Distribution Channel on Oyo Rooms
Distribution Channel on Oyo Rooms...
Distribution Channel On
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OYO Rooms is India’s fastest growing branded network of budget hotels founded by young entrepreneur Mr. Ritesh Agarwal on 2013. Within a short span of time, OYO Rooms currently operating in more than 100 Indian cities including Delhi, Gurgaon, Mumbai, Bangalore, Hyderabad, Goa, Chennai, Kolkata are few to name. Similarly, OYO has been trying to be present in major Metros, Regional hubs, leisure destinations and pilgrimage towns. Hotel owners who partner with OYO Rooms are connected via world’s first tablet based property management App and become part of the OYO brand.
Vision: To change the way people stay away from home. Technology Driven OYO uses technology to link all its functions and provide the customer a seamless awesome experience.
Business Model of OYO Rooms Oyo Rooms Business Model, though a lot similar to the usual aggregator business model (Uber for x business model), is different from it. Oyo Rooms – Books a part of Hotel’s inventory beforehand, Organize those hotel rooms under their brand name – Oyo Rooms
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These partner hotels provide standardized service to customers of those rooms as decided in a contract with Oyo. Bookings are made through the Oyo Rooms website and mobile application.
How Oyo Rooms Work Oyo rooms is the largest branded network of hotels currently operating in India and Malaysia. Oyo is a hotel aggregator with a business model similar to that of Uber (Aggregator business model). This Aggregator business model has certain characteristics. The firm organises the unorganised businesses operating under the same domain, make them work as their partners by signing of a contract, and sell their products under its own brand. The main focus, in these type of business models, is on quality of the service provided. Hence, to maintain the name, they make the partners provide services at predetermined standards while they make them more visible to their user-base. Oyo Rooms Business Model is a hotel aggregator model. The services are bought by the users under the name of Oyo rooms and not any individual partner (like in Make My Trip business model). Just like uber, Oyo provides rooms with standardized quality and price. Business Model of Oyo Rooms is different from AirBnB’s business model as Oyo doesn’t focus just on discoverability of the partners among the users but also on the standardized quality of the services provided. Page | 2
Aggregator Business Model, What is it and how does it operate? Aggregator Business Model is a network model where the firm collects the information about particular good/service providers, make the providers their partners, and sell their services under its own brand. Since aggregator is a brand, they have to provide services which has a uniform quality and price. This is done through signing up a contract with the partners. The good/service providers never become aggregator’s employees and continue to be the owners of the good/service provided. Aggregator just help them in marketing in a unique and a win-win way.
Who Are the Customers? The Users. Unlike usual Aggregator Business Model where a commission is charged from the partners for providing them with customers. Oyo earns through a take up rate. That is, they hire a part of hotel’s inventory for a month or a specified time period, at a specified price and offer those rooms to the visitors of its website/application at different set prices.
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Characteristics of Aggregators Customers The ultimate users of the good/service are not the customers of the aggregator. The providers of the good/service are.
1. Industry All the service providers are from the same industry. Aggregators collect the good/service providers of a single industry and organize them under his own brand. Like Uber in taxis, FoodPanda in food delivery, Oyo in hotels, etc
2. Partnership Model
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The good/service providers are not the employees of the aggregator. They act as partners to the business. Partners always have the freedom to accept or to reject the offer provided by the aggregator (these terms are clarified in the contract).
3. Brand Aggregators spend most of their revenue in building up a brand. This brand have certain notable features like – quality, price band, on demand delivery, etc. All the goods/services are provided under a single brand but by different providers. Branding is done at every customer touch point to have a recall value.
4. Quality The aggregator strives to provide a standardized quality to every user. They make sure that the partners provide you the standardized quality product/service. These aggregators have teams that make sure quality is maintained.
5. Contract A contract is signed between the aggregator and the goods/service provider where all the terms are cleared. The terms provide a win-win situation for both the parties where the partners focus on providing quality product/service to the customers and the aggregator focus on marketing and creating more leads for the partners.
Aggregator Revenue Model As already stated above, the good/service providers are the real customers of the aggregators. •
Aggregators provide them with the customers and in return charge some
commission. (Uber Business Model), or
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The partners quote the minimum price at which they’ll operate and the
aggregators, after adding up the take up rate, quote the final price to the consumer. (Oyo Business Model) This method isn’t always in operation. The revenue generation is different for different business stage, cycle, and season. There is a big role of discounts and surge pricing in determining the total revenue generation by the aggregators.
Pricing Aggregators are different from a marketplace (like Amazon, Alibaba, Flipkart, etc.). They provide different services for different but definite prices (or price bands). For E.g. UberX has a definite price per kilometer.
Competition Competition in aggregator business model is tough to handle as same partners might work for competitors.
How Does Aggregator Business Model Work?
Aggregator visits the Good/service providers. Aggregator shows them the model (more customers). Service providers are now the partners. Page | 6
Aggregator builds up his own brand. Brand attracts the customers. Brand also provide offers. This results in customers to the partners Promises fulfilled. Aggregator gets the commission.
Revenue Model of Oyo Rooms Oyo Rooms books a part of the hotels’ inventory (expense). These rooms are put to match the standardized quality like free WiFi, clean toilets, etc. (Expense) These Rooms are offered to the customers at Oyo Rooms Website/Application Users buy these from Oyo Rooms at a predetermined price. (Revenue)
Oyo is currently in its introduction stage in many cities (and in growth stage in others) and it has to provide (and has being providing) heavy discounts to the customers.
