Case 5: Banyan Tree: Sustainability of a Brand During Rapid Global Expansion;
Case 5: Banyan Tree: Sustainability of a Brand During Rapid Global Expansion;
Within the next five years, if we play our expansion card right and we manage our growth properly, we have a reasonable, credible opportunity to become one of the top
two or three dominant players in a global space which is very niche but nevertheless very global.
—K. P. Ho, CEO
On August 14, 2006, exactly two months after its initial public offering (IPO) listing, Banyan Tree Holdings Limited announced second-quarter results for the period
ended June 30. Revenue had more than doubled to S$71.41 million, largely due to post-tsunami recovery. Yet the company felt that this was only the beginning and had
earmarked part of the IPO proceeds to finance an ambitious expansion plan.
At the core of its business development plan was a proposal to open 21 new resorts2 over four years, which would span non-Asian territories from Greece to Mexico. CEO
Ho Kwon Ping’s vision was to “string a necklace [of Banyan Tree properties] around the world.” The Asian financial crisis of 1997, the SARS crisis of 2003, and the
Indian Ocean tsunami of 2004 had taken their toll on the travel and tourism industry (see Exhibit 1). Although recovery was on the horizon, Ho understood the need to
diversify risks across geographic regions, and the IPO provided the finances to venture out of familiar territory.
But two challenges lay ahead for Ho as he considered how the company should manage growth without losing focus on the qualities customers associated with the Banyan
Tree brand. First, was the issue of adequate labor and infrastructure to continue delivering a consistent Banyan Tree experience. Second, was the danger of brand
dilution if they were to spread themselves too thin and/or venture into locations that could have a negative impact on their brand and their bottom line. For a company
established on delivering holistic experiences to guests, it was imperative that the Banyan Tree ethos, culture, and skill set not be lost in the process of growth.
Source: UNWTO Market Intelligence and Promotion Section, “International Tourism up by 5.5% to 808 Million Arrivals in 2005,” January 24, 2006,
http://www.unwto.org/newsroom/Releases/2006/january/06_01_24.htm (accessed December 29, 2006).
515516Company Background
Leadership
Experience from his family’s mini-conglomerate business had convinced Ho that any business had to have something proprietary in order for it to be sustainable in the
long run. Competing on cost alone had been a successful formula in the 1970s and ’80s, but when manufacturing efficiencies and low-cost production had reached its
limit, businesses found that they could no longer compete. Bitter lessons had been learned, and Ho believed strongly that proprietary advantages other than costs
should form the basis for sustainable competition.
At age 40, Ho set out to build a consumer brand that would be sustainable, not only in Asia, but in the global marketplace. He viewed this as an imperative for
survival that would become the driving force behind his business. Hotels and resorts became the vehicle for realizing this vision.
Banyan Tree Hotels and Resorts, a subsidiary of the Singapore-based Banyan Tree Holdings Limited, was established in 1992 as a family business with Ho Kwon Ping as the
Chairman, his wife, Claire Chiang, as the Senior Vice President of the retail and merchandising arm of the business, and his brother, Ho Kwon Cjan, as the head
architect of the company. As a private developer and operator of boutique hotels, resorts, and spas in Asia-Pacific, the company grew in leaps and bounds under the
leadership of Ho. Banyan Tree’s 250-plus awards and accolades spoke volumes for its success, while Ho had won the 2003 Innovation Award from the Hotel Investment
Conference Asia Pacific, the 2005 Entrepreneurship Award from the London Business School, and the 2005 Ernst & Young Singapore, Lifestyle, Hospitality and Retail
Entrepreneur Award. (See Exhibit 2 for listing of awards.)
Vision, Corporate Culture, and Management Team
Exhibit 2: Banyan Tree’s List of Recent Awards and Accolades
Source: Banyan Tree web site, http://media.banyantree.com (accessed 28 December 2006).
