Future of Business: OYO Hotels Strategy Analysis and Recommendations
Explore the strategic analysis and recommendations for OYO Hotels, focusing on maintaining the franchise model with unbranded hotels, developing new revenue streams, and targeting the millennial workforce. Key aspects include challenges, future prospects, target segments, and personalized recommendations based on individual profiles.
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Lazaridis Groupe de Consultation Lazaridis Consulting Group The Future of Business
Lazaridis Groupe de Consultation Lazaridis Consulting Group Home
Lazaridis Groupe de Consultation Lazaridis Consulting Group Hotel
RECOMMENDATION TO OYO Strategy Maintain franchise model with unbranded hotels Does it make sense? Is it sustainable? Key Challenges OYO (US) is an attractive job prospect for Jakayla, a talented soon-to-be MBA graduate. What are they? How can OYO overcome them? Develop new revenue streams: branded hotels and multi-sided app (building customer loyalty and marketing) The Future Will OYO succeed in the US? What are its prospects for the future?
OYO HOTELS: THE FUTURE IN THE US CONSULTANT TEAM: TONY DAO, AUDREY GOTTLIEB, JUDY TRAN, SHAHIN SAFAKHOO PRESENTING TO: Jakayla Michel, MBA Candidate
AGENDA I. II. III. IV. V. VI. VII. Contingencies VIII. Closing Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts
OUR RECOMMENDATION TO YOU Based on what we know about you: 21: 29: Territory Operations Leader, OYO Graduated from college Finishing up your MBA Rationale: Can work remotely Save up prior to moving out Potential for growth Will gain broad experience Originally from Washington, D.C. 25 29: Investment banking Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
OYO`S TARGET SEGMENT Meet Zack & Valerie Target Segment: Millennials, global workforce Consumer trends: Less customer loyalty, opting for competitors What do they care about: Points (loyalty program) Environmental impacts Sustainability Budget travellers Works for KPMG Travels for work Artist Enjoys travelling, but on a budget Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
OYO IS MORE THAN JUST A BOOKING SERVICE (Current Strategy) B2B Financial Services: Financing and lending money to hotels that need improvement Management: Supporting hotels to improve procurement, room cleanings and flips, etc. Franchise Model: Helping hotels to fill their occupancy B2C Hotel quality and service: Provides budget travelers with a `clean bed and safe environment` Does the current strategy make sense ? YES. Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
ASSESSMENT OF OYO`S STRATEGY (Current Performance) Not yet profitable, but Company is growing - Hypergrowth Improving Run rate (loss as a % of realized value) was more than halved in one year 44.5 % 20.3 % Clear history of success: China India Entry into US 50 hotels across 35 cities Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
KEY CHALLENGES Low switching costs Customer loyalty Working with branded hotels is cannibalizing sales of un-branded `mom- and-pop` Cannibalizing sales If continued, can compromise future funding Founder is under scrutiny Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
COMPETITION Where does the budget traveler book? Branded Hotels (Direct Bookings) Bookings.com and other booking websites Corporate booking systems (Amex) Budget Hotels (Direct Bookings) AirBnB Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
OYO IN A SNAPSHOT Weaknesses Net loss Criticism of founder Strengths App (10 M downloads & 3-taps-to-buy) Success in China and India Strong investors Opportunities ``Mom-and-pop`` hotels High variability in the customer experience Management processes are not optimized Threats Competition Customer complaints Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
QUESTIONS Strategy Does it make sense? Is it sustainable? Question: Key Challenges What are they? How can OYO overcome them? Is OYO (US) an attractive job prospect for a talented soon-to-be MBA graduate? The Future Will OYO succeed in the US? What are its prospects for the future? Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
PROSPECTS FOR THE FUTURE IN THE US (ALTERNATIVES) Growth Profitability Strengthen brand Enhance marketing to build hotel base: Partnering with budget airline (e.g. Sunwing). Focus on back-end management to support to other hotel chains. Continue to build the franchise model. Make the app more lucrative for OYO: loyalty & multi-sided. Work with branded hotels: Sell surplus hotel rooms. Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
ENHANCE MARKETING (ALTERNATIVES) PROS CONS `Word-of- mouth` is working Strengthen the brand Partner with `budget companies` in the travel and tourism industry (example: Sunwing Airlines) Create excitement around `The Uber of Hotels` Expensive! Social media is cheaper, yet just as effective with Millennials. Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
BACK-END MANAGEMENT SUPPORT TO OTHER HOTELS (NON-OYO) (ALTERNATIVES) PROS CONS Less competitive than hotel industry Many hotels have own systems Full focus on the back-end management support to other hotel chains. Consistent with current expertise Customer acquisition will be expensive Continue to provide back-end management, but don`t leave the B2C hotel booking & B2B franchise model. Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
FRANCHISE MODEL: UNBRANDED HOTELS (ALTERNATIVES) PROS CONS Proof of success in other markets Will require customer acquisition Consistent with current expertise Continue to build the franchise model. Lower investment costs Continuing down this path will be lucrative and consistent with core capabilities. Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
