1. Improving Marriott
Naian (Tim) Chang ● Marie Iannone ● Kelsey Merlo
Joshua Bridges ● Thomas Shane
12/16/2012 1

2. Executive Summary
OBJECTIVE
How can Marriott exceed consensus expectations of earnings, $1.17 billion, over the next two
years?
RECOMMENDATION
Marriott can improve upon its existing operations and sell off units to exceed earnings
expectations by $200 million.
Sustainable Operations Improve Loyalty Program Sell Underperforming Units
• Lack of sustainable
operations • Little differentiation • Sell off Mid-tier hotel
• Reduce energy, water, and between loyalty programs portfolio
waste usage • Automatic check-in • Accor as buyer
• Increase operating • Refer-a-Friend program • Generate $4.6 billion
efficiency
Financial Impact: Marriott will increase its Net Income to $1.3 billion plus $4.6 billion one time
cash inflow from selling underperforming hotels
12/16/2012 2

3. Sustainable
Operations
12/16/2012 3

4. Post-recession, Marriott’s failure to implement sustainable operating
practices has led it’s operating margins to lag behind competitors
Operating Margins for the Luxury Hotel Segment Competitors
0.25
Competitors’ Ave: 17.2% • 50% of Intercontinental Hotels
0.2
have converted to “Green
0.15 Engage” program
Operating
• Starwood “Sustainable
Margin
0.1 Initiative” for better
Marriott Ave: 2.9%
0.05 energy, water, waste practices
0 Marriott
2009 2010 2011
-0.05 • 0.2% of Hotels are certified by
LEED (Leadership in Energy
Environmental Design)
10% deduction in energy consumption would have • Energy Star Program has been
the same financial impact as increasing ADR by $2 deployed almost exclusively in
mid-tier offerings like Fairfield Inn
Source: Marriott, Starwood, Intercontinental, Wyndham 10k reports, Deloitte
Sustainability Loyalty Program Sell Hotels 12/16/2012 4

5. Marriot will generate costs savings for a minimal increase in investment
by implementing sustainable energy, water, and waste practices
LEED certified hotel’s average percent savings
• Onsite co-generator
80%
 Saves enough 70%
Energy electricity to light 240
homes a day 60%
• Green windows, and roof 40% 38% 35%
40%
• DuLow-flow shower head
 Saves 2 gal. per minute 20%
Water • al-flush toilets
 Uses 50% less water 0%
Solid Waste Water Energy Usage Carbon
Emissions Emissions
• Compost waste
 Cost to remove
Waste compost is 50% less The initial investment premium for
than cost to remove Sustainable Practices has fallen from 15% in
trash 2001 to 2-5% in 2012
Source: University of Michigan – High Performance Hospitality, Efficiency Partnership
Sustainability Loyalty Program Sell Hotels 12/16/2012 5

6. Investing in sustainable initiatives will increase Marriott’s key revenue
drivers and operating efficiency
Revenue per available
Improve Brand Operating Efficiency
room
• Leading “Green • Attract more • Lower operating
Practices” as hotel clientele costs and
differentiator • 34% of customers commodity
• Internal controls willing to pay more exposure
increase ease of to stay in “Green” • Mitigate future risk
change hotel of regulation and
implementation litigation
Source: University of Michigan – High Performance Hospitality
Sustainability Loyalty Program Sell Hotels 12/16/2012 6

7. Improve customer
experience
12/16/2012 7

8. Marriott currently competes closely with Hilton for business
travelers, but does little to differentiate
Hilton usage increases steadily
30% affluent Americans say loyalty membership
while Marriott flounders
% of people who stayed in a
affects what hotel brand they patronize
25%
hotel past 12 months
Hilton
23% Brands Criterias Marriott Hilton
21%
Marriott 4 Membership Levels  
Brands
Frequent Flyer Miles  
19%
2006 2007 2008 2009 2010 2011 Vacation Packages  
Patrons primarily use Bonus Points  
Marriot and Hilton Hotels Priority Late Checkout  
for business travel
29% Marriott Brand Hilton Brand eFolio  
25% 28% 29%
21%
No Blackout Dates  
18% 21%
17% Loyalty Program benefits are
Personal Business extremely similar and easy to replicate
Source: (Mintel Hotel Accommodations), (Hilton Honors, Marriott Rewards)
Sustainability Loyalty Program Sell Hotels 12/16/2012 8

