thought was great. For example, the Hilton Tel Aviv had Dead Sea shampoo/etc., the Westin Palace (Madrid) had Olivia products. These enhanced the stay, providing an upmarket feel and something different and local to the region.

  13. @Hotel Owner – all you’re saying is that there is a misalignment of goals and incentives between hotel owners and brands AND THAT IS EXACTLY THE POINT OF THE POST

  14. I find the comments from hotel owners helpful. Looks like the fees are killing the brand because in order to survive the hotel owners have to cut in other areas since they can’t cut the fees. I wonder what is the solution? What is a reasonable profit level for the hotel owner and corporate office?

Leave a Reply

Your email address will not be published.