The company’s vision was to build on its brands, Banyan Tree and Angsana, to create a diversified group of niche resorts and hotels in strategic locations throughout
the world, which would be complemented by residence and property sales, and spa and gallery operations. The revenue base should ideally be split evenly among property
sales, hotels, and fee-based income (such as architectural 517518design fees). Ho was sure that over 14 years, Banyan Tree had nurtured a corporate culture that could
successfully take the strengths of the Banyan Tree brand beyond Asia-Pacific. These strengths included the corporate social responsibility (CSR) philosophy the Ho
family instilled at the outset; Ho’s insistence on having a proprietary advantage other than cost, which was to be found in the unique experience associated with the
Banyan Tree brand; and its Asia-Pacific region staff, who shared the Banyan Tree ethos of CSR and continuously sustaining innovation in an experiential brand.3
Core members of the senior management team had been instrumental in the company’s development since the inception of the Banyan Tree in 1992. Their multidisciplinary
and multicultural mix of skills and experiences contributed significantly in the areas of product innovation, branding, and product/service design, construction, and
operations. Of its 5,000 employees, 35 nationalities were represented. Its 40 top managers came from 20 different countries. Ho believed that the mix and diversity of
backgrounds, skill sets, and cultures gave Banyan Tree a genuine global perspective and a collective strength and resilience in various environments.
Branding
“When I created Banyan Tree, I decided at that time that brand-building had to be one of the most important imperatives of Banyan Tree, perhaps even more so as we are
in the hospitality industry.”
—K. P. Ho, CEO
The first Banyan Tree resort opened in 1994. The brand was targeted primarily at highly affluent travelers wanting a luxury retreat where they would experience
romance, intimacy, and rejuvenation. Positioned in the niche resort, hotel, and spa market segment, Banyan Tree pioneered the concepts that have become the signature
feature of many of its resorts and spas, including the tropical garden spa and the pool villa. All Banyan Tree–branded hotels, spas, and galleries reflect the natural
environment, culture, and heritage of their locations.
In 2000, Angsana, the sister brand of Banyan Tree, was launched. Angsana offered a refreshing and contemporary experience reflected through its interior design and spa
treatments. Targeted at a younger customer segment than Banyan Tree, this brand was associated with youth and revitalization. It appealed to young families, and
pricing was typically 20 to 30 percent lower than at Banyan Tree resorts.
“Angsana was created to be a broader brand. But we recognized that… it would probably be less exclusive than Banyan Tree because it is the more normal, mainstream
brand. The Angsana brand was created to precisely compete with the Sheratons of the world, whereas Banyan Tree is very focused.”
—K. P. Ho, CEO
Under the name Colours of Angsana, the Angsana brand also offered an experience that was centred on cultural tourism and soft adventure, often located in off-the-
beaten track destinations such as Laos, Sri Lanka, and China. Consisting of a range of boutique resorts and hotels, each was an existing 518519property that had been
refurbished with modern adaptations of the indigenous culture and heritage of their respective locations. Colours of Angsana debuted in August 2003 in Shangri-la
Yunnan, China with the Gyalthang Dzong Hotel.
Through Banyan Tree and Angsana, distinct customer segments were targeted. The motivation behind this differentiated branding strategy was to expand its customer base
while minimizing brand dilution and cannibalism. Furthermore, each brand and product line created cross-selling opportunities, which helped reduce the adverse impact
of external events, such as SARS and terrorist bombings. Being located in different countries and having a geographically diverse customer base cushioned the impact of
such events. Banyan Tree’s experience showed that its brands were capable of being extended to tap into new market segments.
One issue that continuously occupied Ho’s mind was how his company should “innovate the product without diluting the brand” and without losing sight of its core
values, which defined its corporate culture and CRS commitment. This question was constantly debated at senior management meetings. Contrary to press opinion, Ho
advocated that Banyan Tree and Angsana were neither luxury nor exclusive brands; rather, he likened them to aspirational brands.4 He was keen to evoke a customer
response of, “Yes, it was expensive, but it was really worth it.” The association of a memorable experience or emotion to a brand would be the associative value of the
brand. Such a response, he thought, could command loyalty and premium pricing. He was convinced that an aspirational brand could continually increase its market reach.
