Choice Hotels update
 1995: Landry refocuses Choice’s strategy:
– New mission "to be the market leader serving those who serve
travelers“: new relationships with travel agents and other travel
industry businesses
– Restaurant chains into Choice hotels
– Friendship phased out; focus on brands and differentiation
 Innovations (among many others)
– 1995: first major chain to go on www;
– 1996: first to introduce geo-coding (find hotels close to points of
interest)
 Acquisitions/brands: 1996 Mainstay (extended-stay), 2005 Cambia
Suites (upscale, all-suites), 2005 acquires Suburban ExtendedStay Hotel chain
Choice Hotels takeaways:
Economies of scope
 What determines firms’ choice of horizontal (products)
and vertical (value chain) scope?
 There are many bad reasons to diversify, acquire other
firms etc.
– Next week!
 Main good reason to look for: economies of scope
(“synergies”)
Sources of economies of scope
 On cost side: doing A and B together is less costly than
doing them separately
– Use of common resources, e.g. reservation system
– Umbrella branding
 On benefit side: doing A and B together creates greater
benefit for customers (=more business) than doing
them separately
– Convenient of choice and cross-selling
– Lower search/transaction costs for buyers by bringing in
partners
Most economies of scope can be
quantified!
 In this case, enough detailed info to put a number on
almost every source of economies of scope
 Numbers are important because changes in strategy
(e.g. marketing) often affect ability to benefit from
economies of scope
Scope and brand
management/competitive environment
 Here, tension between product differentiation
(segmentation) and ability to benefit from cross-selling
economies
 Tension compounded by conflict of interest between
Choice Hotels and franchisees (agency problem)
Economies of scope and
integration
 The deeper question: when do synergies really require
integration?
 If synergies can be realized by contract, that’s usually
easier
 Integration becomes necessary when contracts are
difficult to write/enforce
– More next week!