Marriott's transition from lodging to branding

November 08, 2006

In the past decade, Marriott International pioneered the development of multi-branding strategy as it transitioned from a lodging company to a brand company. Mike Jannini, executive vice president and general manager for Marriott brands, was a speaker at the "Compete Through Service"  symposium, presented by the Center For Services Leadership. Here he talks with Knowledge@W. P. Carey about Marriott's multi-branding strategy, how employees and travelers helped to shape that strategy, and what the future holds for this hospitality company that started as a root beer stand in Washington D.C. in 1927. 22:51


Knowledge: Just about any company would call it a win if it branded a single product so successfully that consumers even use its name to refer to competitors: for example Kleenex, Jacuzzi or Jell-O. But that's not the way Marriott International thinks. In the past decade, Marriott has evolved from a lodging company to a brand company. Marriott has pioneered the concept of multi branding, so, rather than pushing the Marriott name to mean different things to different people, the company has opted to create or acquire a variety of brands that cater to different types of travelers ranging from families on a budget and cost conscious business people, all the way to international jet setters with its Ritz-Carlton and Bulgari properties.


At the 17th Annual Compete Through Service Symposium presented by the Center for Services Leadership at the W. P. Carey School of Business, Mike Jannini, executive vice president and general manager for Marriott brands, outlined the company's transition. Speaking to Knowledge@W.P. Carey, Jannini talks in detail about Marriott's multi branding strategy, how employees and travelers help to shape that strategy and what the future holds for this hospitality company that started in 1927 as a root beer stand in Washington DC and now has nearly 2,800 lodging properties in the US and 66 countries and territories.


Mike Jannini: Our perspective on branding is that a brand really is the sum total of what people believe about a business, a concept, an organization -- and it is all the tangibles and intangibles. So for us everything from the Marriott family to the stock on the stock exchange to our business performance to our prospects for the future really come together to shape whether people believe strongly in the brand or not, and what I get to do at Marriott, which I think is a lot of fun, is this: Branding with a capital B, really shepherding the long-term overall health and strengths and prospects of the business. So that's really how we define it. Interesting for us -- it isn't marketing. I do have a colleague, Amy McPherson who is our executive vice president of sales and marketing, and she does many of the things that people would traditionally consider branding: logo development, signage, advertising communications, etc.


Knowledge: Most people when they think about branding in the corporate sense, they think about becoming synonymous with the product such as Kleenex where the name means the product itself. But it is something different for Marriott.


Jannini: I think clearly in the packaged goods and consumer products that's really where it all began, and part of it, I guess to understand our point of view, would be if you look at our corporate history and our business structure back in 1992. We actually separated the hotel ownership from our business, and we created a separate corporation which was Host Marriott at the time -- now it is called Host Resorts and Services -- and all of the real estate from the hotel business went into that company and we kept the brands and the contracts to manage and franchise hotels. So at that point, we really became what we considered to be a brand company, and when Wall Street looked at Marriott International as it was then created, it didn't have the traditional assets and the balance sheet that you would expect to find in a hotel company. What we had was a variety of brands and the capabilities to grow those brands. So I think that had a lot to do with us creating the brand function the way we did and defining brand management the way we do.


Knowledge: Only a small percentage of the population knows that Marriott owns Ritz Carlton, and that's by design. That would seem counterintuitive to what people think branding is.


Jannini: Yeah, well we have three, I guess I would call them three degrees of affiliation for our lodging brands, and one is Ritz-Carlton which is totally independent from Marriott in the eyes of the consumer, and we keep that a secret in terms of the affiliation. There are stakeholders who do know. Wall Street is very energized by the fact that we own Ritz-Carlton both for Ritz-Carlton and for Marriott International. Some of the intermediaries that book luxury convention and group business realize that they have options with us at Ritz-Carlton Resorts and Hotels as they do at some JW Marriott Resorts like the one in Scottsdale Desert Bridge.


