Roundtable participants:

• Greg O’Stean, senior v.p, hospitality finance and franchise finance, GE Capital Solutions
• Peggy Berg, president, The Highland Group
• Steve Mogck, executive v.p., select-service hotels, Carlson Hotels Worldwide
• Danny Patel, president, Peachstate Hospitality and chairman, Asian American Hotel Owners Assn.
• John Sturgess, corporate v.p. development, Carlson Hotels Worldwide
• Teague Hunter, executive vice president, Hunter Realty

Moderator:

• Jeff Higley, editor-in-chief, Hotel & Motel Management

Quick Links to questions:

Q1. Is “fresh” the same thing as “relevant” or do they mean different things to you? Can a brand be one and not the other?

Q2. Are there general rules of thumb that must be applied when trying to keep an established brand competitive when there are so many new product offerings, and so many other established brands trying to stay competitive?

Q3. How often does a property need to be freshened?

Q4. When considering relevance, what are the various components?

Q5. Can that change as a brand grows older?

Q6. How can a brand stay fresh and relevant while controlling costs for the owner?

Q7. When considering a 20-year-old brand like Country Inns & Suites, and knowing that the majority of properties in the system are less than 7 years old, how do you apply across-the-board standards that deal with freshness and relevance?

Q8. Is it easier to finance a hotel that has been freshened, or would prospective owners prefer to freshen it themselves?

Q9. When dealing with relevance of a brand, should a brand worry about what other brands are doing, or should it focus solely on its own mission?

Q10. Is it easier to freshen a brand in a strong environment, such as the one we’re experiencing now, or in a down cycle?

Q11. Can a brand ever be too old to be freshened?

Q. Is “fresh” the same thing as “relevant” or do they mean different things to you? Can a brand be one and not the other?

O’Stean: “They’re different. A coconut right off of the tree is fresh, but it’s not relevant if your taste leans toward pineapple.”

Berg: “Is ‘relevant’ really enough? When a brand provides features that its guests aspire to, it becomes more than a commodity.”

Mogck: “Fresh and relevant are somewhat different concepts. Fresh to me means new or clean, such as new FF&E in a hotel. Relevant means that the item in question meets a certain key need of a guest or otherwise connects with a guest in a meaningful way. For example, a new FF&E package installed at a property may be fresh in the sense of it being new and clean, but it may not be in the style liked by a guest, and therefore not relevant to that guest.

Patel: “They are different concepts that depend on the market.”

Hunter: “They are different. We have many older relevant brands today that aren't fresh and we have many fresh new brands today that aren't yet relevant. They key to all brands is how to achieve both.”

Q. Are there general rules of thumb that must be applied when trying to keep an established brand competitive when there are so many new product offerings, and so many other established brands trying to stay competitive?

O’Stean: “Comfortable and clean are more important than hip. Everyone likes clean and comfortable; not everyone likes red, blue or green.”

Mogck: ‘The key is to stay in touch with your brand’s consumers. Over time, consumer preferences and key wants and needs will likely change. A brand that wants to stay competitive must spot these trends well in advance and make sure that its guests’ key desires/needs are consistently met. Fundamentally, a brand is a promise of a certain experience for a guest. The brand that wants to stay competitive will determine what experience is desired by its target guests, and consistently deliver those experiences across its system of properties.”

Patel: “A competitive brand must have a consistent product, quality and service. Consistency is so important.”

Sturgess: “As a brand, you must know your customer, trends in the industry and your own core competencies. A company’s core competencies constitute the focus for the company’s strategy. Building strategies to stay competitive include analyzing the organization’s exterior competitive landscape and internal operating environment.

Hunter: “The stronger the brand you have, the more value your hotel has.”

Q. How often does a property need to be freshened?

O’Stean: “It depends on the location and the quality of the furnishings. Resort properties, especially oceanfront, tend to wear faster than urban corporate locations.”

Berg: “Every day.”

Mogck: “Properties need constant ‘freshening.’ A mistake made by some operators is to wait to do many upkeep items until a predetermined target date. The better practice is to constantly stay on top of issues in order to keep the property at a more consistently high-quality level over the years. With respect to major FF&E change-outs, our rule of thumb is generally every 5 years or so, with the exception of case goods, which might last a bit longer with proper care and maintenance.”

Patel: “It depends on the market. Corporate market every six or seven years, but it depends on how you do routine maintenance. We do once-a-year checklists. Country Inn & Suites is more corporate so there is less wear and tear.

Hunter: “Every six years.”

Q. When considering relevance, what are the various components?

O’Stean: “It is more the FF&E and target audience than the marketing message. A brand needs a memorable and unique logo to differentiate itself instantly on the Web or on a roadside sign.”

