Handbook of Hospitality Marketing Management || Branding, brand equity, and brand extensions

C H A P T E R• • • • 4

Branding, brandequity, and brand

extensionsWoody G. Kim

Handbook of Hospitality Marketing Management

Introduction

Brand management is a topic of considerable interest for both academiaand industry. Building and managing strong brands is considered tobe one of the crucial tasks of brand managers for the success of anyhospitality and tourism organization. Strong brands provide a series ofbenefits to service firms, such as greater customer loyalty and higherresiliency to endure crisis situations, higher profit margins, higher mar-ket value (O’Neil and Xiao, 2006), more favorable customer response toprice change, and licensing and brand extension opportunities (Keller,2001). Ries and Ries (1998, p. 2) argue that branding has possibly beenone of the most critical marketing strategies that serve as ‘the glue thatembraces the wide range of marketing functions collectively.’In the past 20 years, the hotel industry has observed the proliferation

of new brands. The rapid growth in hotel branding, totaling approxi-mately 285 brands around the world in 2006, poses some problems tocustomers. Many hotel guests are confused with an explosion in thenumber of brands, and they may not be able to distinguish many simi-lar brands offered by different hotel companies, in the same price range.According to Hotel & Motel Management magazine (2004), the total num-ber of lodging brands in the extended-stay segment alone was over 25.For example, Residence Inn by Marriott was the front-runner in thissegment, closely followed by Homewood Suites by Hilton, ExtendedStayAmerica, and Candlewood Suites by InterContinental.There are plenty of newly launched hotel brands such as Starwood’s

‘XYZ’, Choice Hotel’s chicCabmira Suites and InterContinetal’s Indigo(Weinstein, 2005). Starwood typically focuses on operating luxurybrands, namely, St. Regis, the Luxury Collection, ‘W’ and upper upscalesegments such as Sheraton and Westin. It developed Four-Point brandcategorized as a midscale hotel with food and beverage (F&B) in 1995,and the brand was successful with a rapid expansion in positioningin the mid-priced market. Starwood recently introduced a new brand,Aloft, in a select-service hotel segment developed by W Hotel’s devel-opment team. Shortly after launching ‘Aloft,’ Starwood introducedanother upscale extended-stay brand, Element. It intends to be posi-tioned closely to an upper upscale brand,Westin. Nylo is another newlylaunched hotel brand in a boutique hotel concept. Nylo hotels’ primarymarket segments are business travelers and weekend leisure guestsin their early 20s to mid 50s (Nylohotels, 2007). Nylo hotels feature24-hour restaurants, bars, libraries, business centers, and game rooms.Evidence suggests that independent hotels have lost ground in mar-

ket share to branded hotels. A study by Forgacs (2003) showed thatbranded hotels in the United States accounted for more than 70% ofthe total room supply in 2000, as compared to approximately 61% in1990. Forgacs (2003) also revealed that branded hotels in the UnitedStates led by American hotel chains has spread to all over the worldand dominate the total room supply; more than 70% of the hotels in

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Branding, brand equity, and brand extensions

the United States have a brand name relative to 40% in Canada, 25% inEurope, and approximately 10% in the rest of the world. The significantincrease is attributed to the benefits associated with branding. Previousresearch disclosed that a majority of business and leisure travelers pre-ferred to stay at branded hotels rather than at ‘unflagged’ operations(Yesawich, 1996). Hotel guests perceive relatively lower risk when theychoose an internationally well-recognized brand than when choosingan independent hotel. Compared to independent operations, brandedhotels have competitive advantages in trusted brand names, sophisti-cated revenue management system, and frequent guest programs. Inaddition, obtaining financing for a branded hotel is much easier thanfor an independent hotel (O’Neil and Xiao, 2006). Lending institutionsare generous in financing a hotel project affiliated with an internation-ally recognized brand. Keeling (2001), as reported in O’Neil and Xiao(2006), stated that obtaining financing for an unflagged hotel, however,is a challenge owing to more strict underwriting criteria and higherinterest rates.As in the lodging industry, building and managing brands has

become a main focus of restaurant brand managers and marketers.Many restaurants are restructuring their corporate missions to reflectbranding orientation rather than product orientation (Muller, 1998).Siguaw et al. (1999) argued that developing a clearly defined brand per-sonality for quick-service and casual dining restaurants is an overridinggoal of restaurant brand managers. They maintain that unique brandpersonality can serve as an effective vehicle by which to distinguishone restaurant brand from another. Njite et al. (in press) studied howconsumers perceive restaurant brands and explored to identify branddimensions specifically attributed to fine dining restaurants. They alsoinvestigated the extent to which these restaurant brand associationsare prioritized in preference among fine dining restaurants.Branding has recently started to be considered one of the top issues

and challenges facing the tourism industry. It was not until 1990sthat branding as a concept in tourism destination marketing starteddrawing attention from tourism practitioners (e.g., top mangers of des-tination management organizations) and academics (Blain et al., 2005).Ritchie and Ritchie (1998) define destination brand as: ‘a name, symbol,logo, word, mark or other graphic that both identifies and differenti-ates the destination; furthermore, it conveys the promise of memorabletravel experience that is uniquely associated with the destination; italso serves to consolidate and reinforce the recollection of pleasurablememories of the destination experience’ (Goeldner et al., 2000, p. 653).Despite significant works about branding as a concept in tourism des-tination marketing, research on destination branding is relatively newand more is needed to further implement the concept.The rest of this chapter is structured as follows. Section 2, back-

ground, starts with basic definitions of popular terms in the brand

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literature: branding, brand equity, brand extension, and co-branding.The benefits and pitfalls of using brand extensions and co-brandingstrategies in the hotel and restaurant industry are described. Three dif-ferent approaches to brand equity measurement and review of previoushospitality and tourism studies follow. Section 3, application, presentshospitality firms ranked among the top 100 global brands. It illus-trates the case of hotel and restaurant companies that have successfullyadopted brand management strategies. Section 4 describes suggesteddirections for future research, followed by a concluding section.

Definitions

Branding

Farquhar (1989, p. 24) defines brand as ‘a name, symbol, logo, or markthat enhances the value of a product beyond its functional value.’Kotler et al. (2005, p. 315) refers to a brand as ‘a name, term, sign,symbol, design, or a combination of these elements that is intendedto identify the goods or services of the seller and differentiate themfrom competitors.’ Kotler et al. (2005, p. 315) define brand mark as ‘theelements of the brand that cannot be articulated (e.g., a symbol, design,or unique color or lettering).’ MSH Marketing Group (2006) definesbranding as a marketing function that identifies products and theirsource and differentiates them from all other products. Jaffe Associates(2006) state that branding is important for consumer decision-making,as it provides a road map to identifying professional services with highvalue. The more differentiated the brand, the less likely the customerwill switch to a substitute.Examples of brand are Marriott, Burger King, TGI Friday’s, KFC,

and Wendy’s. Some examples of brand mark are Marriott’s M, BurgerKing’s English king, TGI Friday’s red-and-white stripes, KFC’s ColonelSanders, and Wendy’s country girl (a daughter of the founder).A trademark is a legal designation to which the owner has exclusiverights for the brand or part of the brand.Kotler et al. (2005) describe five desirable characteristics of a brand

name:

1. brand name should deliver the qualities and benefits of the productor service;

2. it must be easy to recognize, recall, and articulate;3. it should be unique;4. in order to be a global brand, brand name should be easily and

positively interpreted into foreign languages;5. brand name may be legally protected under the trademark, patent,

and/or copyright laws.

