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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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For example, a less mature market like India, a private individual has a piece of land, and wants to build a hotel on it, but he doesn't know how to run a hotel. So he will ask for a management agreement, because it would not make sense for him to set up his own management company for just one hotel, as it would be costly, and difficult to find the right people locally. So the needs and objectives are not the same. Depending on the needs in different markets, different services are adapted to those needs. It's not a choice of saying ‘we will only manage', or ‘we will only lease' or ‘we will only franchise', it's also what the market wants.

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Today, the world's biggest franchisor is Best Western, which franchises almost all of its properties. Different major hotel groups have totally diverse policies when it comes to franchising and management. The Accor group is increasingly going towards a franchised model, 10% properties are owned and 34% leased, meaning quite a heavy capital investment and risk. 25% of its hotels are franchised, while 31% are managed. Starwood has an equal balance between managed and franchised hotels with only a small percentage of owned hotels. For the InterContinental Hotel group, around 85% are franchised, 14% managed and 1% owned. At Hilton, it all depends on brand. Some are almost all managed, while some, like Hampton Inns, are 100% franchised. Rezidor has more managed hotels than franchises. 19% franchised, 19% leased, 62% managed. Hyatt meanwhile has a high number of owned properties – around 25%. Each hotel company has its own philosophy and reasons for leaning more towards owned, leased, managed or franchised models.

(A Franchised or Managed Model, 2012)

In recent years, risk analysis has become increasingly important because of unprecedented but fundamental changes in the Indian economic system, deregulation of all major industries, intensive competition from the global players, and rapid advances in technology Considerable attention has been devoted to investigate the use of risk analysis techniques in capital budgeting. However, very limited studies have covered it in detail. For example, the extent of the usage of these techniques depends on various factors such as industry size, profitability, strategy, environmental factors/focus, reward systems, etc. Companies now do not normally rely on any single technique, but prefer to use a combination of techniques. According to a survey there has been an increase in the use of risk analysis techniques.

(M & R, 2010)

The five main business models in a Franchised or Managed Model, they

Property fully owned and operated by the hotel brand;

Property leased by a hotel brand, which pays rent for the “walls”;

Property owned by a third party and managed by a hotel chain;

Property owned by a third party and managed by a “non-branded” specialist management company;

Property owned by a third party, with a franchise agreement with a hotel chain.

In this article, we are going to concentrate on the choice between a branded management contract and a franchising agreement.

Discussion

Terminology: According to the JMBM Global Hospitality Group, the professional companies that operate hotels are interchangeably referred to as hotel managers, hotel management companies, hotel operators, or hotel operating companies. The terms have the same meaning and may be used interchangeably. A hotel brand, however, may or may not be associated with a hotel management company. The big brands like Accor, Marriott, Hilton, Starwood, etc., generally own a number of “brand” names, which they can independently licence under a franchise or management agreement. They may be known as branded operators or branded hotel managers.

The key points that is to take into consideration to select a Management Company (operator) by the Finance Manager are:

How many hotels does the company operate?

Does the management company operate competing hotels in the same zone?

Length of agreement?

Procedures for extending or terminating contract?

Contract terms in event of the hotel's sale?

Base fee to be applied?

Incentive fees earned or penalties assessed relating to operating performance?

Reporting relationships and requirements?

In today's world of hotel distribution and marketing that is increasingly dependent on online sales via third parties, or directly through a branded website, it is becoming more and more difficult for independent hoteliers to obtain adequate rooms sales. In the USA, where well over 50% of hotels are franchised, clients are much more likely to place their trust in a known brand; a phenomenon reinforced by the use of loyalty cards, enabling guests to amass points just like airline miles, and use them for free stays or other advantages.

In Europe, the situation changes drastically from one country to another. On the one hand, France has been the forerunner in introducing the “chain” hotel concept in Europe, with the Accor group established at the end of the 1960's, while its close neighbour, Italy, remains the stalwart of independent small hotels. Other countries have different levels of sophistication when it comes to the penetration of chain hotels.

(A Franchised or Managed Model, 2012)

RAVELCLICK has identified five future trends from the report that are especially important to hotels globally as they move out of the economic downturn and begin to improve their growth figures:

1. The future of revenue management will include a rapid evolution of data as a strategic asset that can drive future decision-making.

2. Hoteliers will track, analyze, and maximize social networking platforms as an integral part in revenue management—leveraging the power of tools that help them in managing consumer review sites and other forums. They will take a proactive approach to user-generated hotel reviews, blogs, videos, and images.

3. Revenue directors will reinvent their approach to be even more proactive and creative—conducting more research, focusing on demand generators, developing relationships with the competition, shifting market share, developing the hotel's reputation, and directing sophisticated channel management.

4. Automated revenue management technology will become the dominant practice, quickly delivering significant increases in revenue and return on investments to those who adopt it.

5. The hospitality industry will focus time and resources on developing strong revenue executives—headlined by the Chief Revenue Officer (CRO)—who can deliver the best revenue strategy, top-line revenue, and bottom-line profitability.

Conclusion:

Companies are passionate about creating products that help hotels improve their financial performance. For the past 10 years, the company has led the market in delivering business intelligence innovations to the industry. Whether managing one hotel or a chain of thousands, they can use franchise or management contract as a strategic asset to capture market share, outperform competitors, and drive their businesses forward.

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