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Choice Hotels International,1995 Corporate Strategy

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Choice Hotels International,1995

Choice Hotels International, by 1995 was the second largest hotel franchising company in United States. Choice had seven brands under its portfolio and they were clubbed into two groups, ranging from economy to luxury. The Sunburst group consisted of Clarion, Quality, Comfort, and Sleep properties. The Economy group consisted of Econo Lodge, Rodeway, and Friendship Properties. Choice Hotels International was known for its strategic direction on franchising and it initiated the product segmentation of hotels in the industry.

The lodging industry was facing slowdown till late 1980s and had just began to recover in early 1990s. Franchising became the basis for the lodging industry’s growth and corporate ownership declined. Major reason for franchising becoming the basis, was the need of standardized services and quality and moderate prices as people associate quality with brand. Franchising gave hoteliers a platform to make its presence felt throughout the country and grow fast. Franchisors could bring down the cost of maintenance of the hotel for the franchisee by negotiating for bulk purchases, financing the construction or renovation, and add extra revenue sources for the franchisee by forming an alliance with restaurants and firms. The quality of the property and the willingness of the franchisor to invest the renovation/construction determines the franchisees interest in the firm. For a corporate owner, capital investment in the real estate is to be made and they should bear the cost of hiring a full team to operations. But for corporate owner, they have the freedom to customize their hotel and bring about immediate changes as per the convenience. Most of the industries, who use franchises as mode alternate mode of ownership are likely to be service offering industries.

 Choice Hotels International gained corporate advantage using the reservations system technology. The booking made through CHOICE 2001, the state-of-the-art reservations system was more than that made by the franchisees directly, by averaged 26%. The reservation system helped Choice to forecast reservations volume more accurately and Choice was able to negotiate for sizeable discounts with telephone company for both local and long distances. Econo lodge increased the sales to 20% through the reservation system which was higher by 8% before the acquisition. Cross selling allowed Choice to retain its customer. $45 mn of the additional reservations sales were through cross selling of rooms. Cross selling was possible since Choice had large number of hotels under its name though their brand were different. Choice Hotels International spend 25% of the expenses on marketing and the franchisees provided the fund for marketing as per the policy. Choice was able to track the performances of the campaigns individually, to check their impact on reservations.

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