Strategies for Brand Protection During Retraction

By Al DeNapoli Partner, Tarlow Breed Hart & Rodgers, P.C. | October 28, 2008

Concerns And Strategies To Protect Your Core Concept When Growth Slow Down And Retraction Is Necessary.

As the hospitality industry continues to grow, many companies - private and public - are contemplating further expansion. During the exuberance of growth, many successful businesses (those in the hospitality industry being no exception) fail to consider how the commitments they are making today that may restrict them in a cooler market. It is as important to implement sound business and legal plans - hedging if you will - in good times as it is in bad ones.

The adage to "be careful how you treat people on the way up because you will see them on the way down," is very applicable to your legal documentation starting from your very first deals. Often the terms in these documents, although seeming benign initially, can limit the control you have to steer your business through the challenges of slow growth or retraction. Worse, the parties with whom you have done business may have rights that they may want to pursue to your detriment.

The handling of reversals for formerly successful hospitality businesses (as in other industries) starts with a critical evaluation of the commitments made during the exuberance of expansion. Loan documents, leases, franchising and/or management agreements, supplier agreements, employment agreements, and shareholder agreements, to mention the most common, need to be inventoried and evaluated. You need identify and understand the terms such as default and cure provisions, termination clauses, liquidated damage and/or penalty terms, and even non-compete commitments. All of these may limit your options.

This evaluation must include not just written agreements, but also the unwritten "commitments" that field personnel may have created (the proverbial handshake deals that may have been made in the sales process). Importantly, there may be unwritten "warranties" or other obligations which came with the commitments in place (including the obligation of good faith and fair dealing that comes with every contract). You need to know that the labels you may have used to refer to your agreements may not be the ones the law uses - for example, licenses can easily cross the line into "franchises" if there has been too much control in the licensor (and classification as a franchise can dramatically change the parties' rights). Also, you need to differentiate binding agreements (which can be oral) from non-binding "brand" commitments which may have to be modified.

In short, your road map through this adjustment is not just in the fine print - you may have certain associated obligations that need to be considered to avoid costly litigation. In a changing market, difficult compromises on brand-related commitments may have to be made.

Coming up in February 2018...

Social Media: Engagement is Key

There are currently 2.3 billion active users of social media networks and savvy hotel operators have incorporated social media into their marketing mix. There are a few Goliath channels on which one must have a presence (Facebook & Twitter) but there are also several newer upstart channels (Instagram, Snapchat &WeChat, for example) that merit consideration. With its 1.86 billion users, Facebook is a dominant platform where operators can drive brand awareness, facilitate bookings, offer incentives and collect sought-after reviews. Twitter's 284 million users generate 500 million tweets per day, and operators can use its platform for lead generation, building loyalty, and guest interaction. Instagram was originally a small photo-sharing site but it has blown up into a massive photo and video channel. The site can be used to post photos of the hotel property, as well as creating Instagram Stories - personal videos that disappear from the channel after 24 hours. In this regard, Instagram and Snapchat are now in direct competition. WeChat is a Chinese company whose aim is to be the App for Everything - instant messaging, social media, shopping and payment services - all in a single platform. In addition to these channels, blogging continues to be a popular method to establish leadership, enhance reputations, and engage with customers in a direct and personal way. The key to effective use of all social media is to find out where your customers are and then, to the fullest extent possible, engage with them on a personal level. This engagement is what creates a personal connection and sustains brand loyalty. The February Hotel Business Review will explore these issues and examine how some hotels are successfully integrating social media into their operations.