9. Marriott should implement an automatic check-in system to cater to
business travelers’ demands for efficient and fast service
Other travel services
76% of men and 79% of women
provide time-conscious
services value express check-in / check-out
• Airline Services How does it work?
• Check in using phone
 Baggage Delivery • Receive room number
 Security Screening • Hotel desk programs
 Check-In & Boarding room to match your
permanent card
• Car Rentals • Skip the desk and go to
your room
 Skip the counter Differentiates Marriot from other
 E-receipts hotels to attract frequent business travelers
Source: (Research Alert; Business Websites; Advanstar Communications, Inc.)
Sustainability Loyalty Program Sell Hotels 12/16/2012 9

10. Implementing a refer-a-friend program will continue to drive demand
for Marriott hotels
People who are referred by friends are 3 Recommended Implementation
times more likely to buy in than others
• Refer a friend using Marriott
website
• Referred receives 2500 points
• Referee receives 1000 points
• 5 referrals = one free upgrade!
Companies using loyalty programs have
experienced up to an 800% return on
referred patrons
Source: J. Alsever, 2011
Sustainability Loyalty Program Sell Hotels 12/16/2012 10

11. Sell
Underperforming
Hotels
12/16/2012 11

12. Marriott should sell three of its midscale hotel brands -
Courtyard, Fairfield, and SpringHill
Marriott Brands by Market Value and Desire to Sell
Marriott Hotel
Courtyard Brand Holding
by Marriott
Fairfield
Courtyard
Inn and
Fairfield by Marriott International
Suites Marriot Hotels
Inn and
Suites
SpringHill Spring
TownPlace Residence Hill Bulgari
Luxury
Inn AC Ritz
Residence Midscale Town Renaissance
Inn Economy
Place JW
Profitable Underperforming EDITION
• Midscale brands do not perform well in comparison to luxury brands
• Marriott still offers brands similar to Courtyard, Fairfield, and SpringHill
Source: Marriott 2011 10K
Sustainability Loyalty Program Sell Hotels 12/16/2012 12

13. Acquisition by Accor with greater focus on mid-scale hotel brands, will
benefit both Marriott and Accor
Midscale Hotel Brand Holding Profitability
% of Midscale Brand Holding
60%
40%
20%
0%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Return on Assets (Measure of Profitability)
Source: Star(Websites), Each Company’s 10K
Benefits Marriott will gain: Benefits Accor will gain:
▪ More budget for luxury hotel brands ▪ Increase market share for midscale hotels
▪ Eliminate weak brands ▪ Consolidate into one successful network
▪ Increase luxury identity of Marriott ▪ Larger customer base
Sustainability Loyalty Program Sell Hotels 12/16/2012 13

14. The strategic sale of Courtyard, Fairfield, and SpringHill to Accor will
provide at least $4.6 billion cash inflow
Brand Total Market Value Per Brand Lowest Sale Price
Courtyard $ 2,160 $ 2,210
Fairfield Inn & Suites $ 1,600 $ 1,650
SpringHill Suites $ 680 $ 700
$ 4560 (millions)
Brand Contribution to Total Cash Inflow from Sale
Key Assumptions
• Total market value
equals the future
value of the brand
$4.6 • Sale price is
Billion calculated based on
2% goodwill
goodwill of 2%
(indicated in green)
SpringHill Suites Fairfield Inn & Suites Courtyard Total Revenue
Sustainability Loyalty Program Sell Hotels 12/16/2012 14

15. Financials and Risk
12/16/2012 15

16. Implementing our 3 recommendations leads to Marriott surpassing
market forecasts
Net Income Growth $1,545 Cash Inflow from
$1,373 Best Selling
Base Underperforming
$1,202 $375 Hotels:
Worst $203
Forecasted Total
$32 $4.6 Billion
NI for 2012-2013: $1170M
Sustainable Operations Improve Customer Experience
2 Years’ Total NI (Millions)
Increase in Rev Increase in cost Increase in Rev Increase in cost
Best Case $1,545 1% 1.5% 0.5% 1%
Base Case $1,373 0.75% 1.75% 0.3% 1.5%
Worst Case $1,202 0.5% 2% 0.1% 2%
Source: JPMorgan Forecast
12/16/2012 16

