The Modern Hotel Industry
Chapter 2
Patterns in the Lodging Industry
The four patterns are actually interlaced.
Change in one invariably impacts another.
New Product Patterns
– The lodging industry uses segmentation to
mean different products, hotel types.
– Customer recognition defines a brand:
recognition of the name and logo.
Brand Equity
– The inherent value that the shopper’s
recognition gives to the brand.
A Segmented Industry
New Product Segments
Economy (Budget, or Limited-Service)
– Amenities and Amenity Creep
• An amenity is a special extra used to distinguish the
property from its competitors.
• The history of the industry’s ever-improving levels
of service is the story of amenity creep.
– How Budgets Compete
• Forgo some amenities
• Smaller rooms
New Product Segments cont’d
All-Suite Hotels
– Appeal is 2 rooms for the price of one.
– Extended Stay
• Original concept of the all-suite hotel
• Have higher occupancies and lower ADRs
– Corporate Housing
• Exempt from local room taxes
• Permitted in areas not zoned for hotels
Mixed Use Projects and Other Hotel
Apartments, hotels, resorts, condos,
shopping marts & business towers merge
into one development=mixed-use concept
– Different focus from traditional hotels:
gaming revenue is the major income
producer, not room sale.
– Becoming lodging’s dominant segment
Mixed Use Projects and Other Hotel
Segments cont’d
Conference Centers
– Highly specialized facilities designed for
meetings and conferences
– Rates are bundled: guest rooms, meeting
rooms, food, drinks and equipment
– Essence of the spa experience is health
– Seven spa types: club, cruise-ship, day,
destination, medical, mineral springs,
New Market Patterns
Marketing to the Individual Guest
– Guest Profiles
• Knowing guests in various circumstances,
developing profiles, enables hoteliers to manage a
variety of market segments
– Business/Leisure Travelers
All guests display some degree of elasticity
Marketing to the Individual Guest
The International Guest
– World Tourism Organization (WTO) forecasts
102 million visitors to the US by 2020.
Preferred Guest Programs
– Guests earn points with hotel chains.
Nonguest Buyers
– Are intermediaries who buy guest rooms.
Marketing to the Group
Tourist/Leisure Visitors
– The Tour Package
• The wholesaler (nonguest buyer) handles the mass
movement of leisure travelers.
• They buy at wholesale prices because they buy in
– The Inclusive Tour (IT) Package
• Involve financial risks (air & land transportation)
outside the hotel’s control
Marketing to the Group cont’d
Business/Commercial Groups
– SMURF = societies, medical, university,
religious, fraternal organizations
Trade Shows
The Single Entity
Incentive Tours
New Ownership Patterns
The State of Industry
– Turmoil & Churning
• Income tax laws changed in the 1970’s
• Churning = rapid buying and selling
– A Consolidating Industry
• Consolidation promises economies of scale, larger
marketing & distribution networks for the chains.
Ownership & Financing Alternatives
Individual Ownership
Real Estate Investment Trusts (REITS)
– Public companies that raise capital through the
sale of stock
Condos & Timeshares
– Condos are real estate purchases, time shares
are not.
New Management Patterns
Hotel Chains
– 75% of all hotels are under the flag of chains.
– insert Exhibit 2-14
Hotel Chains cont’d
Parties to the Deal
Ownership (equity)
Management company
Management Contracts &
Management Companies
– Agreement between the hotel owner & a
management company
Management companies
– Grew important because of 3 different events
• Great Depression
• Oil Embargo of 1973
• Banking system collapse of 1980’s
Management Contracts &
Companies cont’d
Leasing (Renting)
– Are popular when times are good
– Franchise fees have almost doubled during the
past 20 years.
– They now represent 9% to 10% of room sales
– some 8% of sales from all sources
Hotelkeeping opens the 21st century at the
peak of its cycle.
The 21st century will build on the dynamic
changes in products, markets, financing and
operations that continue to reshape this
ancient industry.