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Brand equity

Key definitions of brand equity are summarized below. Aaker (1991,p. 15) stated that brand equity is ‘A set of brand assets and liabilitieslinked to a brand, its name and symbol, that adds to or subtract fromthe value provided by a product or service to a firm and/or to the firm’scustomers.’ Blackston (1995) defined brand equity as brand value andbrand meaning, where brand meaning implies brand saliency, brandassociations, and brand personality and brand value is the outcome ofmanaging the brand meaning. Keller (1993, p. 2) defined brand equityas ‘the differential effect of brand knowledge on consumer responseto the marketing of the brand.’ Brand knowledge consists of brandnodes in memory to which a variety of associations are linked. The corecomponents of brand knowledge are brand awareness, brand favora-bility, and strengths and uniqueness of the brand associations in theconsumer’s memory.An initial step to building a company’s brand equity is to ensure that

the consumer is well aware of the brand and holds some favorable,strong, and unique brand image in memory (Keller, 1993). Based onKeller’s (1993) definition of customer-based brand equity, Lassar et al.(1995) describe five important characteristics in defining brand equity.

First, brand equity refers to consumer perceptions rather than objective indi-cators. Second, brand equity refers to a global value associated with a brand.Third, the global value associated with the brand stems from the brand nameand physical aspects of the brand. Fourth, brand equity is not absolute butrelative to competition. Finally, brand equity positively influences financial per-formance.

(pp. 12–13)

According to Aaker (1991), brand equity provides value to cus-tomers by enhancing their interpretation and processing of information,increasing confidence in the purchase decision, and raising the level ofsatisfaction. Brand equity also provides value to the firm by enhancingefficiency and effectiveness of marketing programs, prices and profits,brand extensions, trade leverage, and competitive advantage.

Brand extension

Brand extension refers to ‘the use of well-recognized brand names toenter new product categories or classes’ (Keller and Aaker, 1992, p. 35).VentureRepublic (2006), a leading branding strategy firm, definesbrand extension as the application of a brand beyond its initial rangeof products, or outside of its category. This becomes possible when thebrand image and attributes have contributed to a perception with theconsumer/user, where the brand and not the product is the decisiondriver. A brand extension strategy can be used when a firm leverages a

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well-known brand name to introduce a new product or service. A newbrand created from an existing brand through such a brand extensionis a sub-brand or baby brand. The parent brand is an existing brandthat gives birth to a new brand extension (Lee and Widdows, 2007).

Co-branding

Brand equity can be leveraged via co-branding and brand alliance(Kotler et al., 2005). Although co-branding has existed for many years,the concept has not been widely accepted as a popular strategy forservice marketing until the 1990s (Khan, 1999). Boone (1997, p. 34)defines co-branding as ‘the pairing of two or more recognized brandswithin one space.’ The benefit of co-branding is ‘that several differentbrands can command more power through customer awareness andtraffic than can a single brand-name operation (e.g., a restaurant orhotel by itself) or an independent, “no name” operation.’ (Boone, 1997,p. 34). Stewart (1995) defines co-branding as multiple business partnerscollaborating in promotion, technology development, and production,while maintaining their independence as a separate brand.

Benefits and pitfalls of branding, brand extension,and co-branding strategies

Dorsey (1994), as reported in Morrison (1996, p. 262) summarizes thebenefits of branding for both customers and companies (i.e., serviceproviders). The benefits to customers are:

1. it helps customers assess quality of products or service, particularly,if customers are not able to judge them;

2. it aids in reducing customers’ perceived risk of purchase;3. customers are willing to try the branded concept due to their higher

acceptance for the established product or service; and4. it helps reduce the search time and cost needed for purchase.

The benefits of branding to the service provider are that it:

1. facilitates market segmentation by creating tailored images;2. facilitates promotional efforts;3. gives the company the potential to attract customers who are willing

to pay a premium for the brand;4. enhances the firm’s image, if their brands are successful;5. assists in cultivating brand loyalty and stabilizing market share; and6. reduces launching costs of a new product or service.

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Kotler et al. (2005) mentioned that economy of scale is an impor-tant condition for building a strong brand. The examples of cost sav-ings that branded hospitality operations could accomplish from theeconomies of scale include reduced promotional costs, lower centralreservation system costs, purchasing economies, and oftentimes advan-tageous financing packages.Benefits of a brand extension are also summarized here. First,

when executed successfully, time and promotional costs of a newlylaunched concept (i.e., an extended brand or concept) are signifi-cantly reduced. Second, the newly extended brand will draw quickercustomer awareness and willingness to adopt the product than anunfamiliar brand. Third, consumers perceive lower risks with a newconcept if it carries a familiar brand name. Fourth, customers asso-ciate the quality of the well-known parent brand with the newlylaunched brand and are more likely to trust the new concept. Thus,brand extension allows higher success rates when launching a newconcept.Brand managers should understand that brand is one of the most

valuable assets and it needs to be managed with great caution if theychoose to extend the brand. Brand managers should ensure that brandextension is based on consumer needs rather than brand developers’perspective. Attracting new users to the brand is one of the advantagesof brand extension but brand developers should be cautious enough toretain existing customers as well. Keller and Sood (2003, p. 12) cautionthat ‘brand extension could be a double-edged sword.’ A well-managedbrand not only increases profit, but also strengthens brand meaningand brand equity. However, poorly-executed brand extensions will bea risky venture cannibalizing the sales of the parent brand and causinga considerable risk of brand equity dilution. If the extended brands donot fit with the original personality of the parent brand, the focal pointof the parent brand’s personality might get distorted in the minds ofthe consumers. Aaker (1990, pp. 50–52) delineates the pitfalls of brandextensions:

When a brand name is extended just to offer recognition, credibility, and aquality association, there is oftentimes a significant risk that, even though ini-tially successful, a brand extension may be susceptible to competition. Exten-sions should improve the core brand, but there is a risk that an extensioncould arouse negative attribute association. The extension must fit the brand;a meaningful association that is common to the brand and the extension canprovide the basis of fit. An extension usually will create new brand associa-tions, some of which can hurt the brand. The brand association created bythe extension can also blur a sharp image. Possibly, the worst potential out-come of a brand extension is a foregone opportunity to create new brandequity.

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Yip (2005) also mentioned the challenges of adopting a co-brandingstrategy:

Adopting a co-branding strategy in the hospitality industry is not easy and[it is] complex. One of the primary weaknesses of implementing a co-brandingstrategy is potential introduction of new variables that can complicate dailyoperations. Hotel management teams have to ensure that partnering with abranded food and beverage, for example, will not result in direct competi-tion with the hotel’s existing in-house food and beverage services; rather, thecoalition should complement the hotel’s established amenities. Other chal-lenges include, but are not limited to: negotiating monetary commitment andupfront investment between the two parties; the fear of damaging brand rep-utation or of experiencing a decrease in quality levels during the term of thealliance; and the concern of collaborating with the wrong brand. Many exam-ples of failed alliances have been the result of miscommunication between thepartners.

