hotel brands: aggregating to compete


Hotel Franchising Selection


Over the years, hotel franchising contracts have become a useful and flexible instrument for Italian hotel entrepreneurs. Through the franchising, independent hotels can receive commercial and marketing services, associating their own sign with a recognizable and differentiated commercial brand, in order to increase a more and more international customer retention and loyalty.

Franchise agreements are regulated through some standard circumstances that are repeated in each contract, in order to fully respect the standardization of procedures both of the affiliated hotel and the hotel franchisor.

In such contracts, franchisors supply commercialmarketing, management and operative support services. They provide a brand and a coordinated image in order to allow a range of services to the independent hotel that affiliates.

Services offered by the hotel franchisor are paid through different commissions or the so-called Franchising Fees. Such fees can be calculated according to the structure number of rooms and the hotel location. They include a fixed remuneration of contract plus a variable periodic payment, even depending on the turnover generated during the contract duration.

The advantages of adopting franchising agreements are mainly the commercial visibility earned through acommercial signreservations made in the franchisor’s booking centers and the possibility of entering a hotel network with a quite limited financial commitment, even at international level.

On the other hand, a hotel franchising contract, especially with an international brand, requires a quite long commitment – an average of 5 years – and often involves the asset renovation, so that it can be in line with the standards defined by the franchisor.

The franchise agreement negotiation can be based on the identification of all tangible elements that are offered by the hotel franchisor, considering that such contracts are quite equivalent, since they have similar features and characteristics.  On the contrary, it is more difficult to evaluate with precision the perspective beneficial effects that the independent hotel entrepreneur can enjoy through the contract. In this last case, professional support of a specialized company allows to formulate projections relating to the potential increases of operational results, subsequent to the adoption of a franchise contract.

The selection process of a franchise contract involves the following phases:

  1. Identification of the selection objectives and the pursued benefits
  2. Identification of the main brands that offer franchising formulas suitable to the hotel product
  3. Comparative analysis between the franchising formulas, including benefit analysis and financial projections related to the contract adoption
  4. Negotiation with the hotel franchisor to draft the contract term sheet
  5. Contract drafting, signature and conclusion of the agreement.

Many hotel operators have recently revised their franchising contract formulas in the light of hotel industry changes and online reservation portals. Such changes concern both the services offered by independent hotels and the modalities to assign a brand and a coordinated image. These are still very important aspects for the differentiation of hotel products.

Snapshot

  • Through franchising, independent hotels can receive commercial and marketing services, associating their own name with a recognizable brand in order to increase customer retention and loyalty
  • The franchise agreement negotiation is based on the identification of all elements that are offered by the hotel franchisor, evaluating the perspective benefits that independent hotel entrepreneurs can enjoy through the contract

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