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The Net Takeaway: Who Runs the Show?


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Who Runs the Show? · 04/17/2009 11:29 AM, Marketing

I was reading an article in the WSJ about how Starwoods is suing Hilton and one snippet piqued my interest:

Hotel companies like Starwood and Hilton often don’t own hotel buildings. Instead, they rely on investment groups that pay hotel-management companies to brand and operate the hotels. The details of those contracts, including the fee structures and terms, are different for every hotel company and are highly guarded. A hotel company’s ability to develop and sell owners on a brand can be worth hundreds of millions a year in contract fees.

I kind of knew this, but hadn’t really thought about it. I stay at the, say, Hilton, and their name is all over every inch of the hotel, but they don’t own it, nor are they responsible for it. In fact, a holding company “owns” it, and yet another company “manages” it.

I started thinking about all the ways that I’ve heard about brands not being really responsible for the service and experience they are attached to…

A story on NPR talked recently about John Madden retiring from football broadcasting, and discussed how he got heavily involved with the Electronic Arts games bearing his name: “Not content to simply endorse the product, Madden would meet with programmers each offseason to make the game as realistic as possible. “

“Simply endorse”? What does that mean? It implies that someone would sell their name to something, but have no cares as to the quality of the product? Why put your name and brand on it if you don’t care about how it meets your brand attributes for quality, style, substance, whatever? I applaud Madden (I don’t like football and even I like the Madden series) but have we gotten to a world where endorsing really means labeling?

We do know that endorse, as a word, implies more about putting personal reputation behind quality, veracity of claims, etc. If you aren’t really doing that, you are merely a spokesperson… or shill… or just figurehead. Perhaps we need new words instead of celebrity endorser?

I was in Miami and saw a soaring tower being built, with the name Trump all over it. I asked some locals if Trump ever came and visited the area, and they said that Trump just licensed his name and has nothing actually to do with the building.

It appears the developers licensed the name, appearance, and some design elements of the Trump empire (gaudy gold furnishings, etc.) But Trump doesn’t control or have any say in the building, how it’s priced or it’s quality, etc.

Maybe Trump should to talk to Mr. Madden.

Dolce and Gabbana are famous designers whose handbags can be over a thousand dollars but their watches are just a few hundred bucks, not much more expensive than a Swatch. Why? Because they license their name to a 3rd party manufacturer, while they actually make the purses themselves.

Now, I am not debating the merit of a purse costing more than a watch, but merely the relative price disparity. The D&G name makes a purse cost 5x more than a similar but still good bag from say Coach or Cole Haan, which hit $200. So, why don’t we see that for the watches? That is, most good watches from mid-tier brands (say, Tag Heuer) come in at $900 to $1200. So, why aren’t the higher end D&G watches at $5K or more?

One could say that the watch market is different than the accessories / fashion market, but jewelry works like any other accessory. Brand raises price, and people still buy $7000 quartz watches. D&G has the brand to get away with something like this… but of course, they don’t because they license.

By the way, who makes watches for high end fashion house Versace? Timex.

Across these examples, we start to see 2 issues:
1) A brand is getting watered down and tarnished by being licensed to other products with no care as to brand planks. If you are luxury, known for quality and high price points, why would you plop your name on a cheap product at a lower price point?


2) When you have multiple parties all operating under the auspices of one brand, diffusion of responsibility sets in. When I stay at Hilton and have a complaint, who can address it? Hilton corporate doesn’t actually run the hotel; they just license the name and do some “francisee checks” on a periodic basis. The management company is paid by the property owner to be profitable. The owner doesn’t even set foot in the hotel; they pay the management company. Who has the ultimate responsibility to meet the expectations of the brand? Well, Hilton does, and they’ve kneecapped themselves from being able to actually do anything about it by licensing.

Now, I won’t argue that franchising is a huge financial and business industry that works in many cases. The reason you see so many fast food places, one nearby every time you are hungry, is franchising. The rise of many national chains has been predicated on some aspect of franchising or 3rd party management, not just hotels.

But this middleman aspect, this separation of the brand from the actual “implementation” of the service and experience, continues to hobble brands. Like outsourcing customer care, like putting luxury names on cheap goods, like having a management company and investment house deliver the hotel experience, choosing to place your brand on products and experiences obligates you to make sure they are at the quality your brand demands.

If not, all those years of building up a brand can be destroyed in seconds when that “Samsonite” travel strap breaks open and spills your gear, or that “Duracell” flashlight switch bends and breaks after a single use.

If it seems to be the right thing to do for your brand, I won’t argue with success. And I know we are all desperate for any revenue. But your brand name is all you have at the end of the day when things go wrong (and things do go wrong; just look at youtube any day of the week to see a brand getting pranked or put in a bad light), so tarnishing it yourself early (beat the rush!) seems like a huge mistake. Instead, if you stand for quality in all that you do and put your name on, then you have a leg to stand on when things turn dark.

This goes for people, for companies, for product lines. Brand-extension, even when you control the production, may not always be wise (yes, Burger King Underwear, we are talking to you).

Look around you. Look at each brand you see in a day, and ask yourself: How much of that service/product/experience does the brand actually influence… and if it’s not very much, one could ask, is the brand actually worth paying for?

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  1. Brilliant article, couldn’t agree more with you

    EHW    Jul 7, 12:31 PM    #

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