Dimensions of brand equity

Within marketing research, operationalization of customer-basedbrand equity is generally categorized into two types (Cobb-Walgrenet al., 1995; Yoo and Donthu, 2001): consumer perception (brand aware-ness, brand associations, perceived quality) and consumer behavior(brand loyalty, willingness to pay a high price). Brand equity is oper-ationalized by Lassar et al. (1995, p. 13) as ‘the enhancement in theperceived utility and desirability a brand name confers on a product.’According to them, customer-based brand equity indicates only percep-tual dimensions, excluding behavioral or attitudinal dimension such asloyalty or usage intention. Lassar et al. (1995) also developed a scale tomeasure customer-based brand equity. This scale consists of the fiveunderlying dimensions of brand equity: performance, social image,value, trustworthiness, and attachment.Aaker (1991, 1996b) proposed four components of brand equity –

perceived quality, brand awareness, brand image (association), andbrand loyalty – and his conceptualization has been widely accepted andemployed by many scholars (Keller, 1993; Motameni and Shahrokhi,1998; Low and Lamb, 2000; Prasad and Dev, 2000; Yoo and Donthu,2001). Each component is discussed briefly below.

Perceived quality

Perceived quality is ‘the customer’s judgment about a product or ser-vice’s overall excellence or superiority’ (Zeithaml 1988, p. 3). It is basedon the consumer’s subjective evaluation of a product or service quality.

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Product’s or service’s perceived quality is frequently used as a strategicinstrument by a firm. Yoo et al. (2000) stated:

High perceived quality means that, through the long-term experience related tothe brand, consumers recognize the differentiation and superiority of the brand.Zeithaml [1988] identifies perceived quality as a component of brand value;therefore, high perceived quality would drive a consumer to choose the brandrather than other competing brands. Therefore, to the degree that brand qualityis perceived by consumers, the enhancement level brand equity value will bedecided.

(p. 197)

Brand awareness

Brand awareness is ‘the ability for a customer to recognize or recallthat a brand is a member of a certain product category’ (Aaker 1991,p. 91). Even if consumers are fully aware of a specific brand, it doesnot necessarily mean they prefer the brand, attach a high value toit, or associate any superior attributes to the brand; it just refers torecognizing the brand and identifying it under different conditions.Awareness can affect perceptions and attitudes, and it may drive brandchoice and loyalty. Awareness has several levels such as unawarenessof the brand, brand recognition, brand recall, and the top-of-mindbrand. Brand recognition relates to the consumer’s ability to confirmprior exposure to the brand as a cue (e.g., Have you heard about ClubMed?). Brand recall relates to the consumer’s ability to retrieve thebrand when given a product category as a cue (e.g., What brands ofpizza restaurants can you recall?). Brand recall reflects more correctlya brand’s position in the market because it requires that consumersgenerate the brand frommemory. The top-of-the mind brand is the firstnamed brand in a recall test. There is no doubt that greater awarenessof the brand is the major element driving brand equity.

Brand associations or brand image

Aaker (1991, p. 147) defines brand associations as ‘anything that islinked in memory to a brand.’ Brand associations imply not only theimpression of individual brand but also the image of the company thatoffers the product or service. It also contains the concept of value thatcustomers may confer a brand and brand personality as well. Therefore,it is possible to create brand associations, although the customer doesnot have direct experience with the product or service. A link to a brandwill be stronger when it is based on frequent experiences or exposures.When one association is easily linked to additional associations, theformer gets stronger. For example, McDonald’s is strongly linked to

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various images – the yellow arch of character ‘M’, Ronald McDonald ofDisney World, children, fun, Big Mac, and so on. Keller (1998) definesbrand associations as informational nodes connected to the brand nodein memory that holds the meaning of the brand for consumers. Theseassociations contain perceptions of brand quality and attitudes towardthe brand. Brand associations are useful to marketers. Marketers usebrand associations to differentiate, position, and extend brands, as wellas to create positive attitudes and feelings toward a brand and tosuggest attributes or benefits of purchasing or using a specific brand(Aaker, 1991).Brand image is a set of brand associations held in consumer mem-

ory. Keller (1993, p. 3) defined brand image as ‘perceptions about abrand as reflected by the brand associations held in consumer memory.’Keller (1998) and Aaker (1991) postulate that consumer perception of abrand is a multi-dimensional concept. Different types of brand associa-tions making up brand image include product-related or non-product-related attributes, functional, experiential, or symbolic benefits, andoverall brand attitudes. Some research has concentrated on productattributes or benefits. Aaker and Stayman (1990) investigated whethertwo different beer brands had invoked different associations to con-sumers. The findings indicated that one brand was strongly associatedwith ‘warm’ and ‘friendly’ dimensions, while the other was evaluatedhigher as being ‘healthy’ and ‘wholesome’.These associations can vary according to their favorability, strength,

and uniqueness. High levels of brand awareness and a positive (favor-able, strong, and unique brand associations) brand image shouldincrease the probability of brand choice, as well as enhance consumerloyalty and reduce vulnerability to competitors’ promotional activities.A positive brand image also has specific implication for the pricing,distribution, and promotion activities related to branding (Keller, 1993).

Brand loyalty

Brand loyalty is defined as ‘the attachment that a customer has to abrand’ (Aaker, 1991, p. 65). Aaker (1991) suggests that brand equityrelies on the number of people who patronize the brand. Zeithaml andBitner (2002, p. 49) describe factors affecting brand loyalty: ‘the degreeto which consumers are committed to particular brands of goods orservices relies upon the four factors – switching cost, the availabilityof substitute, the perceived risk associated with the purchase, and theprevious satisfaction level.’Odin et al. (2001) propose the level of sensitivity to differentiate

loyalty from inertia. In other terms, a repeat purchasing behavior underconditions of strong sensitivity will be considered as brand loyalty; aconsumer who tends to repurchase the same brand and who attaches

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great importance to brands of his choice is said to be brand loyal. Bycontrast, a repeat purchasing behavior under conditions of weak brandsensitivity is considered as purchase inertia. In this case, the consumerdoes not attach any importance to the brand of the purchased productor service. The consumer is not able to distinguish the brand from otheralternative brands.

Approaches to measuring brand equity

Understanding how to measure brand equity is an important issuefacing hospitality brand managers. The brand equity has primarilyfocused on exploring customer-based brand equity. This chapterextends the focus to include two additional perspectives: financial andcomprehensive.

