Microsoft Word 2007 ichrie conference Proceedings Final-Final 06-06-07. doc

 
 
INTRODUCTION 
The purpose of this study is to examine the effect of marketing expenditures (outlays) on hotel firms’ value. 
We argue that marketing expenditures are important intangible assets that are related to service innovation, customer 
satisfaction, customer loyalty and organizational practices which in turn influence future profitability and value of 
the firm. The intangible nature of the service offering makes separating the product from the process virtually 
impossible. For this reason, most traditional services are viewed as non-innovative companies with low levels of 
technological dependence that provide non-technical products (Tether, Hipp, & Miles, 2001; Sundbo, 1997; Miles, 
1993). In this paper we argue that marketing expenditures should not be considered as a mere expense item because 
such outlays play an important role in contributing to hotel firms’ intangible assets, mainly brand equity. To date, 
the role of marketing outlays in the hotel industry and their impact on firm value remain an unexplored topic.
As part of the service sector, the hotel industry is considered to be capital and labor intensive, highly 
competitive and it is highly sensitive to the movements in the market (Wong, 2004; Howells, 2001; Sirilli & 
Evangelista, 1998; Wilson et al., 1997). Due to these characteristics, hotel firms use marketing outlays extensively to 
build up their brand equity by focusing on retention equity. A popular way over the past few years is to deploy 
loyalty programs, mainly due to the fact that repeat customers are more profitable than new customers. Loyalty 
reward programs have become the name of the game in the highly commoditized hospitality industry. A recent study 
by Barsy and Nash (2006), for example, shows that an average of 39% of customers of ten major hotel brands 
considered the attractiveness of the loyalty program a key factor in deciding where to stay. Therefore, it is 
interesting to explore whether marketing outlays, including the cost of loyalty reward programs, are able to generate 
future benefits. A survey conducted by Hospitality Sales and Marketing Association International (HSMAI) and 
PKF Hospitality Research (m-Travel.com and Travel Distribution News, 2005) demonstrates the salience of 
marketing outlays in the lodging industry and shows how these expenditures affect the return on investment. Robert 
A. Gilbert, president and CEO of HSMAI stated that according to this survey, hotel companies are investing more 
money into their marketing initiatives, especially in the form of quality personnel and internet tactics, to improve the 
return on investment. A richer understanding of the role marketing outlays in the hotel industry would help hotel 

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