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Affiliation with the Soft Brand: Pros and Cons

Affiliation with the Soft Brand: Pros and Cons

The soft brand could be a perfect affiliation model for the hotel owner who wants the best of two worlds - independence and brand support. I reviewed the literature to see the pros and cons of affiliation with the soft brand.

Oleksii Kapichin, MBA, CRME, CHBA, CHIA
Oleksii Kapichin, MBA, CRME, CHBA, CHIA

Many hotel owners value their independence and need only some of the brand's offerings. For them, joining a consortium could be the best option (Carlbäck, 2017). A consortium company is a group of independent hotels joined together to improve certain aspects of the operation (Carlbäck, 2015). Hotels benefit from joined resources and are not required to follow brand standards (Carlbäck, 2015). Other names are also used in the industry, such as "reservations companies," "referral companies," and "voluntary chains" (Holverson & Revaz, 2006).

Line and Runyan (2011) posited that most of the research in the hospitality industry was dedicated to franchising companies, and consortia were mentioned to a limited extent. The statement stays true until today as per Dick (2019), consortia is still the least researched affiliation format. Most recent literature reviewed on the topic referred to this affiliation model as "soft brand" (Russell & Kim, 2018; "Skift Report", 2018; Stone, 2018).

Pros

Hotels affiliated with the soft brand benefit from reservation and marketing platforms of a large hotel company, and, at the same time, maintain control of business strategy, yield management, amenity offering, and creative design elements (Russell & Kim, 2018).

This affiliation model fits hotel owners who do not want to be constrained by strict standards of the traditional brand but want to benefit from a large hotel company's sales, marketing, loyalty, and distribution networks, technology systems, and other resources ("Skift Report", 2018).

Properties affiliated with the soft brand "retain independence in branding and operating decisions as well as regional, cultural, and architectural distinctions that give them local charm" ("Skift Report", 2018, p. 6). Hotel owners get access to the brand's benefits but maintain individuality (Stone, 2018).

Another vital benefit is a shorter contract, which is typically five years long, compared to a traditional franchise (Holverson & Revaz, 2006; Russell & Kim, 2018). Shorter contracts force the brand to produce results for hotel owners quickly and consistently (Stone, 2018).

Soft-branded properties have different fee structure and are less costly than a traditional franchise. For example, hotel collections charge from 1% to 2% lower fees than other brands within the same parent company (Russell & Kim, 2018). Skift Research found that, on average, royalty fees for soft brands were lower than the portfolio average for each major chain brand (Stone, 2018).

Cons

Among the drawbacks of the soft brands, the literature mentioned hotel quality standards and brand-wide initiatives that reduce the autonomy of the hotel owner, costly loyalty fee per booking, mixed return results from loyalty programs, benefits from reduced OTA commissions could be reduced by new fees that hotel must pay to the brand on every booking ("Skift Report", 2018). The cost of affiliation is high even relative to traditional franchise and there are brand recognition difficulties as consumers are not well familiar with soft brand collections (Stone, 2018).

Voluntary chain or corporate soft brand chain?

There are two leading players in the soft brand market – voluntary chains such as Leading Hotels of the World, Preferred Hotels & Resorts (Powell, 2017) and corporate soft brand collections that traditional brands have been launching in recent years such as Ascend, Curio, Autograph, and Luxury collections (Russell & Kim, 2018).

Over the past decade, nearly every major hotel company has launched a collection of independent hotels as a response to the shift in consumer preference towards unique experiences. Large hotel chains aimed to consolidate the global independent hotel market ("Skift Report", 2018). Leading Hotels of the World was established in 1928, and, using modern terminology, is the oldest "soft brand." In a way, new soft brands launched by large hotel companies are copying the Leading Hotels of the World's value proposition (Powell, 2017).

The literature reviewed had limited differentiation of the value propositions of voluntary chains and corporate soft brand chains. Powell (2017) posited that affiliation with the voluntary chain usually costs less than affiliation with a corporate soft brand chain. Powell (2017) also reported that shorter-term agreements, more flexibility, and independence in the contract are other advantages of the voluntary chains over a corporate soft brand chains. Stone (2018) posited that voluntary chains allow the hotel to maintain its true identity and quoted Ted Teng, a former President & CEO of Leading Hotels of the World, who stated, "Chain brands define a hotel. Our hotels define the LHW brand" (Stone, 2018, p. 45).

Powell (2017) concurred that voluntary chains and corporate soft brand chains target different hotel owners. Voluntary chains target family owners while corporate soft brand chains market to institutional owners and investors. Owners that choose to partner with a voluntary chain see the hotel as a hospitality asset and deeply connected with the property. Owners that choose corporate soft brand chains see the hotel as a financial asset.

References

Carlbäck, M. (2015). Brand Value Attributable to Affiliation (BVAA) - a Method for Measurement in a Consortium Context. Unpublished manuscript, Gothenburg, Sweden. Retrieved from http://ejtr.vumk.eu/index.php/forthcoming-articles/654- v2310/

Carlbäck, M. (2017). To Be or Not to Be... - Brand Affiliation in the Hotel Industry. Doctoral dissertation in business administration. Department of Business Administration. School of Business, Economics and Law at University of Gothenburg. Retrieved from https://gupea.ub.gu.se/handle/2077/53941/

Dick, T. J. (2019). The impact of branding on hotel sales prices: A study of upper upscale and luxury hotel properties from 2007 through 2017. Graduate Theses and Dissertations. Iowa State University. Retrieved from https://lib.dr.iastate.edu/etd/17000/

Holverson, S., & Revaz, F. (2006). Perceptions of European independent hoteliers: Hard and soft branding choices. International Journal of Contemporary Hospitality Management, 18(5), 398-413. doi: 10.1108/09596110610673538

Line, N. D., & Runyan, R. C. (2011). Hospitality marketing research: Recent trends and future directions. International Journal of Hospitality Management, 31(2), 477-488. doi: 10.1016/j.ijhm.2011.07.006

Powell, L. (2017). Soft Brand Launches and the Threat to Luxury Hotel Collections. Retrieved from https://skift.com/2017/11/07/soft-brand-launches-and-the-threat-to- luxury-hotel-collections/

Russell, K., & Kim, B. (2018). Hotel Franchise Fee Guide - USA. HVS. Retrieved from https://www.hvs.com/article/8552-2018-United-States-Hotel-Franchise-Fee-Guide/

Skift Report (2018). Soft Brands - Weighing the Risks, Rewards, and Realities. Retrieved from https://skift.com/insight/skift-insights-deck-soft-brands-weighing-the-risks- rewards-and-realities/

Stone, R. (2018). A deep dive into operating and branding strategies for hotel owners. Skift Research. Retrieved from https://research.skift.com/report/a-deep-dive-into-operating- branding-strategies-for-hotel-owners/