Customer-based aspect

According to Aaker (1991), brand equity is a complex concept com-prised of brand loyalty, brand awareness, perceived quality, brandassociations, and other proprietary assets. Yoo and Donthu (2001)developed a multi-dimensional consumer-based brand equity scale(MBE) drawn from Aaker’s (1991) and Keller’s (1993) conceptualiza-tions. They postulate that brand equity can be measured by fourdimensions: brand loyalty, brand awareness, perceived quality, andbrand associations. However, their findings suggest that consumer-based brand equity scale must be measured with three dimensions:brand loyalty, perceived quality, and brand awareness/associations.Total Research (1998), acquired by HI Europe in 2002, developed

EquiTrend, a measure based on a small set of simple, yet powerful,questions. The EquiTrend measure is based on three dimensions ofbrand equity. The first is salience, the percentage of respondents whohave an opinion about the brand. The second, perceived quality, is atthe heart of EquiTrend. Quality is measured on an 11-point scale thatranges from ‘outstanding’ to ‘unacceptable.’ The third, user satisfaction,is the average quality rating a brand receives among consumers whouse the brand most often. Analysis of the EquiTrend data has shownthat perceived quality is associated with premium price and usage rate.When a perceived quality rating goes down, so does the usage.Young and Rubicam (Y&R), a major global advertising agency, mea-

sured brand equity of 450 global brands and more than 8,000 localbrands in 24 countries. The measure is named as the Brand Asset Val-uator. Each brand was estimated through a questionnaire made up of32 items, which included four sets of measures. Y&R postulates thatbrands are built sequentially along the four dimensions – differentia-tion, relevance, esteem, and knowledge.

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Financial aspect

The financial viewpoint aims to determine a brand’s valuation forpurposes of licensing agreements or acquisition decisions. It is basedon the incremental discounted future cash flows that would result froma branded product’s revenue over the revenue from an unbrandedproduct (Simon and Sullivan, 1993). The asset representing the brandis recorded in the company’s balance sheet. The financially-fair marketvalue of a company is based on its tangible and intangible assets’ abilityto generate cash flow (Simon and Sullivan, 1993). The tangible assetsconsist of (1) property, plant, and equipment, (2) current assets – cashequivalent, inventories, and marketable securities, and (3) investmentsand stocks and long-term bonds. Intangible assets include patents,trademarks, franchises, R&D, good will, and brand equity (Simon andSullivan, 1993). The estimation method extracts the value of brandequity from the value of the firm’s intangible assets by first breakingdown the value of a firm’s total financial market value into tangible andintangible assets and then carving brand equity out from the intangibleassets. In other words, the value of intangible assets can be calculatedby subtracting the value of its tangible assets from the market value of acompany (Simon and Sullivan, 1993). Thus, brand value of a companycan be derived as the market value (stock price × number of shares)minus its tangible and the remaining intangible assets.Let us try to estimate the brand value of Marriott International

as of December 2005. The total market value (capitalization) wasapproximately $18.5 billion; tangible assets were estimated to beabout $15.5 billion and the remaining intangible assets were worth$1.4 billion. The brand value of Marriott can be calculated from marketvalue ($18.5 billion) minus tangible ($15.5 billion) and its remainingintangible assets ($1.4 billion). Its brand value, thus, was approximately$1.6 billion. Brand value of $1.6 billion can also be derived by simplysubtracting its remaining intangible assets of $1.4 billion (e.g., goodwill,franchises) from its total intangible assets of $3.0 billion.

Comprehensive aspect

Lastly, the comprehensive aspect of measuring brand equity incorpo-rates both customer-based brand equity and financial brand equity.This method has appeared to make up for the insufficiencies that mayexist when only one of the two techniques is emphasized. Dyson et al.(1996), for instance, adopted a survey approach designed to place afinance-related value on the consumer-based equity of brand imagesand associations. Motameni and Shahrokhi (1998) suggested globalbrand equity (GBE) valuations, which combine brand equity from amarketing viewpoint and brand equity from a financial aspect. GBEcan be computed by simply multiplying the brand’s net earnings by the

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brand’s multiple. The brand’s net earnings, which are based on a finan-cial approach, are the incremental profit of a branded product over anunbranded product. In contrast, the brand multiple is derived frombrand strength, which will be determined based on a multiple-stepprocess using an in-depth-assessment consumer survey and utilizinga combination of techniques to measure brand equity (Motameni andShahrokhi, 1998). A more detailed explanation as to how to measurebrand equity in marketing practices will be provided in the next section.Financial World uses one of the most publicized financial methods

in its annual listing of worldwide brand valuation (Ourusoff, 1993).Financial World’s formula computes net brand-related earnings andassigns a multiple based on brand strength. Obviously, the strongerthe brand, the higher the multiple applied to profits. Brand strengthrefers to a combination of leadership, stability, trading environment,internationality, ongoing direction, communication support, and legalprotection. The fact that the full value of brand-owning companies wasneither explicitly shown in the accounts nor always reflected in thestock market value led to a reappraisal of the importance of intangibleassets in general, and brands in particular. The estimation techniqueis based on a discounted cash flow (DCF) analysis of forecasted incre-mental cash flows earned as a result of owning a brand – the brand’scontribution to the business. DCF analysis is a valuation method usedto estimate the brand value of any company. DCF analysis uses futurefree cash flow projections and discounts them to arrive at a presentvalue, which is used as a proxy for brand value.For example, let us attempt to estimate the brand value of Marriott by

using DCF analysis. First of all, future cash flow generated from owningmultiple brands should be estimated. We need to project the future15–20 year cash flow streams and discount them to come up with a sumof the present value of each future cash flow stream, which is equivalentto brand value. The projection period depends on the longevity of thebrand. Suppose the brand manager of Courtyard by Marriott predictsthat future cash flow expected from owning the well-established hotelbrand will be as given below – a mixed stream of cash flows for15 years. Also suppose that the discount rate (weighted average cost ofcapital) is 7%. The brand value today of Courtyard by Marriott shouldequal the sum of present value of all future cash flow received fromowning the brand. Table 4.1 illustrates how the total brand value of$308 million is derived with the given 15 year future cash flow streams.Depending on the stakeholders, a different method may be adopted

to measure brand equity. For example, financial institutions, bankers,and merger and acquisition specialists are more likely to see the equityvalue from a financial perspective. However, hospitality marketers,brand management team, and managers are more likely to find thata consumer-based approach is more useful for their decision-making,than the financial approach.

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Table 4.1 Discount cash flow analysis

Year Cash flow(in millions)

Discountfactor (7%)

Presentvalue (PV)

1 25�0 0�935 23�362 26�3 0�873 22�933 27�6 0�816 22�504 28�9 0�763 22�085 30�4 0�713 21�676 31�9 0�666 21�267 33�5 0�623 20�868 35�2 0�582 20�479 36�9 0�544 20�09

10 38�8 0�508 19�7211 40�7 0�475 19�3512 42�8 0�444 18�9913 44�9 0�415 18�6314 47�1 0�388 18�2815 49�5 0�362 17�94

Sum of PV 308�13

Table 4.2 summarizes previous research on brand equity fromcustomer-based, financial, comprehensive, and consulting companies’institutional research.

