What's in a Name - Everything!
How Brand Standards Play into the Hotel Management Agreement
By Tara K. Gorman Partner, Perkins Coie LLP | May 12, 2013
What's in a name? that which we call a rose
By any other name would smell as sweet;
- William Shakespeare, Romeo & Juliet, Act II, Scene II
"A rose by any other name would smell as sweet . . ." Does that statement ring true for the name of a hotel brand? St. Regis, Crowne Plaza, Hampton Inn, Fairmont Raffles, Embassy Suites, Best Western, Trump, Great Wolf Lodge, La Quinta Inns & Suites. Each of these names carries with it intangible value inherent in the brand name. This inherent value can translate into a higher average daily rate, a positive image, or a higher market share. To maintain that value, the brand must ensure that there is consistency in the guest experience no matter where in the world the branded hotel is located. This is where the interaction between the brand standards and the hotel management agreement comes into play!
The Agreement's the Thing
The hotel management agreement and the license agreement or franchise agreement set forth the parameters that the hotel owner must meet in order to maintain the right to use the brand name - and all that comes with it. Hotel management agreements are peppered with the phrases such as "in accordance with the brand standards", and "compliant with the brand standards". From the perspective of the brand - it is of critical importance that each branded hotel maintain the brand standards. The maintenance of the brand standards translates into the consistency of the guest experience, which often results in brand loyalty and a higher value placed on the brand.
The bottom line is if the hotel owner fails to maintain the brand standards, the brand has the right to pull the flag and terminate all the agreements that grant the hotel owner the right to use the brand. This is a fairly extreme measure - so when hotel owners execute agreements which state that they will comply with brand standards - what does that really mean, and how does it effect the bottom line? This article focuses on what brand standards are, and how a hotel owner knows if it is "measuring up" and maintaining brand standards - and in fact complying with the obligation to operate the hotel in accordance with brand standards.
Generally, brand standards fall into two categories - design standards and operating standards. Design standards provide the brand's physical "look and feel". This can be anything from ceiling height, room size, number of fixtures in the bathroom, and the type and quality of furniture, fixtures and equipment, thread-count of the sheets, ornamentation, design of the building - basically anything tangible that plays into the look and feel of the hotel. Operating standards relate to the level and quality of service that the guest experiences at the hotel. Some brands have incredibly detailed operating standards addressing everything from the uniforms that employees must wear, to how the employees interact with guests. For example, drinks must be served no later than six minutes after the order is placed, employees must smile at and make eye contact with the guests whenever they are within 10 feet of the guests, the phone must be answered in no more than three rings. Boutique hotels do even more than the big box full service or limited service hotel to enhance the guest facing experience. Some boutique hotels go as far as to track guest preferences. If the guest orders peanut butter M&Ms and asks for playing cards during his first stay at the hotel, this information is tracked so that the next time the guest stays at the boutique hotel, he is greeted with peanut butter M&Ms and playing cards. Imagine that database.