Hilton Worldwide is a prominent international hospitality company, straddling the lodging industry from operating to franchising the most recognizable hotel brands: Hilton, Hilton HHonors, Hilton Garden Inn, Doubletree, Embassy Suites, Hampton, Conrad Hotels, Homewood Suites, Home2Suites, Hilton Grand Vacations and the Waldorf-Astoria. (Hilton Worldwide, 2012). Hilton with their core expansion values implicated new prospects of brand expansion. Their vision of “Filling the Earth with the Light and Warmth of Hospitality”(Hilton Worldwide, 2012) truly motivated the organization to conquer the world of hospitality across the regions. Hilton also took the customer oriented approach by implementing their loyalty programme known as the ‘Hilton HHonors’ to gain market share, in which to date has more than 30 million members worldwide.
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Franchising is dominating the lodging trade whereby most hotels utilize this approach as an expansion strategy to penetrate the global market. Hilton on the other hand uses three methods to extend their trademarks via franchising, management contract and ‘manchising’ as well. Hilton consists of five diverse hotel fragments. The fragments classified include; extended stay lodging, luxury, vacation ownership, full-time service lodging as well as focused service. The ideal image of Hilton is accentuated in their product and services in which signifies the main brand. These product and services consists of; Waldorf Astoria Hotel & Resort, Conrad Hotel & Resort, Hilton Hotels and Hilton International. All these brands are categorized as management contracts of Hilton as they are the vessel of the organization. Thus, it is vital for Hilton to manage it themselves. In addition, these hotels & resorts are managed using the management approach because this will support international brand development. Moreover, this method enables a higher level of control which helps to alleviate some of the usual distress to uphold their standards in the international market (Gannon and Johnson, 1997).
There is also a few other brands which maneuvers under management contract which are the Hilton Hotels, Embassy Suites, Doubletree Hotels and Homewood Suites. Interesting enough, these brands are also franchised at the same time. And Hilton being the extraordinary corporation gave it a term called “manchise”. That few particular brands are managed under the luxury brand of Hilton as well as the mid-range Hotel chain, whereby the major revenue contribution of Hilton comes from. Thus, that is the reason being for Hilton to operate these brands under “management franchise” system so that they can ensure that the Hilton culture is still preserved.
Besides those Hotels which are succeeded under management contracts, there are also a few other hotel chain by which is franchised under Hilton Worldwide. Hotel chains such as Embassy Suites, Doubletree Hotels, Doubletree Guest Suites, Conrad Hotels, Hilton Garden Inns, Homewood Suites, Hampton Inn and Hampton Inn & Suites are all managed under the franchising contract. These hotel groups use the franchised management approach because their aim is to replicate their current successful brands abruptly and in profuse figures, without significantly increasing debts. The former president of Hilton in Europe & Africa once stated that, “Franchising is a number game!” It is so since Hilton has been efficacious at educating its’ teams to manage the business. The corporation strongly believes that they can emulate the same results by training their franchisees as well. Moreover, the market segmentation of franchise hotels is usually targeted for more affordable clientele as well as the upper-moderate. Hilton positioned these hotel chains under franchise, is not because they do not value the brands but because they are more appropriate for using the price penetration strategy to enter the international market. Furthermore, this method is suitable for spreading Hilton’s culture because franchising enables hotel to enter almost all the possible market by disseminating experienced employees globally for Hilton’s extension plans. Into the bargain, Hilton will receive returns in the form of franchise incentives without incurring extra cost to acquire real estates and also construction of hotel. Franchising is also a constant and foreseeable source of revenue which safeguards it from economic recession in the industry.
In an interview with the President and Chief Executive of Hilton, Chris Nassetta; he mentioned that “The strategy of Hilton is to roll out around the world”, ever since the company has been bought over by Blackstone group in year 2007 the company restructured their development plan. Instead of acquisition they are now using mainly franchise and management contracts to spread Hilton across the globe. In this way, it is a much more efficient and effective approach in which Hilton has more than 800 new hotels. The global development pipeline of Hilton hotel back in 2007 was only 15% but today, it already rose to 50% worldwide including those which are still under construction and developing. Hilton is now heavily investing on international growth as they are more focused on emerging market, but the US market will still be maintained. Hence, expansion plays a vital role for the sustainability of a business in a market. Hilton initiated management contract, franchise and “manchise” for a particular intention. Their objective comprises mainly the purpose of being more cost efficient and yet be able to increase their revenues at the same time. Besides that, these few methods also enable Hilton to extend Hilton’s brand yet need not involve additional cost as compared to owning all the assets. It is also a risk management strategy, in case of a financial drawback in the future; the impairment can be breakeven amongst the various properties. Nevertheless, it is also a major disadvantage for Hilton if the franchisees are not implementing uniformed standards according to Hilton’s requirements. As for management contracted hotels, Hilton will have to be accountable for all the vicarious liability incurred. This will put Hilton’s reputation and brand value at stake. As a result, before Hilton take in hotels under management contract, much consideration have to be put into thoughts and the company’s values should be shared amongst all the employees to avoid any misconceptions. Take Hilton Hotel in Milan For instance, this particular hotel had a misconduct whereby the staffs are affected by their outsourcing plans (Tagliabuel, 2010) http://www.nowpublic.com/np-1-539537 This reflects that the hotel does not have a good foundation of Hilton’s culture.
As a plus point, Hilton has built up a reputation of exploiting developing markets. Also being one of the world’s largest and most geographically diverse hotel company (Hilton, ) delivers Hilton with great opportunities to triumph over a strategic location before its competitors. http://www.hamptonfranchise.com/Scripts/HHC.asp?http://www.hamptonfranchise.com/SF/Overview/CorpHome.asp?HCode=HI
For illustration,……they are currently signing contracts with China, Egypt, Russia, Africa and etc… the positive response in the emerging markets impulse a good sign whereby the hotel have an added competitive advantage. On the other hand, this will soon appear as a major threat for Hilton as competitors such as Marriot International Inc. and Intercontinental too will seek for places as such to develop. Therefore, choosing a business prototype for a hotel is definitely the most significant step right after investing. As a guideline, franchising is usually an alternative for minor or medium hotel chains and management contracts are reasonably for midsized or bigger hotel chains.
Gannon, J. and Johnson, K. (1995), “The global
hotel industry: the emergence of continental
hotel companies”, Progress in Tourism and
Hospitality Research, Vol. 1 No. 1, pp. 31-42.
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