But for the traveling consumer we keep that separate and that's because the Ritz-Carlton brand is very strong. The Marriott brand is very strong. Ritz-Carlton doesn't need the Marriott endorsement to succeed and in some ways when Ritz-Carlton competes with pure bred competitors like Four Seasons that don't have a portfolio of brands, it could be held again Ritz-Carlton that Marriott International owns the brand, because Marriott International is so well known for the Marriott hotel brand, which is one tier below Ritz-Carlton. So when you look at all of the pros and cons what do you add by affiliating and what risks do you mitigate by not?


The obvious thing we do is we endorse some brands like Courtyard by Marriott. So Courtyard gets the strength of the Marriott brand and also it gets to stand for its own consumer proposition. Then we have the mid step brands, which are affiliated. They are neither independent nor fully endorsed -- we have a Renaissance brand which is a full service brand sits besides Marriott in terms of its offering and prices, but is targeted to a different customer. The Marriott brand is a mainstream business travel brand that really helps people who think about achieving their mission on the road, and the Renaissance brand is targeted towards enjoyment travelers -- people who might consider a boutique hotel, for example, and it's got a different style. It's much more contemporary in its style. It is very whimsical in its design and it's got a lot of delightful surprises that sometimes you don't find in large, distributed, full-service hotel chains. So Ritz-Carlton is independent; Bulgari, which is another luxury brand we have being independent; Renaissance being affiliated; and Courtyard and Residence Inn being endorsed.


We actually have three degrees of affiliation. We use them very strategically, based upon how we think can leverage our strengths or whether we believe we need to compete more purely against businesses for whom the endorsement wouldn't be an advantage.


Knowledge: So obviously you are taking into consideration the wants of consumers -- that perhaps the consumers who would go to Ritz-Carlton may for better or worse look down their noses at the Marriott name. Yet on the other hand you have second third tier hotels where the Marriott name says quality.


Jannini: That's exactly right. We have 18 brands. We do very extensive customer segmentation so we can have clear customer segmentations for each brand. As we look at these targets and we look at these customers, we really do take their needs into account -- and not just their obvious, stated needs but what companies who do branding call psychographics. What are the emotional triggers to purchase? What do these people feel and believe about these purchases versus how they rationalize them? We design products and services within the brands that have a lot of integrity for that customer and resonate. We also make that fairly obvious decision of how to position the brand in terms of its affiliation that way as well.


Knowledge: Obviously this is a strategy that started as Marriott began to acquire different properties.


Jannini: Yes, we first developed multiple brands before we acquired. We were the early portfolio company in the industry. Ten years ago, we really didn't have any portfolio competitors. We had multiple brands but we were competing against individual hotel brands. Since then, the industry in the last five to seven years has really consolidated and three or four of the large competitors we face now have multiple brands for different travel occasions, like extended stay or different price points.


We created Courtyard by Marriott more than 20 years ago. We started down that path of multiple branding. We created Fairfield Inn by Marriott. We did acquire the Residence Inn brand, which is extended stay. We created our SpringHill Suites and TownePlace Suites brands. We acquired Renaissance.


We acquired Ritz-Carlton and Bulgari came to us actually, I think courtesy of the Ritz-Carlton acquisition. Bulgari is a luxury company over a hundred years old in Italy, headquartered in Rome. They are famous for their jewelry, fragrances and accessories. They compete with the likes of Cartier and Tiffany. They watched us for about five years with the Ritz-Carlton acquisition and they noticed that we handled it well. We didn't "Marriottize" it, to use the word. We kept it quite distinct -- if anything they thought we might have enhanced the brand image as a luxury competitor. So they called us and said, look, we have a luxury brand. We know it well. We have customers who are very loyal, and we know then well, and we would love to offer them a small line of six star luxury hotels in a few of the great cities of the world as different ways and new ways to experience the luxury of Bulgari, and we watched you at Ritz-Carlton and we liked what you did. You must be the Proctor and Gamble of the hotel business because you handled it very, very well. You are much more successful in terms of business results, but their brand imagery actually went up a little bit.


