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The Rise, Fall, and Revival of the Hilton Hotel Empire

For decades, Hilton hotels were one of the symbols of the international hotel business. This group owned the most luxurious and prestigious hotels in New York, London, San Francisco, where celebrities and corporate leaders stayed. However, after reaching the peak of popularity in the 1960s, Hilton began to lose its influence. Due to financial difficulties, the company had to sell its hotel chain outside the US, and major competitors like Marriott and Sheraton forced it to give up its place at the top of the world hotel business. And yet, at the end of the century, thanks to a well-thought-out marketing policy, the corporation regained customer favor, proving that Hilton hotels are true to their principles and provide a unique level of service.

Together Again

On the eve of the new 2006 year, news agencies around the world spread important news that changed the balance of power in the international hotel business. The American company Hilton Hotels Corporation announced the acquisition for $5.7 billion of the British Hilton Group, which owned a network of hotels, resorts and fitness clubs in almost 80 countries. Thus, the world's largest hotel company was created, which included about 2,800 hotels with 475,000 rooms. The two parts of the Hilton group, which split up in 1964, reunited after a 40-year hiatus. According to many experts, this deal was an important step towards restoring the company's former influence in the global hotel services market. However, the merger of the two "Hiltons" is not the beginning of a long road, but the final stage of an operation to revive the international brand.

Hilton Founder

Conrad Hilton belongs to the generation of great entrepreneurs of the late 19th - early 20th centuries, who made America an economic superpower and turned American corporations into a world business elite. The son of a Norwegian immigrant, born in 1887, in 1919 he founded his business, spending the money he inherited from his father to buy a small hotel in Cisco, Texas. Resourceful, able to attract and ingratiate customers, Hilton quickly achieved prosperity and in 1926 opened a new hotel, naming it after himself. During the Great Depression, Conrad Hilton nearly went bankrupt, but managed to stay afloat and by 1934 already owned a network of five hotels in Texas. In 1938, he first went beyond his home state, acquiring the Sir Francis Drake Hotel in San Francisco.

Conrad Hilton always strived to be first. He constantly built or acquired hotels, supplied them with his name sign and provided the highest, "brand" quality service. At the same time, under Hilton's leadership, he understood not only the continuous expansion of the business, but also the degree of its innovation. Throughout his life (he died at seventy-nine, living to be 91 years old), Conrad Hilton improved service standards, invented his own or applied already known progressive business management tools. So, in 1946, he was the first hotel owner to issue shares of his company on the stock exchange, thus obtaining funds for further expansion.

After World War II, the United States became the world leader, and American business began its triumphal march around the world. European countries, the Middle East, East Asia were flooded with American businessmen and tourists. Focusing on traveling Americans, in 1948 Conrad Hilton built his first hotel outside the United States in Mexico City. Global expansion began with the opening of the Hilton in Madrid in 1953. By the mid-1960s, the company had built 16 luxurious hotels in different countries around the world that were a true embodiment of America, a place where traveling Americans felt at home. At their service there were: English-speaking staff, hamburgers with fries and other "delicacies" of American cuisine, air conditioners and direct phones for international calls in the rooms. Hilton hotels were built in a deliberately modern style and stood out sharply against the backdrop of the ancient centers of Athens and Istanbul, Jerusalem and Cairo. Even in major Western European cities, they successfully played the role of symbols of American power and technical superiority. For example, the London Hilton became the first building in the city to exceed the height of St. Paul's Cathedral bell tower. At the same time, Conrad Hilton continued to expand in the United States.

In the 1950s and early 1960s, he acquired several famous hotels, including the Mayflower in Washington, the Palmer House in Chicago, the Plaza and the Waldorf-Astoria in New York, and the Flamingo in Las Vegas. In addition, Hilton came up with the idea of airport hotels - the first such institution appeared in San Francisco in 1959.

