Choice Hotels International, 1995

Situation Assessment

SWOT Analysis

Strengths

• Brand Portfolio Diversification

o Enabling cross sales

o Enabling trading down the aged hotels to the lower segments without losing business

• Steady/growing revenue stream

• Technology (state-of-the-art reservation system)

• Relationship with other leading companies in different businesses

• Franchise nature: Ability to expand the business with relatively low investment

Weaknesses

• Franchise nature, along with brand diversification: Hard to manage and control comparing to own-subsidiaries

o Each has its own objective and focus

o Sales Cannibalization generates conflicts and loss of credibility, while profit pooling (working with own-subsidiaries) is not a possible solution

• Low degree of communication between the company and franchisees

• No clear image/picture of the brand in customer’s mind (both Choice and the hotels)

• Homogenous customer characteristics for all 7 segments in terms of income level, age, and purpose of the trip: greater chance of cannibalizing one another and loss of opportunity to serve other markets

Opportunities

• Expansion of the hotel franchisees

• Expansion of the customer base with emphasis on promotional programs

Threat

• Switching of both potential franchisees and customers to other hotel chains

The market

The lodging industry was growing and enormous in size; people tended to travel more despite the age of technology that had brought about distant communication. Hotel chains had increasingly gained market dominance and power, giving difficult times to independent hotel operators. Having multiple brands for a hotel company was not uncommon, and the market was generally segmented using price range and degree of luxury/economy.

There observed an increasing demand for limited-service hotels from budget travelers. The demand in general was also in the rise after the downturn in the early 1990s. According to a survey conducted in the same year, customers preferred brands affiliated with hotel chains over independent hotel operators. It was also found that to create a fresh brand would incur less cost and be more readily preferred by the customers than reinventing the existing brands.

Choice Hotels International in 1995 was moving towards expansion both domestically and internationally, while the key issue here involved selling themselves both to franchisees (direct impact on the company’s bottom line) and to the end-customers. Having the efficient and effective brand management in the portfolio was also the key point that should be understood and carefully planned out.

The group’s strategy was to have 7 different segments/brands of the hotel properties; however, the attempt had been to focus on 7 distinct brand identity but not customer target segments. Furthermore, according to the case fact, the current customer identity was homogenous for all brand segments (portion of business travelers, gender, and level household income). The customer segment had not been clearly identified and there was also no clear strategy tailored to maintain and attract more of customers in this existing customer group.

Franchisee relationship was another headache for Choice management. Since the corporate goal was not effectively communicated to franchisees, complaints from the franchisees were not uncommon, which were usually related to the sales cannibalization among brands.

Strategic Options

Option 1 - Individual-brand-focused Marketing

Under this option, Choice will be made a shadow brand unknown to the public. We will make every effort from the marketing campaign to build a separate identity for each of the 7 brands under the group.

A. Re-positioning and clear segmentation of each brand

Possible renovation, upgrading existing facilities and purchase of new standard furniture will be required. Clearer guidelines as to the distinct values of each brand will be set and distributed to the franchisees.

B. Individual Advertising Campaign

Bundles of values for each brand will be delivered to the public in separate advertisements so as to build up unique brand equity for every brand. Separate marketing teams will be hired for the brand management of each brand.

This alternative helps Choice to ease the conflicts with the relationships with franchisees arising from the internal competitions due to unclear differentiation among brands. By this, Choice differentiates each of the brands with one another. Competitiveness of each brand can also be improved with their clear position in the market and higher value offered to their customers. Brands would have a higher rate of survival under external competition as well.

Option 2 - Corporate-brand-focused Marketing

Under this option, however, Choice will be made known to the public as a house of brands. We will position Choice group as A HOTEL GROUP FOR EVERYONE. Choice group will be providing a wide range of services to customers with different budget and different needs. Individual brand equity will not be emphasized. Instead, synergy of the group as a whole will be stressed on internally and externally especially to business partners.

By such means, first we will have the synergy on marketing campaign implementation. To focus on promoting Choice as a whole, rather