Berg: “Relevance is about a desirable differentiated product. It has to set a brand apart for its target markets.”

Mogck: “The first element to consider from your list is the target audience. Once you establish who you are going after then other elements tend to fall into place. For example, with the Country Inns & Suites brand, our target customer mix includes business and leisure travelers. Our consumer research shows that those guests respond very positively to our central brand identity of Caring, Comfortable Hospitality. They use words, such as ‘sanctuary’ and ‘cozy’ to describe their experiences at our properties. Our FF&E, logo and advertising are all consistent with this brand identity and support our caring and comfortable image. We also use customer research to constantly verify that all of the above items are perceived by our customers as consistent with our brand identity.”

Sturgess: “A brand must know its customer, its competitors, the external environment and its internal abilities.”

Hunter: “Critical mass defines relevance. For some brands, that might be 100, for others it might be 500. You need more properties for critical mass in limited-service [segment] than you need in luxury [segment]. It has to be at a point where the brand is easily recognized.”

Q. Can that change as a brand grows older?

O’Stean: “Yes; consider the old, tired brands and now think of their logo ... does it make you think of an old, tired brand, even if the design was recently updated?”

Berg: “The components of relevance have to change. Our customers get more sophisticated every year. The things they enjoy in their homes and the things they aspire to own change every year. Hotel product has to reflect those changes to stay relevant.”

Mogck: “The above items will necessarily change as the brand grows older and its customers shift into different life stages, and as the next generation of customers arrives. For example, ‘Caring, Comfortable Hospitality’ means something very specific and tangible to our current Country Inns & Suites customers. As the next generations begin to become consumers at our hotels, they will likely need a different set of hotel features, such as new and different technology, different FF&E and/or other items, to feel that our hotels convey a caring, comfortable and hospitable environment. The challenge is to identify the relevant trends and keep adapting. Our view at Carlson Hotels is that your brand essence never really changes even though your product offering that conveys that essence will necessarily change over time to adapt to the changes in customer needs and preferences.

Patel: “A brand is getting older, but as long as renovation guidelines are followed, you can maintain quality. Routine maintenance is so important. Take caulking for example. Caulking around a vanity regularly is important.”

Sturgess: “As trends change, customers’ wants and needs change. A brand must know their customer and their customers wants and needs. Today it is about the experience, so knowing your customer will help a brand create the right experience.”

Q. How can a brand stay fresh and relevant while controlling costs for the owner?

Berg: “Brands that perform for their owners do a good job of testing their product upgrades so owners do not waste money. Testing has two facets: one is making sure that the requirement is relevant to guests; the second is making sure that the spec required is really a good value. Brand upgrades that are well tested result in higher revenues. When upgrades pay for themselves, cost control is not an issue.”

Mogck: “It comes down to ROI choices for the brand and the owners. Certain ongoing investments are necessary over time in order for the brand to stay relevant in the eyes of its customer base and for an individual hotel to keep generating a solid return. For example, if a property begins to look tired or fails to incorporate amenities required by its guests, it will lose share against its competitors and consequently yield less for its owner. In order for a brand to stay relevant and successful for its owners, certain choices have to be made regarding amenity upgrades in keeping with the brand’s core identity. Those choices sometimes mean saying no to certain potential amenity upgrades for a system because they are not important enough to the desired customer base and will therefore not yield an appropriate ROI for the brand or its owners. Sometimes the opposite is true and an entire system must undergo large additional expenses to keep pace with an important consumer trend or risk becoming irrelevant in the eyes of its customers. History is littered with examples of great companies and brands that failed to keep pace or lost touch with their customers and went they way of the dinosaurs.”

Sturgess: “There must be an overall return on revenue—staying ‘fresh’ is an ongoing process. As far as relevant is concerned, you must know your internal abilities before jumping on new trends.”

Hunter: “It’s a tough thing to accomplish, especially with amenity creep. You have to have the right design, and the things that work should be implemented. Make sure that what you require makes sense, has a purpose. It really all goes to the brand leadership. If they have their finger on the pulse, that’s who you are betting on as much as the brand.”

Q. When considering a 20-year-old brand like Country Inns & Suites, and knowing that the majority of properties in the system are less than 7 years old, how do you apply across-the-board standards that deal with freshness and relevance?

Berg: “Some upgrades can be phased in as original equipment wears out. However, some brand identifiers have to be implemented in every hotel at the same time in order to have an impact on the market. A brand like CIS, that has credibility and communicates with its licensees can implement across the board upgrades when they are necessary to improve the brand’s overall position.”