The 1950s - early 1960s were the heyday of Hilton. However, the implemented projects required huge funds, and in the early 1960s the company's debts spiraled out of control. The group was on the verge of bankruptcy. Conrad Hilton had to make painful cuts. In 1964, he separated the international Hilton chain - the pride of the company, which brought it worldwide fame - by founding Hilton International and selling it to outside investors (though it was headed by Hilton's son Conrad Hilton Jr.). Subsequently, this company changed hands more than once until it was bought by Ladbrokes in 1987 - the largest British gambling syndicate, later renamed Hilton Group. And in 1966, the reins of power were assumed by his second son, William Barron Hilton.

Recalling how accelerated expansion almost drowned the family business, he was the first among the owners of prestigious hotel chains to focus on franchising.

By obliging the franchisee to maintain a guaranteed high level of service, provide guests with certain services and maintain the interior of the rooms at a level corresponding to established standards, the company, as a rule, built hotels with its own money, choosing locations for them, and then sold them to franchisees or leased them out. However, this activity gained wide scope only in the 90s, and until that time, the development of American Hilton was not so rapid. While the British Hilton Group, changing hands along the way, acquired a network of international resorts, health clubs and casinos, its relative structure in the US slowly expanded its franchise network and made targeted acquisitions. Nevertheless, the company remained true to its innovation strategy. In 1973, it implemented the first guest information system in the history of the global hotel industry - Hiltron, which allowed customers to remotely obtain information about room availability in its hotels and clubs and book them together with transportation tickets. The efficiency of the system was so high that it worked for 26 years and was only replaced in 1999 by the more modern Central Reservations System (CRS), or Hilstar. Unfortunately, innovative solutions had almost no impact on the company's profits. In 1990, it amounted to only $99 million with an annual income of $514 million, and 44% of earnings came from the Las Vegas Hilton and Flamingo Hilton located in the world capital of gambling. Of the more than 200 hotels owned by the company, over 125 were franchised. They operated under the Hilton Inn brand and were designed mainly for the middle class. Of course, the company's brand was still widely known in the world, but for the most part it was just a glimmer of past glory.

Bigger and Better

The globalization of the world economy in the 1990s, accompanied at first by an economic upswing in the United States, awakened Hilton from its slumber. In 1996, the aging William Barron Hilton handed over the post of CEO to Stephen Bollenbach - an experienced manager who had previously held senior positions at Marriott and Disney. It was Bollenbach who set the company the ambitious goal of restoring Hilton's former fame and influence.

The first step towards Hilton's revival in the late 1990s was a whole series of acquisitions, which culminated in the $3.7 billion purchase of Promus Hotel Group in 1999. The latter owned more than 1,000 mid-range hotels under the Hampton Inn, DoubleTree, Embassy Suites and other brands. In addition, the construction of new hotels was sharply accelerated: in 2003-2004, the network expanded by 40-50 facilities per year due to this. Thanks to this activity, in 2005 the Hilton company already had about 2,300 hotels. However, Stephen Bollenbach's main focus was on a large-scale marketing campaign that was supposed to reaffirm Hilton's reputation.

Global Brand Trans form ation

One of Stephen Bollenbach's first moves in this direction was the conclusion in January 1997 of a marketing agreement with the British Hilton Group. For the first time in 33 years, the two related companies entered into a close alliance, agreeing to jointly promote the common brand internationally and coordinate advertising campaigns. In 1998, the corporation conducted a series of marketing studies that revealed the expectations of Hilton guests, employees and business partners, as well as determined their perception of the brand. Hilton hotels were perceived as "special places" that very strongly reflected the culture of the country in which they were located. Based on the data obtained, a new Hilton brand concept was developed, combining the uniqueness of each hotel with uniform highest-level service standards. In addition, a single logo was created for both companies - a blue emblem with oval and spiral elements with a large letter H - which soon appeared in all Hilton hotels, both in the US and outside America.