17. Level of
Impact
X
Risk and Mitigation Strategies
Probability of Occurrence
Risk Rating Risk Mitigation Strategy
Initial investment to switch to Prioritize implementation
sustainable practices offsets X schedule to introduce high ROI
decrease in costs practices first
Loyalty program does not induce Ensure best practices when
new sales and increase repeat marketing new program
X
business
Marriott is unable to find a X Be willing to negotiate on price
buyer for its mid-tier portfolio and hotel brands that we are
willing to sell
Lack of mid-tier hotel options Effectively deploy increased
X
lowers Marriott’s future revenue cash for sale to improve
potential current portfolio.
12/16/2012 17

18. Executive Summary
OBJECTIVE
How can Marriott exceed consensus expectations of earnings, $1.17 billion, over the next two
years?
RECOMMENDATION
Marriott can improve upon its existing operations and sell off units to exceed earnings
expectations by $200 million.
Sustainable Operations Improve Loyalty Program Sell Underperforming Units
• Lack of sustainable
operations • Little differentiation • Sell off Mid-tier hotel
• Reduce energy, water, and between loyalty programs portfolio
waste usage • Automatic check-in • Accor as buyer
• Increase operating • Refer-a-Friend program • Generate $4.6 billion
efficiency
Financial Impact: Marriott will increase its Net Income to $1.3 billion plus $4.6 billion one time
cash inflow from selling underperforming hotels
12/16/2012 18

19. Thank you
12/16/2012 19

20. Appendix
12/16/2012 20

21. Team Members
Naian (Tim) Chang,
Marie Iannone, ’13
’13
BSBA
BSBA
Kelsey Merlo, ‘12 Joshua Bridges, ‘12
BSBA BSBA
Thomas Shane, ’12
BSBA
12/16/2012 21

22. Appendix – Table of Contents
• Marriott’s industry and • A plan for diversity • Market Revenue Forecast
competitors • Starwood franchising fees 10K • Marriott & Accor’s
• Porter’s Five Forces • Data and facts for going green Liquidity/Financial Health
• Marriott’s competitive part 1 • Marriott’s Income Statement
advantage • Data and facts for going green • Marriott’s Balance Sheet:
• Marriott’s challenges part 2 Asset
• One way Marriott can invest • Data and facts for LEED and • Marriott’s Balance Sheet:
new cash Marriott’s LEED certified Liability and Equity
• Strategically increase hotels • Accor’s Balance Sheet: Asset
advertising in feeder • Starwood management fees • Accor’s Balance Sheet:
demographics • Calculating brand market Liability and Equity
• Loyalty programs are not that value and desire to sell
loyal • Marriott brands by category
• 2-year Implementation Plan • Marriott category percentages
• Hotel capacity in the world – before and after sale
• LEED’s success • Comparable Marriott brands
• Financial impact calculations • Calculating sale price for
• The 2006 sale underperforming brands
12/16/2012 22

23. Marriott’s industry and its major competitors
Industry
Marriott competes in the global hotels and resorts industry (lifecycle: mature)
The industry expects to generate close to $580 billion (growing at 1.6%) in revenue in 2012
Competitive Landscape
Low industry concentration
The top four players in 2012 account for less than 7% of the market share
Competitors include:
External Competitors Internal Competitors
Compete for some of the same
customers but are not in the same
Revenue Growth
industry as Marriott
Motels
Bed and breakfast establishments
Caravan parks
Camping grounds
Hostels
Market Share
Source: IBISWorld Industry Report G4611-GL
Global Hotels & Resorts Go Back to Appendix – Table of Content 12/16/2012 23