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These discounts often result in prices which are even less than the cost price of these hotel rooms and hence result in losses to Oyo rooms. The expenses also include the heavy expenses on promotional activities to increase the brand equity among the users as well as the remuneration of the employees.
OYO Rooms Expenses Employees – 2,200 Salaries @ 25,000 per employee per month - 3 crore per month Hotels – 6,500 Rooms (considering an average of 5 per hotel, half of OYO’s claim) – 88,500 Inventory Cost – 67.5 Crore per month Total Expense – 70.5 Crore per month (excluding advertising, marketing and other OPEX) How is OYO Rooms able to use its own branding at these hotels if they don’t own any property?
You have to understand how these 0 to 2 star hotel owners operate. In most cases, they have other primary businesses and the hotels are simply used as a tool to show losses. Many of them don’t bother to see regularly if their hotel is doing any business at all, let’s forget about profitability. So, they are not interested in any marketing or customer service themselves as much as it is generally required from a hospitality business. But, they wouldn’t mind if some free money is going to come from somewhere if they don’t have to move a muscle to get that, would they?
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Growth of OYO Rooms
OYO Rooms started with one city and one hotel (OYO Rooms Huda City Centre) in Gurgaon in May 2013 and has seen a tremendous growth. With whopping budget hotels under its branded network across the India, OYO Rooms‘growth has been nothing short of phenomenal, and the rapid expansion has meant that the funded start-up now owns India’s largest branded network of hotels. The company as of August 2015 has more than 2000 hotels with more than 20000 room capacity spread over 100 cities of India. Moreover, the company has planned to add more than 50 cities by the end of 2015. Now, OYO Rooms has been named India's largest budget hotel chain. Continuing with its rapid expansion drive, OYO Rooms today crossed an important milestone as it became India’s largest budget hotel chain. Backed by the funding from various sources and strong consumer partners, OYO Rooms also has set itself a revised target to expand its network. Ritesh Agarwal, Founder and CEO of OYO Rooms are quite hopeful that India’s budget hospitality market is ripe for disruption and as the market leader; OYO is best poised to lead this change. Strong customers’ feedback and loyalty encourages the company to redouble its growth efforts to bring the OYO experience to as many Indian travelers in as many different cities as possible and at the earliest.
As a leader, OYO Rooms has created a new paradigm in the hospitality sector through an asset-light managed marketplace model. This innovation coupled with sound execution has been recognized by several national and international accolades including TIE Lumis Business Excellence Awards, India International Travel Mart Page | 9
Award and Lufthansa ET Now Runway to Success Award. Now the company has more than 1000 employees including 10-20 people from IIMs, more than 200 people from IITs, HBS and Ivy.
Detail of OYO Rooms’ Properties
Number of Property (Hotels)
3 Properties 13 Properties
2014 July 2015 August
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Redefining OYO Rooms through Technology
In a highly customer facing hospitality industry, for OYO Rooms the first focus was on creating a highly efficient hotel booking app for the customers. In the beginning of May this year, the company came up with an app that allowed hotel bookings to be done within 2 steps. When you open the app put in your search query, the app gives you all the required information about the hotels near you. All your profile information is already stored inside the app. All you need to do is to click on the book button to make your bookings. The company has thus reduced the hotel booking activity to a 2 step process when you put in your search query. Through the app the company has tried to provide a seamless way to access and manage your bookings ! Behind the scenes of creating a 2 steps booking app is a lot of effort put into hotel standardization. To make the user comfortable to book a hotel without having to worry about hotel reviews requires a lot of trust to be created about the hotel Page | 11
aggregator. OYO Rooms has an intensive standardization process setup in which the their sales forces visits every hotel to collect data and pictures and to filter out only those hotels that OYO Rooms trusts to provide good services to their customers. In order to make sure that the process of hotel standardization is handled in the same way in 90+ hotels and has over 1500+ rooms that the company works with, OYO Rooms has also come up with an app for the standardization process. Sales reps across cities are given tablets which have an app that provides parameters on which the hotel can be evaluated. The sales reps when at the hotel make sure that all the checklist is checked for as a part of hotel standardization process, pictures and customer reviews are recorded as a part of this process. Customer reviews have a lot of weight assigned when evaluating a particular hotel. Coming up with such an app has immensely helped the company to set up stricter quality checks across all the cities that they exist in today. India is surely going digital slowly and steadily but there are still certain hotels who do not maintain a digital inventory. This was hampering the efficiency of results that OYO Rooms could provide their customers and the company therefore has come up with a tablet app for hotel owners that allows them to maintain room status, room service requests etc through the tablet. The tablets are installed by OYO Rooms at hotel locations. This not only gives the hotel owners a better idea of their own inventory but also gives OYO Rooms better visibility and data about the hotel. The basis for creating these apps has come from the experience that the company has managed to gather over the years and personal experience that the founder and the management team have had staying at various hotels.To put himself in the shoes of his customers, Ritesh Agarwal, Founder & CEO-OYO Rooms, stays in a OYO Rooms Hotels very frequently. One of the main problem that Ritesh came Page | 12
across was the customer experience that was being provided by the budget hotels. Simple things such as the number for calling rooms service was not available in the hotel rooms. The company has now therefore come up with a solution to put up a tablet in each room in some of the OYO Rooms Hotels. Customers can now order room service directly via the app. Other information such as directory of various numbers inside the hotel as well as list of restaurants and places to visit around the hotel are also provided in the app. This is the first time in India that such services are being provided in budget hotels.
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