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May 9, 2014 Owner & Franchise Communications, Marketing

Increasing Fairfield Consumer Marketing Support

The Fairfield brand has Fairfield Marketingan opportunity to dramatically increase our consumer marketing efforts by redistributing the Technology Fund (Tech Fund) allocation of the System Marketing Fund (SMF) toward Fairfield marketing programs. These funds, approximately 10% of the SMF, or $4M, would be directly spent on advertising, partnerships, PR and social media. The Fairfield Franchise Advisory Council (FAC) has approved and fully supports the decision to reallocate the Tech Fund toward marketing programs.

Tech Fund Background
The Fairfield Tech Fund was established in 2001-2002 to help offset incremental costs resulting from the introduction of three new property management systems within a four year period.

  • Originally, 0.5% of the 2.5% (50 basis points) was carved out of the FIS Marketing Fund and allocated to the Tech Fund to cover property-related technology charges, mainly PMS-related costs.
  • Today, instead of a straight 0.5% allocation, an average of $532 per month (approximately $6,400 per year) is charged to the Tech Fund for each Fairfield in the system.
  • As brand RevPAR and hotel distribution have grown by 40% since 2002, the Tech Fund now totals approximately $4M annually to support technology costs. Absent the Tech Fund, this represents costs which would have otherwise been charged directly to Fairfield hotels. It’s important to note that Fairfield is the only Marriott brand using the SMF to offset property-related technology costs.

 

Benefits of Tech Fund Reallocation
Reallocating the Tech Fund dollars to consumer marketing will enable Fairfield to:

  • Increase overall brand awareness, a key driver of preference. Fairfield has only 6% unaided brand awareness compared to 36% for Hampton, 18% for Holiday Inn Express and Comfort, and 15% for LaQuinta (Source: 2013 U.S. Brand Tracker).
  • Strengthen Fairfield’s competitive position against Hampton and Holiday Inn Express. Both competitors have over 1,800 units, enjoy consumer marketing spend roughly four times the amount of Fairfield’s, and are active in broad media platforms (e.g., TV).
  • Respond to mounting owner/franchisee requests to strengthen marketing as the brand seeks to gain RevPAR and distribution share vs. key competitors.
  • Sunset the Tech Fund allocation as a legacy issue as Fairfield now has the financial strength to bear hotel-level technology charges.

Redistributing the Tech Fund allocation to marketing programs would, by 2016, increase marketing programs spend by 90% and potentially double Fairfield’s media spend. This increase would significantly improve Fairfield’s share of voice and communications awareness against major competitors.*

In order to maximize impact, the Fairfield Brand/Marketing team will determine the optimal marketing mix for a given year based on relevant market and consumer trends. The team will continue to actively engage the FAC in determining how the marketing funds are allocated and spent, ensuring that the owner/franchisee perspective is represented and marketing ROI is maximized.

Timing and Impact
The Tech Fund allocation change will be effective April 1, 2015. Beginning on this date, properties will assume direct responsibility for the monthly technology-related charges.

The current technology charges supported by the Tech Fund are approximately $6,400 per property per year. On a full-year basis, the margin impact to the vast majority of Fairfield properties will range from -0.1% to -0.3% depending on hotel revenue, based on sample P&Ls provided by existing Fairfield owners and franchisees. The chart below illustrates margin impact scenarios for three different properties. Note: average Fairfield room count is 85 keys.

 # of Keys  2013 Profit Margin 2013 Margin Less Tech Fund Impact Variance
 80  45.9%  45.6%  -0.3%
 90  43.3%  43.1%  -0.3%
 200  44.8%  44.7%  -0.1%

As of April 2015, property-related technology charges, including those related to the new GPMS system which will launch between 2015 and 2017, will be charged directly to the individual hotel. New GPMS charges will be communicated in the 2015 CapEx and Operating guidelines.

Reallocating the Tech Fund dollars toward marketing spend will help to strengthen Fairfield’s position against the competition, improve brand awareness and consideration, and in the longer term, drive bookings and competitive portfolio tracking scores. This change supports Fairfield’s quest to drive performance and achieve the #1 position in the moderate tier category.

* Approximately 30% of the SMF is allocated to marketing programs spend. Of marketing programs spend, approximately 65% is allocated to consumer media spend.