24. Porter’s Five Forces Analysis: some challenges for Marriott
Suppliers
Partnership with airlines
Key Success Factors
Partnership with travel agencies
Large base of food supply
• Access to multiskilled
(Low bargaining power)
and flexible
workforce
Entrants Substitutes • Being part of a
Rivals franchising chain
High barriers to No direct substitute
entry Oligopoly Luxury • Receiving the benefit
Hotels for luxury hotels
High initial cost Local Hotels In-house activities of word-of-mouth
Unattractive for Competitive Pricing One-day travel recommendations
entry
(Moderate (Moderate
• Proximity to key
(High bar) Competition) variety)
markets
• Ability to quickly
adopt new
Buyers technology
Price sensitive vs. quality seeking • Ability to control
Well-informed stock on hand
Exhibit brand loyalty
(Moderately high bargaining power)
Source: IBISWorld Industry Report G4611-GL
Global Hotels & Resorts Go Back to Appendix – Table of Content 12/16/2012 24

25. Marriott’s competitive advantage (core resources & capabilities) and
competitive position
Core Values Brand Image Diversification Technology
(Resource) (Resource) (Capability) (Capability)
1. Put people first Higher brand recognition Global presence and Technical innovations to
2. Pursue excellence and recall makes the strong brand portfolio ease the business process
3. Embrace change company priority choice diversifies the revenue & increase hassle-free
4. Act with integrity and for clients sources experience for the
serve our world customers
Source: DATAMONITOR
Marriott has3,362 properties globally and a total of 586,515 guest rooms (about 175
rooms in each property) across 68 countries and territories. Marriott accounts for a 2% market
share.
Source: IBISWorld Industry Report G4611-GL
Global Hotels & Resorts Go Back to Appendix – Table of Content 12/16/2012 25

26. Marriott’s challenges
Challenges Recommendations
Financing Sell underperforming hotels
ability Exit economy hotel market
(+) Increase resources to improve underperforming
hotels
( -) Marriott’s low-scale hotels are growing profitable
Improving
Sustainable
customer
operations Third party financing (PE/Shares/Bonds)
loyalty (+) Quick cash inflow
( -) Hard to find/Dilute share price/High cost of the debt
Go Back to Appendix – Table of Content 12/16/2012 26

27. One way Marriott can invest new cash
Sell underperforming hotels (cash inflow)
Leading “Green Practices” as hotel differentiator
Energy Water Waste
• Onsite co-generator • Low-flow shower head – saves 2 • Compost waste
• Saves enough electricity to light gal. per minute • Cost to remove compost is 50%
240 homes a day • Dual-flush toilets less than cost to remove trash
• Green windows, and roof • Uses 50% less water
Improving customer loyalty
Source: University of Michigan – High Performance
Hospitality, Efficiency Partnership Go Back to Appendix – Table of Content 12/16/2012 27

28. Strategically increase advertising in feeder demographics
Strategic increases Feeder demographic:
• Sponsorships • Business class travelers
• Universities • Age 22-28
• Increase • University students
• Appearances • Business professions
• Universities • Other Majors (economics, Political
• Major business Science etc)
Go Back to Appendix – Table of Content 12/16/2012 28

29. Loyalty programs are not that loyal
Percentage of respondents who belong to a loyalty program and
patronized another hotel chain.
36%
33% 33%
30%
27% 26% 27%
23% 23%
21%
18% 18%
Marriott Hilton InterContintal Wyndham
Marriott Hilton InterContinetal Wyndham
(Mintel Hotel Accommodations)
Go Back to Appendix – Table of Content 12/16/2012 29

30. 2-year Implementation Plan
Q1, Q2 Q3, Q4 Q5, Q6 Q7, Q8
•Automatic check-in trials •Automatic check-in national launch •International Launch •Automatic check-in international
•Large markets •Referral program trials •Automatic check-in international Launch
•NY, Charlotte, DMV, Atlanta •Large markets trials •Referral Program international trials
•Large markets: the (Q7), Launch (Q8)
Americas, Asia, Europe(Spain, Italy
Germany)
•Referral program national launch
Go Back to Appendix – Table of Content 12/16/2012 30

31. Hotel capacity in the world
Go Back to Appendix – Table of Content 12/16/2012 31

32. LEED’s success
• As mentioned above, hotels lose up to 25%
and more of the price of an overnight when
they deal with merchant sites.
• Mintel
LEED-certified buildings, typically
save:
• 30% to 50% in energy usage
• 35% in carbon emissions
• 40% in water emissions
• 70% in solid waste
Go Back to Appendix – Table of Content 12/16/2012 32

