One of the most valuable assets a hotel has is its brand and the loyalty that brand can attract. When you walk into your favorite brand-name hotel, you expect to know what you're getting, whether you're at an extravagant five-star hotel or a budget-conscious stop.
That's why it may shock you to learn that in a recent Brand Keys survey of customer loyalty, midscale hotels like Marriott or Hilton Worldwide (NYSE:HLT) didn't rate highest among consumers. The winner was actually Best Western, the chain that arguably gives more freedom to its hotel owners to personalize their experience and keeps its customers coming back time and time again.
Value + personal touch = loyalty
What makes Best Western different from most other hotels is the fact that it isn't run as a top-down organization. Individual hotel owners are encouraged to operate independently, adding services customers may desire in their area, doing renovations on their own, and even branding individually under the Best Western brand.
This makes the look and feel of any Best Western different, but it means each hotel gets more personal attention from its owner than the average chain. It also means the owner has more personal incentive to maximize what a guest will pay for their experience.
As a result, instead of cutting corners that may result in a subpar experience at a chain hotel, Best Western keeps quality high because it's in their operator's best interest to treat their customers well. After all, it's their livelihood, not just Best Western's, that's at stake if quality slips.
While there are differences between every Best Western, there are similarities across the product line. In 2011, the company introduced three levels of hotels that were defined by features. Regular Best Westerns included basic items like a coffeemaker, free local calls, and free WiFi. Best Western Plus includes those amenities plus a fitness room, swimming pool, and business room. Best Western Premier adds onsite dining, higher-quality furnishings and towels, and HD TV.
By having three hotel types, Best Western is able to attract customers from a wider price point range.
Where high-end consumers want to stay
Beyond the midscale market, Brand Keys survey says that upscale customers are most loyal to the Hyatt Hotels (NYSE:H), while consumers rated Fairmont Hotels & Resorts highest in the luxury category.
Interestingly, on the stock market, Hyatt is worth less than a third of what Hilton is worth despite having the higher loyalty rating. Hyatt also trades at a lower price to sales ratio of 3.4 and P/E ratio of 27 than Hilton's ratios of 4.2 and 43, respectively. Given higher rates of customer satisfaction and an attractive valuation, maybe hotel consumers should consider Hyatt over Hilton with their investing dollars, too.
Building value in hotels
Loyalty matters in the hotel business, whether you're staying at a Best Western or a Fairmont Hotel. Building a reputation consumers can trust will bring them back again and again, and for investors, the hope is that a premium will come with that loyalty. That's something to consider when you're making an investment, because brands matter.
Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Hyatt Hotels. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.