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Choice Hotels update

Choice Hotels update. 1995: Landry refocuses Choice’s strategy: New mission "to be the market leader serving those who serve travelers“: new relationships with travel agents and other travel industry businesses Restaurant chains into Choice hotels

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Choice Hotels update

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  1. Choice Hotels update • 1995: Landry refocuses Choice’s strategy: • New mission "to be the market leader serving those who serve travelers“: new relationships with travel agents and other travel industry businesses • Restaurant chains into Choice hotels • Friendship phased out; focus on brands and differentiation • Innovations (among many others) • 1995: first major chain to go on www; • 1996: first to introduce geo-coding (find hotels close to points of interest) • Acquisitions/brands: 1996 Mainstay (extended-stay), 2005 Cambia Suites (upscale, all-suites), 2005 acquires Suburban Extended-Stay Hotel chain

  2. Choice Hotels takeaways: Economies of scope • What determines firms’ choice of horizontal (products) and vertical (value chain) scope? • There are many bad reasons to diversify, acquire other firms etc. • Next week! • Main good reason to look for: economies of scope (“synergies”)

  3. Sources of economies of scope • On cost side: doing A and B together is less costly than doing them separately • Use of common resources, e.g. reservation system • Umbrella branding • On benefit side: doing A and B together creates greater benefit for customers (=more business) than doing them separately • Convenient of choice and cross-selling • Lower search/transaction costs for buyers by bringing in partners

  4. Most economies of scope can be quantified! • In this case, enough detailed info to put a number on almost every source of economies of scope • Numbers are important because changes in strategy (e.g. marketing) often affect ability to benefit from economies of scope

  5. Scope and brand management/competitive environment • Here, tension between product differentiation (segmentation) and ability to benefit from cross-selling economies • Tension compounded by conflict of interest between Choice Hotels and franchisees (agency problem)

  6. Economies of scope and integration • The deeper question: when do synergies really require integration? • If synergies can be realized by contract, that’s usually easier • Integration becomes necessary when contracts are difficult to write/enforce • More next week!

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