33. Financial impact calculations
Go Back to Appendix – Table of Content 12/16/2012 33

34. The 2006 sale
• 2006, we have sold 65 hotels for
approximately $5.6 billion
• Starwood 10K
Go Back to Appendix – Table of Content 12/16/2012 34

35. A plan for diversity
• Successfully tailoring MAR’s brands to specific
regions. MAR has tailored its
• Fairfield, Courtyard, and Residence Inn brands to
suit customer preferences in India,
• China, and Latin America, which has greatly
improved its ability to win development
• contracts internationally. In China, development
will continue to be driven by the
• dramatic infrastructure development across the
country, and the increased propensity
• for Chinese intra-country domestic leisure travel.
Source: JP Morgan report
Go Back to Appendix – Table of Content 12/16/2012 35

36. Starwood franchising fees 10K
Go Back to Appendix – Table of Content 12/16/2012 36

37. Data and facts for going green
• 12% of consumers will pay extra for green building
• Costs 2-5% more to build green
• per ton charge to remove compost is half of what it
costs to remove trash
• 40% lower water costs throw better toilets, 1.3 gallon
per flush to .7 or .9
• Low flow shower head saves water at 2 gallons per
minute. Which tested best out of 4
• Co-generator allows units motor to go from 60 mhz to
42 mhz. Using 100 watts instead of 200 watss for 50%
decrease in power consumed
Go Back to Appendix – Table of Content 12/16/2012 37

38. Data and facts for going green
• Hotel utility costs 60-70 is energy.
• 34% of consumers would be willing to pay more
to stay in green hotel
• 51% of hotels are green
• Low emittance windows that reflect radiant heat
• Marriott already has CFLs and good washers
• Saved $6 million in 2006
http://www.energystar.gov/ia/business/challenge
/learn_more/Hotel.pdf
Go Back to Appendix – Table of Content 12/16/2012 38

39. Data and facts for LEED and Marriott’s LEED certified hotels
LEED-certified buildings, typically save:
• 30% to 50% in energy usage
• 35% in carbon emissions
• 40% in water emissions
• 70% in solid waste
http://www.fypower.org/pdf/BPG_hotels.pdf
Marriott currently has 11 LEED certified
hotels, 3,718
50% of intercontinental hotels have been
converted to green engage for average of 10%
energy savings
Go Back to Appendix – Table of Content 12/16/2012 39

40. Starwood management fees
Go Back to Appendix – Table of Content 12/16/2012 40

41. Calculating brand market value and desire to sell
Source: Marriott 2011 10K
Go Back to Appendix – Table of Content 12/16/2012 41

42. Marriott brands by category
Luxury Midscale Economy
• Marriott Hotels • Courtyard • Marriott Executive
and Resorts • Fairfield Inn and Apartments
• Renaissance Hotels Suites
• JW Marriott • Marriott ExecuStay
• Autograph • SpringHill Suites
Collection (AC) • Residence Inn
• Bulgari Hotels and • TownePlace Suites
Resorts
• The Ritz-Carlton
• EDITION
Go Back to Appendix – Table of Content 12/16/2012 42

43. Marriott category percentages – before and after sale
Before Sale After Sale
Economy Economy
5% 5%
0%
Midscale
Midscale 17%
28%
Luxury Luxury
67% 78%
0%
Go Back to Appendix – Table of Content 12/16/2012 43

44. Comparable Marriott brands
• Courtyard – Marriott
• Fairfield – Residence Inn
Go Back to Appendix – Table of Content 12/16/2012 44

45. Calculating sale price for underperforming brands
North American International Total MV Per
Brand Selling Price
MV MV Brand
Courtyard by Marriott® ("Courtyard") $ 1,951,275,528.63 $ 216,017,120.57 $ 2,167,292,649.19 $ 2,210,638,502.18
Fairfield Inn & Suites by Marriott® ("Fairfield Inn &
$ 1,609,446,238.94 $ 4,747,629.02 $ 1,614,193,867.96 $ 1,646,477,745.32
Suites")
SpringHill Suites by Marriott® ("SpringHill Suites") $ 681,284,764.86 $ - $ 681,284,764.86 $ 694,910,460.16
$ 4,552,026,707.66
Selling Price = Total MV x (1 + Goodwill)
*Goodwill = 2%
Go Back to Appendix – Table of Content 12/16/2012 45