Table 4.2 Summary of past research on brand equity

Researchers Concept Measurement

Customer-based aspectAaker (1991, 1996b) Brand awareness

Brand loyaltyPerceived qualityBrand associations

Perceptual and behavioralConceptualization

Srivastava andShocker (1991)

Brand strength Brand strength (customers’perception and behavior) +Fit = Brand value (financialoutcome)

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Table 4.2 (Continued)


Keller (1993, 2001) Brand knowledge Brand knowledge = Brandawareness + Brand image

Blackston (1995) Brand meaning Brand relationshipsmodel: Objective Brand(personality characteristics,brand image) + SubjectiveBrand (brand attitude)

Kamakura and Russell(1993)

Brand value Brand Value = TangibleValue + Intangible ValueSegmentwise logit modelon single-source scannerpanel data

Swait et al. (1993) Total utility Equalization Pricemeasuring

Park and Srinivasan(1994)

Difference between overallpreference and preferenceon the basis of objectivelymeasured attribute levels

Brand Equity = Attributebased + Non-attributebased

Francois andMaclachlan (1995)

Brand strength Intrinsic brand strengthExtrinsic brand strength

Lassar et al. (1995) PerformanceSocial imageCommitmentValueTrustworthiness

Evaluated only perceptualdimensionsDiscovered a halo effectacross dimensions of brandequity

Agarwal and Rao(1996)

Overall qualityChoice intention

Brand perception/brandpreference/brand choiceparadigm

Yoo & Donthu (2001) Brand loyaltyBrandawareness/associations

Validating Aaker’sconceptualization

Cobb-Walgren et al.(1995)

Brand awarenessPerceived qualityBrand associations

Relationship with brandpreference and usageintentions

Prasad and Dev (2000) Brand performanceBrand awareness

Hotel brand equity index =Satisfaction + Returnintent + Value perception +Brand preference + Brandawareness

(Continued )

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Table 4.2 (Continued)


Kim and Kim (2004) Brand loyaltyPerceived qualityBrand awarenessBrand image

Relationship between fourcomponents of brand equityand restaurant firms’performance

Atilgan et al. (2005) Brand loyaltyPerceived qualityBrand awarenessBrand association

Four determinants of overallbrand equity in the beverageindustry

Kim and Kim (2005) Brand loyaltyPerceived qualityBrand awarenessBrand image

Relationship between brandequity and firms’ financialperformance in luxury hotelsand chain restaurants.

Financial aspectSimon and Sullivan(1993)

Incremental cash flowswhich accrue to brandedproducts

Brand equity = Intangibleassets – (Nonbrand factors+ Anticompetitive industrystructure)

Comprehensive aspectFarquhar (1989) Added value with which a

given brand endows aproduct

Respective evaluationon firm’s, trade’s, andconsumer’s perspective

Dyson et al. (1996) Brand loyaltyBrand attitude

Consumer Value model:Proportion of expenditure ×Weight of consumption

Motameni andShahrokhi (1998)

Global Brand Equity(GBE)

Brand strength (customer,competitive, globalpotency) × Brand netearnings

Institutional ResearchAGB Taylor Nelson Consumers’ association

with a particular faith(Brand Vision)

Total Research Brand salience, perceivedquality and user satisfaction(EquiTrend)

Millward Brown Brand loyalty (BranDynamic)

Young & Lubicom Brand stature and brandstrength (Brand AssetValuator)

Source: Reprinted from Tourism Management, 26, Kim, H and Kim, W. G. (2004). The relationshipbetween brand equity and firms’ performance in luxury hotels and chain restaurants, p. 553, Adaptedby permission with Elsevier.

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Brand equity research in the hospitality industry

There is relatively little research focused on the consumer-based equityof service brands (Smith, 1991). Muller and Woods (1994) emphasizedbrand management rather than product management in the restaurantindustry. Muller (1998) recommended three major issues that a servicebrand should concentrate on in order to build equity and acceptancein the marketplace: high quality products and services, execution ofservice delivery, and a symbolic and evocative image. He insisted thatthrough the combination of these three fundamentals in restaurant-brand development, the opportunity would come for charging a pricepremium and enhancing customer loyalty.Davis (1995) showed an excellent example of a hospitality company

that charges price premiums. He reported that Starbucks was successfulin providing quality, consistency, and the image of authenticity totheir customers. It permitted Starbucks to price an average middle-sizecoffee at approximately $1.60, which is at least 60 cents more than asimilar size coffee available at other stores (Leiser, 2003).Another study by Cobb-Walgren et al. (1995) focused on a consumer-

based, perceptual measure of brand equity. The study employed theperceptual components of Aaker’s (1991) definition of brand equity:brand awareness, brand associations, and perceived quality. HolidayInn and Howard Johnson were studied to examine the impact of brandequity on consumer preferences and purchase intentions. They foundthat, of the five features examined, brand name was ranked fourthfollowing price, bed size, and availability of pool. Brand equity (i.e.,preference) of Holiday Inn was found to be approximately 10 timesgreater than that of Howard Johnson. After comparing Holiday Innand Howard Johnson, they discovered that the higher the promo-tion budget, the higher the value of brand equity. In addition, thehigher the brand equity, the higher the preference and purchaseintentions.Considering customers as source of all cash flow and resulting prof-

its, Prasad and Dev (2000) developed a customer-centric index of hotelbrand equity. This customer-centric brand equity index is a measurefor converting customers’ awareness of a brand and their view of thebrand’s performance into a numerical index. This is based on actualcustomer satisfaction data, intent to return, perception of the price–value relationship, brand preference, and top-of-mind awareness of thebrand.Kim and Kim (2004) examined the four underlying components

of brand equity: brand awareness, brand image, brand loyalty, andperceived quality. They confirmed that brand equity is a multi-dimensional concept comprised of the four elements. They investigatedhow the four dimensions influence quick-service restaurant (QSR)chains’ financial performance. Brand loyalty, which was proposed tobe an important element in QSR chains, did not show any significant

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impact on firms’ performance. Brand awareness, perceived quality,and brand image were found to be important dimensions that havesignificant influence on financial performance of QSR firms.Atilgan et al. (2005) generalized the customer-based brand equity

scale suggested by Yoo et al. (2000), in the context of the beverageindustry in Turkey. They operationalized the brand equity as thefour dimensions: perceived quality, brand loyalty, brand awareness,and brand associations. Their findings indicated that brand loyaltywas the most powerful dimension affecting brand equity. However,the other three dimensions including perceived quality, brand aware-ness, and brand association did not have a significant effect on brandequity.