FOCUS ON THE APP (ALTERNATIVES) PROS CONS Builds in switching costs Development costs Make the app more lucrative: (a) multi-sided and (b) loyalty New revenue streams Developing and fully leveraging the app will make use of KEY competitive resource. Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
PARTNERING WITH BRANDED HOTELS (ALTERNATIVES) PROS CONS Potential for cannibalization of unbranded bookings New revenue stream Work with branded hotels: Sell surplus hotel rooms. Large target segment: 71 % of US hotels Unoccupied rooms are costly for hotels Branded hotels will have HIGH incentive to work with us to minimize costs of unoccupied vacancies. Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
PROSPECTS FOR THE FUTURE IN THE US (ALTERNATIVES) Growth/Profitability Feasibility / Ease of Implementation Strengthen brand Enhance marketing to build hotel base: Partnering with budget airline (e.g. Sunwing). Focus on back-end management to support to other hotel chains. Continue to build the franchise model. Make the app more lucrative for OYO: loyalty & multi-sided. Work with branded hotels: Sell surplus hotel rooms. Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
RECOMMENDATION TO OYO Strategy Maintain franchise model with unbranded hotels Does it make sense? Is it sustainable? Question: Key Challenges What are they? How can OYO overcome them? Is OYO (US) an attractive job prospect for a talented soon-to-be MBA graduate? Develop new revenue streams: branded hotels and multi-sided app (building customer loyalty and marketing) The Future Will OYO succeed in the US? What are its prospects for the future? Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
IMPLEMENTATION (2020 TO ONGOING) WHAT? Expand current franchise model with unbranded hotels in the US WHY? Unbranded hotels in the US controlled about 29% of the hotel market Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
EXPAND CURRENT BUSINESS: UNBRANDED HOTELS HOW? WHO? KPIs Hire sales representatives to travel and find unbranded hotels: Year 1 15 sales reps Year 2 20 sales reps Year 3 23 sales reps Offer renovations for unbranded hotels Maintain and update app with new listings and improvements / algorithms HR Director Sales Targets Year 1: 1 hotel per day 3 hotels per day Year 2: 3 hotels per day 4 hotels per day Year 3: 4 hotels per day 5 hotels per year Field Sales Representatives Software Engineers Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
IMPLEMENTATION WHAT? Expand the current franchise model WHY? Branded hotels in the US control about 71% of the hotel market Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
NEW REVENUE STREAM: BRANDED HOTELS HOW? WHO? KPIs Hire new sales representatives to visit corporate offices of branded hotels (e.g., cold calls) Year 1: 5 sales representatives Year 2: 7 sales representatives Year 3: 10 sales representatives Offer branded hotels that have a surplus of rooms at 15% of sales Offer smart contracts through the app and sign agreements with unbranded hotels HR Director Increase in RevPAR (Revenue Per Available Room) Field Sales Representatives Business Development Manager Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
IMPLEMENTATION WHAT? Implement a customer loyalty program and features that support local tourism WHY? Offer complementary products/services and new revenue streams Attract corporate customers and retain current customers Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
EXPAND REVENUE STREAMS: BUILD A CUSTOMER LOYALTY PROGRAM AND CUSTOMER APP HOW? WHO? KPIs Hire US marketing staff / sales representatives to partner with local attractions 10 sales representatives Partner with local attractions (e.g., bars, restaurants, tourist ) by offering marketing on app Consolidate apps from 12 to 2 (one for customers and one for franchisees) Offer a points program for customers who book hotels and attractions through app HR Director 40 partners per city Business Development Manager Software Engineer Territory Operations Leader Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
COST Costs 2020 2021 2022 2023 2024 2025 2026 2027 Total Field sales Reps (Franchise) Franchise Costs Field Sales Rep (New Streams) App consolidation App Maintenance Loyalty Program Costs $46,692,500 $60,925,000 $76,612,500 $76,737,500 $76,893,750 $77,089,063 $77,333,203 $77,638,379 $1,447,500 $1,930,000 $2,292,500 $2,292,500 $2,292,500 $2,292,500 $2,292,500 $2,292,500 $43,800,000 $58,400,000 $73,000,000 $73,000,000 $73,000,000 $73,000,000 $73,000,000 $73,000,000 $395,000 $545,000 $770,000 $770,000 $1,000,000 $50,000 $50,000 $50,000 $50,000 $500,000 $625,000 $770,000 $770,000 $770,000 $770,000 $50,000 $781,250 $50,000 $976,563 $1,220,703 $1,525,879 $50,000 $50,000 Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
REVENUE $700,000,000.00 $600,000,000.00 $500,000,000.00 $400,000,000.00 $300,000,000.00 $200,000,000.00 $100,000,000.00 $0.00 2020 2021 2022 2023 2024 2025 2026 2027 Franchising Revenue Branded Hotels Advertising Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
PLANNING AGAINST CONTINGENCIES CONTINGENCIES LIKELIHOOD RISKS Continue to expand unbranded hotel business and implement a customer loyalty program. Branded hotels do not wish to partner with OYO. Likely Continue to offer minimum guarantee of up to 100% of the asset owner s annual revenue (low risk to OYO). Unbranded US hotels do not wish to adopt franchise model. Unlikely Background / Analysis Problem Alternatives Recommendation Implementation Financial Impacts Contingencies Closing