Spas were a valued feature of the resorts and hotels, which were an integral part of this brand experience. The Banyan Tree Spa Academy at Banyan Tree Phuket provided
its 500-plus therapists with theoretical and practical training. In addition to having a spa at each of its locations, the company was often approached by other
reputable hotel companies to open a Banyan Tree or Angsana Spa. These opportunities allowed the company to expand its spa business into new markets and promote its
brand without incurring capital costs. Banyan Tree Spas and Angsana Spas each offered distinct product offerings and experiences. Banyan Tree Spas offered a more
traditional, luxurious environment with a classic design, and the use of natural herbs and spices and more complex techniques as recipes for its treatments. Angsana
Spas offered a more modern and colorful décor with emphasis on flowers and fruits. Oberoi Spas by Banyan Tree, a brand operated under spa management agreements with
the Oberoi Group of India, blended the Oberoi tradition of quality with Banyan Tree’s spa expertise.
Corporate Social Responsibility Philosophy
“CSR is something that’s been very much part of the Banyan Tree ethos. We have not been milking this in a cynical manner because it’s now the thing to do. We’ve always
had it as part of our values, we will always espouse it very fervently, and it has now become part of the brand.”
—K. P. Ho, CEO
From the outset, the founders were adamant that the company should consider the physical and human environment when making business decisions.5 Construction projects
used designs and 519520techniques that minimized damage to the environment as far as practicable. Where options were available, environmentally friendly methods were
adopted, such as installing a biological wastewater treatment system at Banyan Tree Bintan to recycle wastewater for irrigation purposes. Opportunities were actively
pursued to support local businesses and communities. Each of its resorts carried out community development and environmental projects.
The Green Imperative Fund was established in 2001 to expand and formalize its environmental conservation and community development efforts. Guests of Banyan Tree and
Angsana resorts and hotels were given an opportunity to make a contribution of US$2 or US$1, respectively, for each night they stayed at the resort or hotel. The
company would match the guests’ contributions, dollar for dollar, to develop the fund. By March 2006, the fund had raised approximately US$1 million. A committee of
executive staff members of local origin made recommendations for projects to support. These projects ranged from marine conservation to education and health
assistance.
“The people around us recognize that this is a company that looks at issues whether it’s dealing with design or the way we hire and train or the materials we use… we
actually reflect indigenous cultural capital. It is this harnessing of local capital and using it to translate it into our brand attributes—whether it is the way we
build or what we stock in our gallery—that I feel makes us stand out.”
—Claire Chiang, Senior Vice President Retail and Co-founder
Ho believed that Banyan Tree and Angsana guests had the purchasing power and consciously chose to utilize that purchasing power to express their value association with
those of Banyan Tree. In that sense, CSR was seen as a profitable proposition that won the value of all stakeholders and gained numerous awards for Banyan Tree, which
in turn generated brand awareness as Banyan Tree came to be recognized as a company that espoused good CRS practices. As part of the non-cost-based proprietary
advantage proposition for sustainable competition, CSR was very much ingrained into the experiential brand value of the company. But up until August 2006, company
expansion was mainly concentrated in the developing countries across Asia-Pacific, where CSR practices had an immediate and noticeable impact.
Business Operations
Banyan Tree managed and owned interests in upscale niche hotels and resorts usually with 50 to 100 rooms and commanded room rates at the high end of the scale. These
included 18 resorts and hotels, 49 spas, 53 galleries, and two golf courses6 spread across nine countries ranging from Indonesia to the Maldives. As of the end of
March 2006, the total number of room inventory was 1,986. The flagship development, Laguna Phuket in Thailand, alone boasted five resorts, five spas, 14 galleries, an
18-hole golf course, and three resort residential developments for private sale, covering 1,000 acres (400 hectares). (See Exhibit 3 for a summary of significant
events in the corporate history of Banyan Tree.)
As of June 2006, the activities of the company were divided into six business segments:
• Exhibit 3: Summary of Significant Events in the Corporate History of Banyan Tree
Source: Banyan Tree Holdings Limited (26 May 2006) IPO Prospectus, pp. 95–96.