Application

Implementation of branding, brand extension,and co-branding strategies

The Websites of tourism destinations have developed into importantbranding distribution channels. However, in the area of tourism desti-nation marketing, electronic branding has not received much attention(Lee et al., 2006). Furthermore, most US State Tourism Websites donot fully take advantage of the Web for building brand and enhancingtheir brand image as an attractive destination. Lee et al. (2006) ana-lyzed official tourismWebsites of 50 states and summarized the uniqueselling propositions (USPs) and positioning strategies of state tourismorganizations via a content analysis of slogans and the sites’ Web-based brand-building features. Their findings revealed that almost allthe states highlighted nature and culture/heritage. They also foundthat many of the states’ tourism bureaus were not fully taking advan-tage of their Web sites as promotional vehicles, owing to lack ofconsistency among the Web site elements. These findings could helpdevelop strategies for web-based destination marketing and destina-tion branding.Previous research has confirmed that tourism destination brand-

ing improves destination image among tourists (Blain et al., 2005).The 1998 Annual Travel and Tourism Research Association (TTRA)conference presented destination branding success cases: New York,Florida, Australia, Canada, Louisiana, Missouri, Texas, and Oregon.Blain et al. (2005) conducted a survey of 409 senior executives of des-tination management organizations (DMOs) who were the membersof IACVB (International Association Convention and Visitor Bureau).The primary purpose of this study was to explore the current destina-tion branding practices among DMOs. They found that the destinationimage and message resonated from the Web should be consistent andbe incorporated throughout different DMO members and activities.

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DMOs should make sure that the logo delivers a distinct destinationimage to offer a USP. Their findings show that top managers of DMOhave a good conceptual understanding of destination branding andhave practiced the concept to a certain degree. However, their applica-tions were limited to selective perspectives of the concept such as logodesign and development.During the 1980s and 1990s, brand extensions have been the primary

expansion strategies for both hotel and restaurant firms. Brand exten-sion refers to using the leverage of a successful brand name in onecategory to initiate new or modified products in different categorieswithin the same market. The two most popular methods to leveragebrand equity are line extensions and category extensions. Line exten-sion is the usage of a well-known brand for a new product offered in thesame product category. Category extension is to extend an establishedbrand into a new product category or class (Aaker and Keller, 1990).A successful brand assists a company in introducing new product cat-egories. Since brand extension could decrease the risk perceived byconsumers and reduce promotion costs, hotel companies have adoptedit as their expansion vehicle during the 1980s and 1990s. For example,Marriott and Hilton have successfully adopted a line extension strat-egy to endorse the power of well-accepted brand identity to a numberof new concepts differentiated by market segment (Jiang et al., 2002).Aaker (1990) argued that the general perception of quality associatedwith a name was a primary element for a brand’s successful extension.Hotel brand managers may wonder whether many brands really

resonate in the minds of consumers. US hotel groups have adoptedbrand extensions as a vehicle to avoid loss of customers to compet-itive hotels and increase their market influence (Jiang et al., 2002).Global hotel firms have a large number of multi-brand portfolios tocater to highly fragmented market segments. Some hotel chains weresuccessful in positioning their brands distinctly from their competi-tion. Marriott’s aggressive expansion in the number of properties andsales revenue originated from its brand extension strategies that intro-duced eight different brands from its four core brands. For example,adding the ‘by Marriott’ name tag on affiliated brand names aidedMarriott in maintaining differentiation, reducing operational risks, lim-iting new-product introduction costs, and enhancing financial perfor-mance (Muller, 1998). Other major hotel companies have jumped onthe same bandwagon. A recent proliferation of newly introduced hotelbrands has created confusion amongst travelers. For example, travelersnow have more than 25 different brand choices when they want tostay at an extended-stay property. Thus, it is important for the hoteldevelopment team to thoroughly assess whether a brand extension willcreate new demands or erode existing demands for other brands.Starwood was the first hotel company to launch a category exten-

sion strategy by focusing on pillow and bed. Westin has developed

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its innovative bed called ‘Heavenly Bed.’ Its channel of distributionincludes its own catalogue on the Internet and At Home departmentsof 48 Nordstrom stores nationwide, and it is available by special orderat other stores. Its brand extension strategy turned out to be a greatsuccess boosting the hotel’s retail business (Lee and Widdows, 2007).The Pappas restaurant group originally built its reputation as

the best seafood supplier in the limited market areas of Houston,Dallas, Atlanta, Chicago, Denver and Phoenix. The Pappas’ conceptnow extends into a variety of food concepts: seafood, steakhouse,Mexican, and Greek. The Pappas has adopted product extensionstrategies and their baby brands embedded with the Pappas nameinclude Pappadeaux Seafood Kitchen, Pappas Seafood House, PappasBros. Steakhouse, Pappas Burger, Pappas Grill & Steakhouse, PappasBar-B-Q, Pappasito’s Cantina with Mexican cuisine, and Yia Yia Mary’sPappas Greek Kitchen.The Virgin Group, one of the most respected brands in the United

Kingdom, has become a global brand by successfully implementing acategory extension strategy. Originally focused on the music, movie,and game sectors, the Virgin Group has effectively extended intothe travel and tourism business. Its travel and tourism business nowincludes Virgin Atlantic Airways, Virgin Vacations, Virgin Holidays,Virgin Limited Edition (a luxury resort business), and Virgin Galactic(space tourism). Virgin is also involved in trains, finance, soft drinks,mobile phones, wines, publishing, and the cosmetics business, gener-ating approximately US$7.2 billion in total revenues in 2002.Berry (2000) suggests that brand developers rely on invention rather

than imitation to create a new brand concept:

Firms such as Starbucks and Midwest Express Airlines employ all of the toolsat their disposal to build a unique, integrated identity, including facilities design,service provider appearance, core service augmentation, advertising contentand style, and media selection. Starbucks could compress more tables andchairs into their restaurants, but doing so would damage what they are selling:a respite and a social experience. Because of its two-by-two configuration ofleather seats (instead of the more common three-by-three seating), MidwestExpress Airline’s economy service appears to be first class. Meal service withchina plates, cloth napkins, free wine or champagne, and freshly baked choco-late cookies reinforces the perception. The leather seats, meal service, andcookies are signature clues that enhance the core service and differentiate thebrand from others.

(p. 131)

Recently, hospitality and tourism firms have begun to understandthe importance of co-branding strategies (Lee et al., 2006). Increasingnumbers of restaurants, lodging firms, and theme parks have jointlyadopted co-branding strategies to achieve synergy (Young et al., 2001).These business partners often operate in the same space, share the

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customer’s information, and accomplish cross promotion of the brands(Boone, 1997). Many hotels faced deteriorating profit margin from foodand beverage operation. To overcome this challenge, some hotels andrestaurants initiated co-branding strategies. Country Inns’ co-brandingalliance with T.G.I. Friday’s was a win–win strategy for both brands.T.G.I. Friday’s achieved significant additional sales (15–20%) from hotelguests during their lunch and dinner business. Ramada partnered withBennigan’s, which allowed Bennigan’s to operate in Ramada hotels.Casper (1995) reported that the alliance of T.G.I. Friday’s with HolidayInn was successful, resulting in a significant revenue increase forboth brands. Upper upscale hotel brands such as Marriott and Hyattalso joined as co-branding partners with restaurant chains. Starbucksdecided to make a strategic alliance with Marriott and Hyatt to placea coffee shop inside the hotel by signing a long-term contract (Kotleret al., 2005). Pizza Hut signed a license agreement with Marriott in1989 which allowed Pizza Hut’s kiosk operations in lobbies of Marriotthotels (Littman, 1996).Sometimes hotel companies have formed strategic alliances with

companies that are engaged in totally unrelated businesses. For exam-ple, Econo Lodge partnered with Procter & Gamble’s Mr. Clean. Withspecial marketing efforts promoting this partnership, Econo Lodgereached out to hotel guests to deliver the message that the brand reallycared about cleanliness (Yip, 2005). According to Jensen and Pollack(1996), McDonald’s has made an agreement with Walt Disney to pro-mote Happy Meals that feature Disney movie characters.Howard Schultz, the founder of Starbucks, advises caution in lever-

aging brand equity in alliance with other companies. He states that‘there are significant opportunities to leverage the equity of the Star-bucks brand on all sorts of products and services, but we turn down99 percent of them even though they would create substantial short-term revenues and profits. These are matters that are not in thetextbook, but that are in your heart, about what we feel is right forStarbucks to be doing’ (Lippincott Mercer, 2007).

