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Rebranding and Rescaling: Effects on Hotel Performance

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Vol 50 No 3
Bjorn Hanson, Anna S. Mattila, John W. O'Neill, and Yong Hee Kim

Executive Summary:

Market realities often force hotel owners to rebrand their hotel or to change their property from one market scale to another. This exploratory study of ninety-five hotels analyzes whether rebranding or rescaling was worth the expense in terms of financial performance. Sixty-four hotels in the sample moved downward in market scale (more than half of those from midscale to economy), while twenty-one hotels moved upward, and ten hotels changed brands but not market scale. The analysis found that on balance the hotels’ financial performance improved in the second year after they rescaled. However, net operating income diminished in the first year after the changeover, probably due to the expense of making the alterations. The hotels that moved upward in scale saw higher average daily rates (ADRs), while those that moved downscale generally saw no change in ADR, meaning that they were able to hold their rates even as they moved downmarket. Rebranding without rescaling had no significant effect on financial performance indicators.

 

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