We did a joint venture with them. We have a Bulgari hotel open in Milan. It's a beautiful, six-star contemporary hotel. It's very expensive, relative to the other hotels in town and one that just opened up in Bali and a few more under development.


Knowledge: How do you think the Marriott strategy has been appropriated or used by competitors? Are they paying attention?


Jannini: Oh yeah, very well, as I say now that when we look around in the industry we are looking at our business model everywhere, so clearly it was the way to go. In the early days, when we had multiple brands, some of our brand pure competitors would sell against us in the marketplace by saying, well, gee, if Marriott has got this  four star Marriott hotel, or these five-star JW Marriott luxury hotels within the Marriott brand, and now they are introducing these three star courtyards, that's got to diminish their quality. And not only was that not true, but by having multiple brands, travelers thought (and we learned a lot of this from third party research which was very helpful to give us the insights) we understood travel. We understood their needs and created different brands at different prices for their different travel occasions in life … (Now) all of our best competitors now have created multi brand lodging portfolios. So they have done it very well. They are making it much more competitive for us. It was a lot easier when we were the one and only in terms of having multiple brands but it is actually good for the industry because they are giving travel consumers wonderful reasons to choose.


Now the one thing I worried about in 1995 when we had a lodging portfolio of multiple brands and we competed against smaller individual hotel companies, I worried about commoditization. I really feared that the hotel industry would go the way of the United States airlines and people would just really care where you were located and what your price was. What happened with all this competition consolidation and many of the companies that have adopted the multi brand approach that we created in 1995 is that the emotional engagement in lodging is very high and there are lot of travelers who would pay more for better experiences. So the good news is the industry isn't commoditizing. It is actually becoming more specialized and driving higher premiums in preference. The tough news is it is more competitive but we take that scenario over commoditization any day of the week.


Knowledge: So what is your strategy to stay ahead of the competition?


Jannini: In some ways we continue to grow. We open about 200 hotels a year and that's just organic growth. That's our regular pace that's without the occasional mergers and acquisitions. That's the power of 18 brands, nearly 3000 hotels in 70 countries that are continuing to develop. We need to have first choice preference. We need to be preferred by travelers for business travel, for conferences and conventions for leisure travel, weekends and vacations. We need first choice preference with owners and franchisees. They need to see these brands AA preferred, generate economic premiums and come to us to develop hotels with us and in our view we really need to be the preferred employer because we think all of this happens on the foundation of a great workforce. We really produce terrific experiences. So the strategy is more. More hotels, more brands of customer segmentation shows us over time that there are emerging customer segments that we are not serving and just really hard work on being first choice preferred.


Knowledge: What role have those front line employees at the resorts, at the hotels, what role have they had in how this strategy has evolved for Marriott?


Jannini: It has been really interesting. Originally, before we put all of our brands together in one portfolio, we had strategic business units and each of these hotel chains at the time were self contained business units and our employees were not able to go from one company to another without leaving a payroll and joining a payroll which may have had different benefits and complications. We used to worry about homogenizing the brands by putting them together and we really looked at the workforce. We said, "Well, how can we move people through multiple brands and keep these separate brand cultures alive because the employees are so much a part of the hotel product which is a branded travel experience."


What we learned was the opposite. We learned that we really built strength by taking our young managers and our early employees and letting them go from brand to brand. The first thing that happened was we developed much more tenure and loyalty and productivity from the workforce because they had so many more career options. For them they had lots of growth potential with the ability to stay within a particular city that had dozens of hotels of different types and make a career without having to move, and the other thing was each of these brands is clearly positioned by some brand managers that worked for me. I had some category heads and brand managers and they each had unique product standards and service standards and they had their own brand language and behaviors. So there's a lot of training that goes into creating the brand culture and branded experience for travelers and the employees and managers get the benefit of all that training.