Global hospitality brands ranked

Interbrand, a British consulting group, annually ranks and providesthe values of the top 100 global brands. Interbrand’s formula is basedon the sum of the present value of future cash flows or earnings thatthe specific brand is expected to generate in the future. Among the top100 companies, the brand rankings and values of top hospitality andtourism firms in 2005 are, in the descending order, Walt Disney ranked7th with $26.4 billion, McDonald’s 8th with $26.0 billions, KFC 61stwith $5.1 billion, Pizza Hut 63rd with $4.9 billion, and Starbucks 99thwith $2.5 billion. Surprisingly, only three restaurant brands, but nolodging brands, were ranked within the top 100 global brands. Given

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the fact that hotel chains’ multiple brands have had global presencefor a long time, the disappointing fact clearly indicates that globalhotel firms need to manage their brands better to create higher brandequity values. One of the reasons why many hospitality brands are notlisted under top 100 brands is that some lodging firms like Marriottand Hilton were not big enough and did not reach the brand valuethreshold of $2.7 billion. Interbrand also explained why no airlinecompanies were included in the list in spite of their large revenue:

There has evidently been large investment in airline brands and many of themare international brands too, but they are still operating in situations where thebrand plays only a marginal role. In most cases, the customer decides basedon airfare, route, schedule, corporate policy or frequent flyer points. The brandmay often have a significant influence when all these factors are at parity. Wehave assessed the brand value for airlines by using internal data to strip out theimpact of these other factors. However, it is difficult to assess the value reliablyfrom purely public information. The exception to this would be Virgin Airline,which is clearly a brand-driven proposition. However, as a private company, itis not possible to value that brand from public information.

(Interbrand, 2006)

Case examples

Lodging success story: Marriott international in brand portfoliomanagement

Lewis and Chambers (2000) report that Marriott International is one ofthe most successful hotel firms in extending their brands to adjacentmarkets or completely new markets. Marriott was able to distinguishits brands from those of competitors. They use Marriott as a successstory of brand extension and underscore the importance of positioningeach brand rather than the name. Pierce et al. (2002) described the suc-cess story of Marriott in managing brands successfully. According tothem, Marriott has excelled in brand extension with its 2,741 lodgingproperties boasting approximately 500,000 rooms in 68 countries asof year end 2005. While the hotel industry grew at less than 6% perannum during the 1990s, Marriott grew at more than 10%. In Addition,Marriott’s bottom line profitability grew at 18.4%, three points higherthan the average of the whole industry. Marriott’s success could beattributed to its sophisticated revenue management system and cen-tralization of purchasing (Pierce et al., 2002).There is no doubt that Marriott’s success originated from smart

brand portfolio managers who have successfully developed differenti-ated brands. During the early 1980s, the mid-priced hotel segment waspopulated by regional brands that many customers were unfamiliarwith. Marriott saw an opportunity to introduce a unique and appealing

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hotel concept named ‘Courtyard byMarriott.’ The new hotel brand wasdeveloped by conducting a large-scale consumer survey among busi-ness travelers who were their primary target market. The brand exten-sion allowed Marriott to leverage on its famous brand name withoutcreating expectations of the same product/service (Lewis and Cham-bers, 2000). The newly designed hotel concept was a great exampleof delivering effective product messages to its target market segment,business customers, in the late 1980s (Cai and Hobson, 2004). However,Cai and Hobson (2004) also report that as the mid-priced hotel segmenthas become crowded with new brands, it has become more difficult forCourtyard by Marriott to differentiate itself from competitive brands.The standards associated with Marriott attracted travelers who wereconcerned about the quality of unknown local chains or independentoperations. Since its launching in 1985, Courtyard by Marriott domi-nated the mid-scale segment, with more than 500 units in the UnitedStates. The same was done with the Fairfield Inn brand within theeconomy segment. At the upper end of the lodging spectrum, how-ever, Marriott realized that its brand portfolio could not offer an imageto entice affluent clienteles. Thus, Marriott acquired the Ritz-Carltonchain in 1995. The brand enjoyed a sparkling image among wealthycustomers with its service messages driven by its Golden Standardsand the well-knownmotto, ‘We are ladies and gentlemen serving ladiesand gentlemen’ (Cai and Hobson, 2004). Marriott continued to addeight distinct lodging brands to its four core brands. For example,TownePlace Suites by Marriott is linked through its identity to the corebrand, while others, such as Ritz-Carlton, are not. Marriott was able torealize the value from the brand acquisitions by applying its operatingexpertise to improve the financial bottom line and using its substan-tial cash flow to fund international expansion. Furthermore, Marriottwas successful in leveraging its existing strong brand equities in eachnewly developed or adopted brand. For example, Marriott groupshave three select-service brands (Fairfield Inn, SpringHill Suites, andCourtyard), two full-service (i.e., luxury) brands (Marriott hotels andRenaissance Residence), two deluxe brands (Ritz-Carlton and JW Mar-riott), four extended-stay brands (Residence Inn, TownePlace Suite,Marriott ExecuStay, Marriott Executive Apartments), and four time-share brands (Marriott Vacation Club, Grand Residences, Horizons,The Ritz-Carlton Club).

Restaurant success story: Chick-fil-A restaurant witha distinct brand personality

Berry (2000) also recommends that service firms can build strongbrands through conscious efforts to be differentiated from competitors

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and provide a unique brand personality. He offered Chick-fil-A as asuccess story in developing a QSR chain’s distinct brand personality:

Chick-fil-A has developed a distinctive brand personality to differentiate frommajor quick-service chicken fast food chains such as Kentucky Fried Chicken,Church’s Fried Chicken, and Popeye’s Chicken. Chick-fil-A’s creative promo-tional efforts created cows that recommended customers to consume morechicken than beef. The Chick-fil-A cows remind customers that they do not haveto select McDonald’s or Burger King and they can choose Chick-fil-A as anotheroption. The brand personality of Chick-fil-A is perceived as fun, humorous, anddifferentiated. The cows allow Chick-fil-A to establish a unique and person-able identity. Chick-fil-A’s branding originated from shopping mall food courts,the company’s unique distribution channel strategy. Inside the shopping mall,the company’s primary promotional strategy is to provide food-court customersvisually compelling options to a variety of fast-food eateries.