Office and Lobby Trans form ation

Minor but important changes were also made regarding hotel names: the word Hilton was put in first place almost everywhere. For example, Berlin Hilton became Hilton Berlin, and Long Beach Hilton changed its name to Hilton Long Beach. This rule was deviated from only if the "non-Hilton" name of the hotel was itself a strong local brand (for example, Flamingo Hilton in Las Vegas or Cavalieri Hilton in Rome). However, simple changes in signage were naturally not the only thing done. Significant changes even occurred in the design of American Hilton's offices. Although guests were provided with high quality service and luxurious design, Hilton's corporate offices generally adhered to a Spartan style. However, management realized that it was completely inconsistent with the company's brand, which does business by giving guests a warm and welcoming reception. Over the course of six months (i.e. until the beginning of 1999), the lobbies of all Hilton corporate offices were rebuilt in accordance with the new standard. Visitors were greeted by a smiling concierge who amiably inquired about the purpose of their visit and then handed them a freshly made personal pass with an instant photo of the visitor. For important guests, the concierge, who had received advance notice, immediately addressed them by name and directed them to the right place without asking questions. Elements of the standard office interior were replaced by comfortable chairs and sofas reminiscent of Hilton hotel lobbies; the walls were decorated with pleasant warm-toned wallpaper (with splashes of corporate blue); information stands about the company appeared in corners. Two widescreen plasma televisions continuously showed beautifully filmed views of the hotels, while special guests could see one of the top managers greeting them directly on the screen. However, the main efforts were aimed at making a favorable impression on customers, primarily business travelers. And the main focus was on Hilton's mid-range hotels.

For Those Who Wander

Revital izing Mid-Range Hotels

The mid-range hotel development program was launched back in 1997 when this category was represented in the company by the Hilton Garden Inn sub-brand. At that time, there were about a hundred such hotels. In 1999, when the purchase of Promus Hotel Group increased the number of such hotels several times over, the program was recognized as the top priority. Back in the late 1990s, conditions were created for business travelers in mid-range hotels - something like business centers equipped with IBM-compatible computers, fax machines, and Internet access, complemented by 24-hour food sales points, microwaves in rooms, and self-service laundries. At the beginning of the 21st century, a large-scale program was launched to change the image of institutions, which included 127 mandatory adjustments, 37 of which related to the interior of rooms. For the old price, clients were offered more luxury and additional services. At the same time, several major promotional campaigns were carried out. In particular, the Make It Hampton campaign launched in 2004 and costing $100 million was aimed at promoting the brand among business people. The approval of this large-scale program was preceded by a one-and-a-half-year preparatory period, during which the needs of guests were thoroughly researched. In particular, one of the results of the analysis was the development of special clocks that can be used as an alarm clock or radio and to which an MP3 player can be connected. These unique alarm clock radios, commissioned by Hampton from Timex, later played an important role in the advertising campaign to promote the new hotel format.

Testing Boosts Satisf action

All the proposed changes underwent beta testing in about 100 hotels in 2003 (the Hampton network totaled 1,250 hotels in early 2004) and demonstrated high results, significantly increasing visitor satisfaction levels. This argument turned out to be crucial for franchisees who had to invest several hundred thousand dollars of their own funds in changing the design, upgrading beds and bathrooms (Hilton itself paid only $7.5 million a year to expand the breakfast menu, which could be taken away in packaged form). At the same time, a "filtering" program was introduced for franchisees: each Hampton network hotel must now undergo annual certification. According to Phil Cordell, about 40 hotels failed it in 2004, and franchising agreements with them were terminated.

Expan ding Resort Offer ings

The British Hilton Group also paid attention to the development of sub-brands - in this case, the Hilton Worldwide Resorts international resort chain. In 2002, when a campaign was launched to promote this brand, the Hilton Group network included 34 resort centers, and by the end of 2005 their number was planned to increase to 59. This decision was made based on research showing that customers who spend the most money during vacations find resorts in exotic locations most attractive. An analysis of consumer survey data also showed that the needs of this customer group go beyond the usual set of services and entertainment offered at resorts, so more comprehensive guest satisfaction required retraining staff. This task was complicated by the fact that the employees of resort centers represented different countries and cultures. In addition, wealthy visitors who love to vacation in different corners of the globe value diversity, fresh impressions and do not tolerate a standardized approach. In this regard, the project team headed by development director Philippa Gould and senior vice president of marketing Mike Ashton faced the very non-trivial problem of raising the level of service for the entire network while preserving as much individuality as possible for each resort center.