So we found that it was the employees who when they started moving from brand to brand and really bringing the brand experiences alive and our mangers developed so much more capability that they reinforced the portfolio strategy versus reinforcing the fear that maybe we would homogenize the brands by putting them together.


Knowledge: What role did the traveler play?


Jannini: Well, the travelers really have driven all of this for us. With us it always starts with the customer and, as I say, we do very expensive market segmentation studies. We work with the best third party market research firms that money can buy and we conduct studies that I don't believe any of our competitors conduct. It's more what you find in the world of packaged goods or consumer products and so we figure out who these customers are, what they want, how they segment so that we can see the luxury tier, the quality tier, the moderately priced hotels. How many of them there are, how profitable the segments seem to be, what their requirements are, their expectations for products and services -- and then we position the brands accordingly. Once they are positioned then we develop product and service offerings for the brands and then we execute. So it really all starts with the customer. We have 18 brands because we see 18 that we can compete for. As we continue to conduct segmentation, I just fielded another study. We do it every three or four years, and I am anxious to see the results. First of all, to see how well we are doing with our existing brands and our customer segments and then to see if there are any open opportunities, if there is any white space on the map to either evolve our brands or to create or acquire another brand.


Knowledge: I understand you said something interesting in your presentation of how the traveler now expects the hotel to be a step up from their home.


Jannini: Well we are hoping to do that. Once upon a time that was the common expectation that people came to a hotel for a real treat to get something that went beyond what they had at home, whether it was interior design, special features, great services, or just terrific restaurants and bar experiences. I fear that over the years the hotels have really let the residential trends and the retail trends in the world at large with independent restaurants and bars kind of take the front end of it. And so my hope is that by really pushing ourselves to innovate and to hiring firms to help us do that like -- the one I mentioned in my presentation is Heidi Owen Palo Alto, a great innovation firm -- we can see things, see opportunities that are not obvious. These are the kinds of things that customers don't tell you about. They can't really vocalize that but if we are clever and intuitive we can watch them conduct themselves in our hotels in ways that might help us to invent products and services that aren't available at home and aren't available in the world at large outside hotels.


I used the example of a break room to say if a hotel has this terrific clientele and we have all the infrastructure to sell business services, food and beverages and accommodate people as they live away from home and work away from the office, we can probably package that in innovative ways and serve people food and beverage and let them meet and get their social needs met and their business needs met in very unique ways that only a hotel can provide. I am anxious to get the hotel industry back up there into a very innovative place where people come to hotels for things they can't get anywhere else.


The other things of course that we look for branding is the changing customer. I think Generations X and Y are having a big impact on the hotel industry. I know they are at Marriott. I know that understanding Generations X and Y and what they expect versus the baby boomers that we have served for decades is really caused us to rethink what we are doing and how we do it. Generation X is the first generation to grow with technology as a staple, so that really permeates how we design guest rooms and public space experiences for them. Obviously they are the highest educated generation in world history which means we need to be experts in local knowledge in helping them get the most out of the destinations they come to. So we've got a big initiative there. They are very tuned into design. It's very interesting. You know, at first we thought they were slackers -- not at the Marriott but the world did -- because they married later and took their time in establishing themselves. What happened is that allowed them to develop their individual tastes and lifestyle. So shows like "This Old House" or "Queer Eye for the Straight Guy" really take off because men and women are looking at fashion and design much more closely.


So what the hotel industry has to do in general, Marriott has to do in particular, is we have to really ramp up the quality of architecture and design, style in the hotels. We have to create these five sensory experiences using designer lighting art effects aromatherapy and really retool these businesses so that they would satisfy the very demanding, very educated Generation X and Generation Y business travelers coming into the work force. So for us I think the changing customer is another big driver of branding changes.