Not all brands are created equal, but the value of a strong brand and what it is that creates value for a brand remain a topic of debate. How do customers measure the value of one brand compared to another when so many variables exist? Brand Finance, an independent business valuation consulting company based in the UK, has made this task its mission. This week the company released its list of the 50 most valuable and powerful hotel brands, and why these brand deserved their rankings. The report can be found here.
Before we dig into the results of Brand Finance’s study, it’s important to discuss the methodology used to create this type of ranking. Brand Finance’s materials say the company calculates a brand’s strength on a scale of 0 to 100 based on factors such as emotional connection, financial performance, sustainability and more. The resulting number is referred to as the Brand Strength Index.
Brand Finance also determines the royalty rate range for the brand’s respective sectors. The company also calculates a brand’s royalty rate by applying the brand’s strength score to its royalty rate range, and even determines a forecast for brand-specific revenues using a combination of historic data, analyst forecasts and economic growth rates.
Brand Strength Index isn’t the only factor used to determine a brand’s worth, and some brands with high overall BSI scores may be valued less than other brands that report higher revenue or other attributes. These statistics combine to create a metric that Brand Finance refers to as a “brand value” score, which includes the value of the brand name, related marketing intellectual property and “goodwill” attached to the name.
The process is far from simple. Savio D’Souza, associate director at Brand Finance, said the company even assesses the strength of a particular brand against its competition within a sector.
“We also look at a brand’s investment measures and whether or not they have led to higher brand equity, as well as classic marketing funnels,” D’Souza said. “Does the brand have high levels of awareness? Are customers highly satisfied? Do they recommend [the brand]? We benchmark and add up all the scores to get a brand strength score.”
The company applies a letter grade to each brand’s score as well, with a score of 0 resulting in a “D” while a score of 100 would result in AAA+.
Topping Brand Finance's 2018 list for the third year in a row is Hilton, which recorded a BSI score of 82.39 and an overall brand value of 6,330. Just behind Hilton is Marriott with a BSI of 80.17 and a brand value of 5,464, followed by Hyatt with a BSI of 75.82 and a brand value of 3,512. However, the brand with the highest BSI score on the list is Premier Inn, which recorded a BSI of 88.68 despite its 16th-place ranking with a total brand value of 1,196.
D’Souza said this apparent discrepancy is a result of correcting for market segmentation because there is no point in directly comparing an economy hotel chain like Premier Inn to an upper-upscale brand such as Hilton, as well as the Hilton brand’s markedly higher revenues. However, D’Souza said there is still much to be learned from Premier Inn’s high score.
“Premier Inn remains the strong brand it was last year, when it also scored the highest BSI, thanks to investment measures, high revenues, high occupancy rates and the fact that it is market leading in its segment,” D’Souza said. “That is, in a nutshell, how we evaluate each brand. Premier has been roughly stable since last year.”
Premier Inn’s performance wasn’t much of a surprise to D’Souza, but he was surprised at Marriott’s ability to gain ground on Hilton. In 2017, Hilton and Marriott also occupied the first and second-place slots in the ranking, respectively, with Hilton scoring a BSI of 84.88 and a brand value score of 8,370, while Marriott recorded a BSI of 81.24 and a brand value score of 5,037. This year, both brands recorded reduced numbers, and the gap between the two brands fell from a BSI percentage-point difference of 3.64 to 2.22 during this period. Their brand value scores narrowed, as well.
What this translates to is a 24-percent fall in value from Hilton, with their lead over Marriott shrinking from more than $3.3 billion to just $865 million, a 74-percent decrease. Marriott also improved its value 8 percent to just under $5.5 billion thanks to growing group revenues.
“Marriott is catching up to Hilton through acquisitions, and the tired Sheraton chain is moving rooms around and adding more rooms to the Marriott pipeline,” D’Souza said. “As a result, there is now competition for the No. 1 spot.”
One name that is absent from the list is Airbnb, and D’Souza said the company’s omission was deliberate and rooted in a logistical and ideological discussion.
“We haven’t addressed Airbnb because we don’t know what to do with it,” D’Souza said. “This year we treated it as a technology company, like an aggregator, but in terms of brand value Airbnb is worth $5.5 billion versus Hilton at $5.1 billion, and CEOs say [Airbnb] addresses a different set of travelers. So that’s a tough one.”
Why Does It Matter?
To some, ranking brands may seem like a strange activity. After all, conventional wisdom states that, thanks to technology, the barriers to entry for creating new competitors have been lowered, diminishing the importance of a brand in recent years. D’Souza disagrees.
“We have found that because technology has lowered barriers across the board, one of the few things that differentiates hotel operators is the brands,” he said. “There are a lot of mergers and acquisitions taking place in hospitality right now, and the reason a lot of these brands are being bought up is that they create value.”
These rankings, D’Souza said, also lead to greater long-term planning opportunities for management by bringing the concept of brand management to the C-suite.
“We think company executives should be crafting brand strategy alongside business strategy,” D’Souza said. “It’s more of a board-level issue today.”
The rankings are best used as a means to learn from those at the top. D’Souza returned to Premier Inn, pointing at the brand’s targeted segment, positioning throughout the UK and lack of over-expansion as positives that led to Premier Inn’s ranking.
“Premier Inn just recently spoke about international expansion, and is looking at the Middle East,” D’Souza said. “They didn’t take the easy way out. They captured their market domestically and nailed guest satisfaction for a budget or value-focused brand, which is hard to do. They did it well, and they took their time without rushing it.”