Hotel Brand Market Value Article

Topics: Brand, Brand management, Branding Pages: 14 (6472 words) Published: December 11, 2014
© 2006 CORNELL UNIVERSITY
DOI: 10.1177/0010880406289070
Volume 47, Issue 3 1-14

The Role of Brand
Affiliation in Hotel
Market Value
by JOHN W. O’NEILL and QU XIAO
The notion that a hotel’s brand contributes significantly to the property’s market value is supported by an analysis of nearly eleven hundred hotel transactions over the past fifteen years. The analysis found that brands added value beyond the usual contributors to a property’s value, such as net operating income and revenue per available room. The effects

of branding were most noticeable in midmarket and
upscale hotels. Based on per-room sales statistics,
certain brands added significantly more value to their
franchisees’ properties than others.
Keywords:

A

hotel valuation; brand management

hotel property’s brand identification is clearly
a large factor in its market value, but measuring the brand’s contribution to a property’s market value has so far been as much “art” as
“science.”1 A number of financial indicators are used
to determine a property’s value. Net operating income
(NOI), average daily rate (ADR), occupancy rate, and

AUGUST 2006

even number of rooms have proven to be significant
predictors of a hotel’s market value.2 Despite the clear
indication that brand affiliation contributes to hotel
value, existing research has neither confirmed that
notion nor evaluated the relative strengths of various
brands.3 Assertions in hotel trade magazines that different hotel brands contribute differently to hotel value have not been based on rigorous, scientific
research design and statistical procedure.4 Indeed, an
article published in the previous Cornell Quarterly
found that certain brands added more to hotel value
than others did. Because those data were disguised,
it was not possible to determine which brand contributed the greatest value.5 In the research presented here, we undertake to conduct a rigorous analysis of
brands’ contribution to property values.
Few developments have altered the lodging landscape more than the proliferation of new brands. The most recent annual brand report in Hotels magazine
listed 285 lodging brands worldwide.6 Depending on
how a “new brand” is defined, six to eight new brand

Cornell Hotel and Restaurant Administration Quarterly

1

SECTION

THE ROLE OF BRAND AFFILIATION IN HOTEL MARKET VALUE

names were introduced to the market in
2005, including “aloft” and “NYLO.”7 Not
only is it generally recognized that brands
create value for both consumers and companies,8 but consumers use brands as cues to infer certain product attributes, such as
quality.9 Because loyal customers are generally less price-sensitive, more willing to purchase more, and generate positive word
of mouth, corporate management has realized that brand names are among the most important assets of a company.10
This study examines the brand effect on
hotel market value from an investor–owner
perspective. The fundamental question
we set out to answer is, What is the role
of brands in determining hotels’ market
values? In particular, are there value premiums for hotel properties affiliated with certain brands over those affiliated with
other brands? Based on a data set consisting of more than one thousand actual hotel-sale transactions, we explore whether
a particular hotel brand contributes more
or less to the value of hotels flying that
flag, while controlling for the most recognized value predictors, namely, NOI, ADR, occupancy rate, and number of guest
rooms.11 By revealing brands’ effects on
hotel values, we expect this study to assist
current and potential hotel owners, investors,
lenders, and other analysts, as well as corporate brand management, with their assessment of the power of brands in terms of hotel market values.

Power of Branding
Much has been written about branding
and brand equity, which can be defined as
the “added value endowed by the brand on
the product.”12 The...
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