The Moderating Role of Hotel Type on Advertising Expenditure Returns in Franchised Chains

Abstract

This study contributes to a deeper understanding of financial returns from the advertising of hospitality services. Specifically, we investigate how different types of franchised hotel outlets, each targeting a different customer segment, moderate the effects of various advertising expenditures on unit-level profitability. Our unique data set allows us to examine the impact of unit-level advertising expenditure allocations using line items from the profit and loss statements of more than 9,000 franchised U.S. hotel properties from 2007 to 2018. We consider the effects of investing in varied advertising activities, including the franchise advertising assessment, loyalty programs, local sales force, and local media advertising. As hypothesized, we find differential effects of advertising for outlets targeting different customer segments. Relative to traditional full-service hotels, those focused on destination-driven customer segments (i.e., destination hotels) and price-sensitive customer segments (i.e., limited-service hotels) benefit less from investing in the franchise advertising assessment, loyalty programs, and local media advertising. We also find that local sales force expenditures positively moderate performance for destination hotels. We highlight the moderating effects of hotel type as a key situational factor and provide more nuanced insight into managing the tension arising from advertising allocation at franchised hotel chains.