46. Market Revenue Forecast
2012NI:$530M
2013NI:$640M
Forecasted
Total 2 yrs’ NI:
$1170M
Source: JPMorgan
Forecast
Go Back to Appendix – Table of Content 12/16/2012 46

47. Marriott & Accor’s Liquidity/Financial Health
Marriott
Accor
Source: MorningStar
Go Back to Appendix – Table of Content 12/16/2012 47

48. Marriott’s Income Statement
Fiscal Years ($ in Millions)
2009 2010 2011
REVENUES:
Base management fees (1) $ 530 $ 562 $ 602
Franchise fees (1) 400 441 506
Incentive management fees (1) 154 182 195
Owned, leased, corporate housing, and other revenue 1,019 1,046 1,083
Timeshare sales and services (including net note securitization gains of $37 in 2009) 1,123 1,221 1,088
Cost reimbursements (1) 7,682 8,239 8,843
Revenue from sale of brands
Total Revenues 10,908 11,691 12,317
OPERATING COSTS AND EXPENSES
Owned, leased, and corporate housing-direct 951 955 943
Timeshare-direct 1,040 1,022 929
Timeshare strategy-impairment charges 614 - 324
Reimbursed costs (1) 7,682 8,239 8,843
Restructuring costs 51 - -
General, administrative, and other (1) 722 780 752
Total cost of sales 11,060 10,996 11,791
Income (loss) from operations (152) 695 526
(Losses) gains and other income (including gain on debt extinguishment of $21 in 2009) (1) 31 35 (7)
Interest expense (1) (118) (180) (164)
Interest income (1) 25 19 14
Equity in losses (1) (66) (18) (13)
Timeshare strategy - impairment charges (non-operating) (1) (138) - -
INCOME BEFORE PROVISION FOR INCOME TAXES (418) 551 356
Provision for income taxes 65 (93) (158)
NET INCOME (353) 458 198
Source: 10K
Go Back to Appendix – Table of Content 12/16/2012 48

49. Marriott’s Balance Sheet: Asset
2011 2010
ASSETS
Current assets
Cash and equivalents $ 102 $ 505
Accounts and notes receivable (1) (including from VIEs
of $0 and $125, respectively) 875 938
Inventory 11 1,489
Current deferred taxes, net 282 246
Prepaid expenses 54 81
Other (including from VIEs of $0 and $31, respectively) - 123
1,324 3,382
Property and equipment 1,168 1,307
Intangible assets
Goodwill 875 875
Contract acquisition costs and other (1) 846 768
1,721 1,643
Equity and cost method investments (1) 265 250
Notes receivable (1) (including from VIEs of $0 and
$910, respectively) 298 1,264
Deferred taxes, net (1) 873 932
Other (including from VIEs of $0 and $14, respectively)
(1) 261 205
$ 5,910 $ 8,983
Source: 10K
Go Back to Appendix – Table of Content 12/16/2012 49

50. Marriott’s Balance Sheet: Liability and Equity
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt (including from VIEs
of $0 and $126, respectively) $ 355 $ 138
Accounts payable (1) 548 634
Accrued payroll and benefits 650 692
Liability for guest loyalty program 514 486
Other (1) (including from VIEs of $0 and $3,
respectively) 491 551
2,558 2,501
Long-term debt (including from VIEs of $0 and $890,
respectively) 1,816 2,691
Liability for guest loyalty program 1,434 1,313
Other long-term liabilities (1) 883 893
Marriott shareholders' equity
Class A Common Stock 5 5
Additional paid-in-capital 2,513 3,644
Retained earnings 3,212 3,286
Treasury stock, at cost (6,463) (5,348)
Accumulated other comprehensive loss (48) (2)
(781) 1,585
$ 5,910 $ 8,983
Source: 10K
Go Back to Appendix – Table of Content 12/16/2012 50

51. Accor’s Balance Sheet: Asset
Source: 10K
Go Back to Appendix – Table of Content 12/16/2012 51

52. Accor’s Balance Sheet: Liability and Equity
Source: 10K
Go Back to Appendix – Table of Content 12/16/2012 52