Mogck: “Country Inn & Suites has standards that are rigorously enforced regarding the proper maintenance of the physical hotel properties. We work hard with our franchisees to help them stay ahead of the curve when it comes to maintenance issues. We also rely heavily on Medallia data from our properties’ guests to guide our hotels in better meeting their guests’ needs. The great thing about Medallia is that it is the guest who tells the hotel owner how they are doing, not the brand. That makes it a very powerful and persuasive tool. Regarding relevancy, we do a lot of in-depth consumer research to identify key consumer trends and then vet that information with our franchise advisory counsel. The FAC is composed of several multi-unit owners who are deeply invested in our brand, and they give the brand excellent feedback on our standards development. Once we have alignment between our consumer research and our FAC on certain key brand standards that need to evolve, we move on those items by establishing a timeline for the adoption of the new standard throughout our system. This process never really ends because our customers’ wants and needs will continue to evolve over time and the brand will need to keep pace with those needs.”

Patel: “First and foremost, there has to be education. If the franchisee doesn’t understand, then whatever the franchisor wants isn’t going to work. Create guidelines, give them enough time and you will stay fresh. As long as occupancy is there, AAHOA members do not have any problem with new guidelines. The problem is when the brand is not performing.”

Sturgess: “As far as development is concerned, consistency is key—we have been very disciplined in our development efforts and this consistency has made us more competitive in the marketplace.”

Q. Is it easier to finance a hotel that has been freshened, or would prospective owners prefer to freshen it themselves?

O’Stean: “There are different types of buyers for each. Institutional investors tend to prefer properties that were recently freshened, while some entrepreneurs target neglected hotels that they can freshen themselves.”

Hunter: “It’s easier to sell a hotel when it’s fresh, but it’s not always the most cost-effective or profitable thing to do. It’s difficult for purchasers to pay you for the true cost of the renovation. What most people do is let the new owner take care of it so they can take care of it. When it’s time to do a re-do, that’s a typical time for people to sell.”

Q. When dealing with relevance of a brand, should a brand worry about what other brands are doing, or should it focus solely on its own mission?

Mogck: “At Country Inn & Suites we worry more about what our customers tell us through Medallia data and consumer research than what our competitors are doing. There are a lot of companies jumping into trends simply because they see a competitor doing it. It is the ‘me too’ philosophy, and I think it is very dangerous. Before we roll out a new program or requirement for Country Inn & Suites we scrutinize the data and get critical feed back from our FAC. That keeps the analysis fact based vs. following the latest fad, which may or may not be of critical importance to your guests.”

Patel: “They need to focus on what they should be doing. CIS has developed its own image and clientele. They need to re-evaluate and talk to the customer to find out their needs. They don’t need to compare their product with a Hampton Inn, for example. They have different strategies and customer bases.”

Sturgess: “A brand needs to know their customers needs, competitive environment, internal resources and industry trends.”

Q. Is it easier to freshen a brand in a strong environment, such as the one we’re experiencing now, or in a down cycle?

Berg: “Substantial capital investments are only possible when money is available—both debt and cash from operations. Money is available when the industry is strong.”

Mogck: “If it involves a substantial capital investment, it is clearly easier to deal with the issue when hotel owners are doing better financially. However, you can never really stop the freshening process no matter what part of the cycle that you are in. I strongly believe that the brand that consistently delivers a high quality, relevant experience to its guests during all phases of the industry cycles will reap the rewards of much more loyal guests and consequently suffer less during a down cycle.”

Patel: “It is right now. Whenever the money is coming in.”

Hunter: “It’s easier in a strong environment when everyone has money. The owner can afford to do it, the consumer has money and can absorb the rate increase and the banks have money to lend for renovations. In a down cycle, you’re just trying to hold on.”

Q. Can a brand ever be too old to be freshened?

O’Stean: “Yes, but it is a function of the average age of the portfolio as much as the age of the brand.”

Berg: “It is possible to destroy brand equity, and we have decades of good examples of this in the hotel industry.”

Mogck: “A brand can probably become so irrelevant in the minds of consumers that it is nearly impossible to bring it back. I don’t know that it deals with the age of the brand so much as the extent to which a brand has been allowed to become stale, inconsistent and out-of-touch with consumers. There are a lot of great old brands in existence today that are as vital as ever because they have stayed consistent and have never been allowed to become irrelevant in the eyes of their consumers. One common theme among brands with longevity is that they all successfully adapt to changing consumer needs over time.”

Patel: “Yes, and a lot of it depends on how many generations of product they have. With many generations, the image created in Gen 1 isn’t consistent with Gen 4. Those kinds of products lost the edge of the brand. I strictly believe that CIS, if it does a lot of conversion and changing the prototype, will do a disservice to the brand.”

Hunter: “The answer is no with enough money, but typically it gets to the point where it’s not cost-effective.”