Enha ncing Resort Experi ence

The program provided for a preparatory stage lasting one and a half years, during which model "sponsor" hotels were selected to become examples and bases for testing individual elements of the new concept. New features were tested on them: children's entertainment centers, dining facilities, including buffets for children, forms of welcoming and seeing off guests, etc. Based on these developments, general recommendations, video and methodological materials were prepared, seminars and trainings were conducted, while only basic concepts were worked out, which, within individual resort centers, were to be filled with unique content, whether it be diving, romantic evenings, or hot mineral springs. Employees were given general guidelines, but then they had to use their creativity and imagination, which meant departing from the traditional Hilton concept whereby guests were to receive the same service in any corner of the globe. Most of the financial resources allocated for the program implementation were spent on staff training and the development of original projects, while the advertising budget turned out to be very limited. In this regard, the marketing campaign was targeted in nature and focused mainly on travel agencies, which accounted for about 60% of Hilton Worldwide Resorts' business.

Promo ting Hilton Resorts

A series of presentations was held for tour operators, information about new services at Hilton resorts was placed in specialized publications intended for the tourism industry, and a number of selected travel agency representatives were able to personally familiarize themselves with the new features. The company participated in major industry exhibitions but did not set up its own stands, instead holding presentations that allowed visitors to gain a fuller understanding of the product. With regard to end users, the main emphasis was on encouraging repeat trips. Hilton corporate TV channels broadcasting programs that talked about other network resorts were aired in the rooms of resort hotels. Clients who had once vacationed at Hilton Worldwide Resorts received mailings by regular and email with promotional brochures and information about special offers.

This policy proved successful. In 2003, a year after the launch of the program, the unit's revenues grew by 8%, while the industry as a whole experienced a 5% decline.

The Foot of the Summit

However, Hilton's successes in promoting sub-brands were to some extent devalued by the fact that the main brand lagged behind. As Hilton President and Chief Operating Officer Matt Hart self-critically noted, the obsession with mid-range hotelsb "put the Hilton brand itself, which was not getting proper attention, in a risky position."
Of course, it cannot be said that the company did not engage in its core business at all in the early 21st century (after acquiring Promus, over 60% of the company's profit came from mid-range hotels). In 2002-2003, as usual, Hilton slowly and methodically developed a new image that would best meet the desires and perceptions of the target audience. The result of this research was a series of commercials that appeared in 2004. According to Robert Dirks, Hilton's Senior Vice President of Brand Management, the campaign slogan “Take Me to The Hilton” means the following: take me to a heavenly place where no one can find me and where I can really relax. Business travelers were offered a slightly different idea: Hilton is a hotel where every guest is treated specially, but at the same time their privacy is respected.

According to Hilton management, the problem was that the hotels no longer matched their star image. To solve it, in mid-2005 the company approved a three-year $500 million program to renovate about 240 Hilton hotels in the US. It is expected that about 50 of them will be sold to new owners, about 70-80 will be put into operation by the end of 2006, and more than 100 will undergo major renovations, after which they will offer guests a new service program, new beds and bathroom interiors, as well as improved telephone, mobile and Internet connectivity.

“Our concept is to make guests feel as comfortable as at home,” says Jeff Diskin, Senior Vice President of Brand Management. In its marketing policy, Hilton, as in the best of times, relies on repeat visitors. The company proceeds from the premise that a satisfied client who liked living in its hotel will return to it more than once. The corporate loyalty program Hilton HHonors Worldwide, which now covers all the company's hotel chains, also serves this purpose.

In the opinion of many experts, the merger at the end of 2005 of the American and British "branches" will help strengthen the Hilton brand. The British managers, who preserved the traditions of Hilton's luxurious international hotels, gained access to the resources of the American corporation and got rid of non-core gambling assets. Obviously, in the coming years, a new wave of Hilton expansion in Europe can be expected, where, according to experts, no more than 20% of hotels belong to any chains, and the remaining 80% exist on their own and are unlikely to be able to oppose anything to the aggressive onslaught of an established international brand.

Zachary Lukasiewicz


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