Choice Hotels - Impact problem

8/9/2019 Choice Hotels - Impact problem

1/12

Choice Hotels International , 1995

Presented by

Group 4

Kanhaiya Kumar- 320

Ritesh Kumar -321

Rajesh K Mishra- 327

Richy Yati Mishra- 328

Amit Singh -340

Dilpreet Singh Soni- 345

Mridul Tyagi -360


2/12

Relative merits of franchising vs. corporate ownership

Franchising

Cost benefit- The franchising model gives an opportunity to scale up in a shorter duration byleveraging upon many franchisees. The cost factor is then divided amongst the franchisees.

Focus on Value creation and differentiation

Brand equity can be leveraged by franchisees

Cross selling by franchisors

Vertical integration

Focus on local needs within the brand

Centralized legal compliance and quality checks


3/12

Relative merits of franchising vs. corporate ownership..contd.

Expertise of franchisors that can be used by franchisees.

Single advertisement campaign and brand building exercises.

Standardized training for franchisees staff.

corporate ownership Complete freedom of operations and locations.

Legal bindings are lesser.

Own property that can be salvaged whenever required.

Ease of borrowing money and raising capital.

Stability , sophistication and credibility.


4/12

Why franchising so common in some industry like hotel

and not in others?

some industries need to do business at multiple locations at same

time.

Hotel industry is one such industry.

The resources as well as clients may not be concentrated at a single

location. Huge infrastructure cost would be a deterrent had it not been

franchising model.

Brand name can be leveraged upon in hotel industry easily.


5/12

Brand building exercises can be taken at centreand the franchisees can benefit from thiscollective approach.

Sometimes we need to scale up at a fast pace soas to be the market leaders. This can be done byfranchising model.

Hotel industry requires huge resources atmultiple locations.

Other industries such as manufacturing industryneed not have a franchising model. They canoperate by outsourcing and exports and imports.


6/12

McDonalds have around 38000 outlets across

world. Similarly other big food chains and

hotel chains. This is not the case with say Tata

Motors.

On their own promoters would have faced

tough time in scaling up McDonalds in such a

short span.


7/12

Corporate advantages of choice hotels

and its sources. Expertise of managing hotels across US, and

therefore ability to benchmark one bestpractices with others.

Centralized quality checks and legalcompliances resulting in franchisees focusingonly on business development.

Product differentiation- Choice group providesmore choice to the customers throughcompetitive positioning.


8/12

What are the benefits to franchisees

with Choice hotels ? Strong brand equity.

Strong professional expertise in hotel industry.

Competitive revenue sharing model. Freedom to express grievances.

No hassles of legal loopholes.

Protection from the parent group.

Assured business in the form of customers and

bookings via centralized reservation system.


9/12

Source of Impact problemImpact problem the impact on business of franchisees due

to cross selling and cannibalization which is promoted by

the company.

Sources :

(1) The agreement between the franchisees and the

promoters of choice hotels wherein the promoters have

the right to launch new hotel(s) in nearby areas of existing

hotel without any legal restriction on its part.(2) The strategy of promoters to cross sell and also give

the reservation facility to competitors


10/12

How serious is Impact problem?

Its a matter of grave concern as hotel industry is onethat asks for huge up-front costs on part of franchisee.And if that does not give them a revenue , the businesssuffers.

It also diminishes the image of the Choice Hotels in theeyes of the franchisees and ultimately could lead toloss of franchisee communitys trust in brand ChoiceHotels.

The franchisees could turn towards HFS and others like

Marriot , as they dont follow the cross selling policyand the franchisee has more perceived chance ofmaking more money.


11/12

Should Don Landry change Choices

strategy? Don should look as to what are the areas where

the impact problem is severe, based on that

some respite or concessions should be awarded

to franchisee which can arrest the tension

amongst them.

Don should also keep in mind that HFS and

Marriott can become the preferred choice offranchisees if they dont get the promised results.


12/12

What can be done ?

There should be a cap on number of hotels that can beopened in an area.

There can also be a cap on the radius, within whichthere can not be more than x hotels of differentsegments.

The company can have an arrangement wherein thehotels with higher price and the lower price can beopened in and around same area.

For example Rodeway and Quality suites can beopened in vicinity without cannibalizing each otherscustomers as both the hotels cater to differentsegments of customers.

Documents

Choice Hotels - Impact problem