• • Hotel Management: Revenue was by way of management, incentive, and other fees received for managing Banyan Tree and Angsana resorts and hotels. It also
included reimbursement of fees received from the sales and marketing services Banyan Tree provided to the resorts and hotels it managed. Banyan Tree and Angsana
resorts and hotels had average room rates of S$601.60 and S$277.007 respectively, as of March 31, 2006. Management fees were typically 3 percent of total revenue;
incentive fees were typically 10 percent of gross operating profit of the hotel or resort managed; and reimbursement fees were calculated as a percentage of the room
revenue. (See Exhibit 4 for the list of hotels and resorts owned and managed by Banyan Tree and Exhibit 5 for room rates of accommodations offered by Banyan Tree
Group.)
• • Spa Operations: Revenue came from the management of spas and royalties received from licensing the use of the Banyan Tree brand according to spa management
agreements. Spas were often considered by guests as one of the key features at Banyan Tree’s resorts and hotels. In 2005, Banyan Tree Phuket won the Crystal Award of
“Best Spa in Asia” from SpaFinder’s Readers’ Poll. Under spa management agreements, royalties were typically 10 to 15 percent of each spa’s total revenue. Incentive
fees of around 10 to 15 percent of each spa’s gross operating profit were also received. Banyan Tree spas were located at each of the Banyan Tree resorts and hotels,
with the exception of Banyan Tree Spa at The Westin Shanghai, which was to provide brand exposure in China. Angsana Spas could be found in all other resorts managed
and/or owned by the company, as well as in other operators’ resorts and day spas in Guam, Australia, Hong Kong, Taiwan, and Chiang Mai, Thailand. Oberoi Spas by Banyan
Tree all operated under spa management agreements in India, Bali and Lombok, Indonesia, Mauritius, and Egypt. Management and incentive fees as a percentage of revenues
and gross operating profit, respectively, were received from these operations. Spa treatment prices were based on premium services and branding. Unlike room rates,
which were subject to seasonal adjustments, spa treatment prices were not seasonally affected. Each spa had its own pricing structure and offered different packages to
increase usage during off-peak hours. (See Exhibit 6 for details of spas.)
• • Gallery Operations: Revenue was generated from the sale of branded gifts, spa products, indigenous or cultural handicrafts and artifacts, and other souvenirs
at Gallery outlets located in resorts, hotels, and many spas. Stand-alone city outlets, such as the one in Singapore, helped promote the company’s brands. The Museum
Shop by Banyan Tree was an affiliate brand of Banyan Tree Gallery. The Museum Shop offered a unique collection of museum replicas, objects of fine art, ethnic craft
arts, apparel and jewelery modeled after pieces displayed in the National Museums of Singapore. There were four Museum Shop outlets. In 2003, the Banyan Tree Gallery
and Angsana Gallery received the Pacific Asia Travel Association (PATA) Gold Award for Heritage.
• • Property Sales: Revenue was derived from the sale of resort residences, primarily in Laguna Phuket. Banyan Tree’s policy was to only engage in the
development 522523 523524 524525and sale of properties where these developments were closely integrated with its resorts and spas. Most buyers resided in Asia-Pacific
and Europe. Sales were directly affected by the state of these economies and the state of the property market around the world, and particularly in Phuket. Various
local laws also affected construction and ownership rights. For example, under Thai law, foreigners could 525526own buildings or properties developed on land leased by
them, but not the land itself. Hence, foreigners could either lease the property or form a registered company in Thailand to purchase the property. Banyan Tree
therefore resolved to offer non-Thai citizens three consecutive 30-year leases as Thai law imposed a maximum of 30 years on each lease. Construction costs in Phuket
had increased by 25 percent over the two years up to December 31, 2005.8 Up to June 2006, the company had sold 470 resort residences at Laguna Phuket, and the average
price of each property was Bt16.5 million.9 Banyan Tree operated a flexible room inventory management policy, whereby unsold properties would remain as part of the
resort’s available room inventory, thus increase hotel investment revenues. In the past, property sales generated funds to finance future hotel investments.
CASE 5 DISCUSSION QUESTIONS
1. Identify the primary issues in the case.
2. What value propositions did Banyan Tree offer as an experiential brand?
3. Evaluate Banyan Tree’s expansion plan. What are the potential risks that Banyan Tree should be aware of and how can it mitigate such risks? Based on current
resources, is it realistic and achievable?
4. Provide a financial analysis of Banyan Tree’s businesses and make recommendations for its growth strategy based on this analysis.
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