Chick-fil-A adopts inside-out marketing in its mall units. The independent Chick-fil-A operator is the principal marketer with the mandate to bring the store tolife as an advertising medium in order to leverage the latent marketing powerof the store front, counter area and menu boards, point-of sale (POS) displays,store layout, and the appearance and attitude of employees. McDonald’s, KFC,Burger King, Hardee’s, Pizza Hut, and Taco Bell have convincing reasons tospend a large portion of their budget on advertising. Chick-fil-A, with fewerunits, regional distribution, and a network of independent owners who financethe advertising, cannot afford to spend a lot of money on advertising like otherleading QSR chains. Establishing a unique, charming brand identity is one ofthe ways to compete effectively against competitive advertising.

(pp. 131–132)

Directions for future research

Due to the brand proliferation witnessed especially in the lodgingindustry, there is a growing importance of branding, brand equity, andbrand extension in the hospitality and tourism business. To addressthese issues, more theory development and empirical research are nec-essary for a better understanding of consumer-based brand equityin a variety of hospitality businesses. It is important for hospitalitymarketers to design a practical measurement of concepts. Despite therecent advances in measuring customer-based brand equity, hospital-ity researchers need to develop reliable multiple measures of brandawareness, brand association (i.e., image), brand loyalty, and perceivedquality. Different measures may be necessary to capture different char-acteristics of different segments of the hospitality industry. For exam-ple, a brand loyalty measure for luxury hotels may not be the same asthat for budget hotels.Besides measurement issues, further research is needed to examine

how brand equity as a whole or which components of brand equity arerelated to a company’s long-term relationships (e.g., trust, commitment,

• • • 110


reputation, and loyalty) with customers and eventually with the firm’sfinancial performance. Brand’s trust and commitment are known toexert a significant influence on the success of brand extension (Park andSrinivasan, 1994). It is important for hospitality researchers to prove theclear linkage among brand equity, long-term customer relationships,and the firm’s financial performance such as return on asset (ROA),return on equity (ROE), and stock returns. These findings will help thehospitality brand management team evaluate brand performance anddevelop effective branding strategies.Hitherto, most research has treated brands as operating in isolation

(Durme et al., 2003). Despite the claim that the customer’s attitudetoward a brand spills over to a partner’s brand (Simonin and Ruth,1998), little research has examined the influence of alliance partners onvalue creation of hospitality firms. Since there are so many alliancesamong hotels, restaurants, theme parks, airlines, and consumer prod-ucts, additional research on these topics is needed.O’Neil and Xiao (2006) reported that differences among parent com-

panies’ branding strategies may exert different effects on baby brands.They suggest that researchers examine how the branding strategies ofparent companies influence the baby brands’ market values. The WallStreet has started witnessing the evidence that brand may have animpact on the share value.Due to the explosion of new brands by chain hotels, future research

needs to address possible threats of cannibalization and brand equitydilution issues among baby brands. Brand management teams needto ask whether frequent business travelers are able to recognize somany different brand choices and differentiate one from another brand.Brand proliferation surely poses a serious issue of brand equity dilu-tion. Research is needed to conduct the cost–benefit analysis of addingadditional baby brands under the parent brand. Hotel developmentmanagement should ensure that the introduction of a new brand isjustified only if the benefits (e.g., attracting new customer groups andcreating new market niches) outweigh the costs (i.e., brand dilutionand cannibalization among baby brands) of launching a new brand.Destination branding has become a hot research topic in the tourism

literature. Blain et al. (2005) suggest that future research examine therelationship between the relationship management activities adoptedby DMOs and their outcomes: visitors’ revisit intention and their travelexpenditure. In addition, they suggest that future research comparegeneral tourism destination branding to branding in other hospital-ity segments (e.g., hotel, restaurant, and club). Further studies shouldalso develop a clear evaluation method to monitor the relationshipbetween DMOs’ promotional efforts and the performance outcome oftheir marketing activities.The research on branding in the hospitality industry is in its infancy

stage. More research is needed to answer many remaining questions

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regarding branding, brand equity, and brand extension. Some of thequestions awaiting research are:

• How can we measure brand equity of hospitality and tourism firms?• Do hospitality firms need to adopt measuring and monitoring brandequity as a core business strategy?

• Do customers and brand management teams in the hospitality indus-try perceive the exploding brand extension strategy as a threat canni-balizing the parent brand or as an opportunity to grow and diversifyinto different market segments?

• Does brand extension generate customer confusion concerning thequality of the new concept?

• What are the primary drivers of proliferating brand extension in thehospitality industry?

• How many travelers can recognize the difference of each lodgingbrand?

• How many hospitality brands face brand dilution problems?• Are continued brand extension strategies going to work in the lodg-ing industry?

• Do loyal customers for a specific parent brand prefer patronizingextended brands to choosing different brands?

• Does travelers’ hotel choice predominantly depend on the reputationof the brand or price/value perceptions?

• Is any specific segment (e.g., the extended-stay, mid-price) in thelodging industry already saturated with so many different brandsand how do we determine the point of saturation?

Future research in the travel and tourism area needs to explore themain drivers of tourism destination branding process. It is importantfor DMOs to understand the primary destination branding activitiesaffecting the enhancement of visitor loyalty and destination image.

Summary and conclusion

This chapter addressed the growing interest in branding, brand equity,and brand extension in the hospitality industry. The pros and cons ofleveraging brand equity of the parent brand were discussed. A suc-cessful brand extension is directly related to expansion and long-termsuccess of a hospitality firm. Brand managers should conduct a thor-ough cost–benefit analysis before making a brand extension decision.A growing number of foodservice, hotel chain, and tourism compa-nies are partnering with each other to accomplish synergy effects inmarketing. Strategic alliance decisions should be carefully made tomaximize the synergy. The definitions of the popular branding termswere provided. The chapter also identified four important dimensions

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of customer-based brand equity: brand awareness, brand loyalty, per-ceived quality, and brand image. These four dimensions of brandequity were fully explained. It was shown that brand equity could bemeasured numerically as well as from customers’ perceptions and atti-tudes. The previous literature related to measuring brand equity in thehospitality and tourism industry was thoroughly reviewed and sum-marized, with actual examples. Extant research in the area of branding,brand equity, and brand extension in general was thoroughly reviewedas well.Branding remains one of the hottest research topics in the hospital-

ity and tourism industry. Numerous hospitality firms have adoptedbrand extension as one of their expansion strategies. This topic is ofutmost importance to both hospitality practitioners and academicians,since they need additional insights into the issue. More conceptualresearch identifying brand equity, brand extension, and co-brandingis necessary to advance the knowledge base on branding, especiallyin the hospitality and tourism discipline. It would not be surprisingto see that most hospitality programs add a new course on brandmanagement in their curriculum in the next decade. In addition, morepractical applications in the areas of hotel, restaurant, theme park, club,convention center, and tourism organizations need to be reported inthe brand literature. Many tourism organizations such as conventionand visitors bureaus (CVBs) and state DMOs urgently need to knowbest practices and more innovative applications regarding destinationbranding.

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Handbook of Hospitality Marketing Management || Branding, brand equity, and brand extensions