What started as a single hotel service in India, Oyo has now become one of the world’s largest hotel network brands.
It has stretched out its roots to 800 cities in 80 countries with over 44,000 hotels with over 1.2 million rooms as of 2020.
Do you know how OYO was able to do that? To know more about it, let's get a deep dive into the subject and understand the case.
HISTORY
Oyo is an Indian multinational hospitality chain of leased and franchised hotels, homes, and living spaces founded in 2012 by the Indian entrepreneur Ritesh Agarwal.
The company expanded in several verticals in short-term rental real estate and it managed to build several products and acquire several brands.
Do you think OYO was a FRANCHISE MODEL since it has been launched?
Let’s answer this question by unleashing the old model of OYO Rooms
AGGREGATOR MODEL
At the time of the launch of OYO rooms, the company operated as an aggregator model. The company never purchased the Hotel Rooms, it was doing business on. It used to lease a certain proportion of the hotel’s inventory and then recognize them under the OYO brand. The customers who were willing to make use of the service used the OYO app to book the rooms.
How did the model benefit?
HOTEL OWNERS: It helped the hotel owners to get pre-booking in bulk and not have to put effort to advertise their premises.
CUSTOMERS: They used to get the rooms at a price lower than the normal price of the rooms.
OYO: It got the bulk inventory of hotel rooms at a heavily discounted price and asked the hotel owners to offer a standardized set of services.
But what made OYO make changes to its model of operation:
STANDARDISATION: The brand focuses on offering a uniform set of services but since it was working with non-branded hotels too so level of professionalism was quite low.
HIGH CASH BURN: Since the model was based on pre-booking it required a lot of cash burn to make the bookings in advance.
MALPRACTICES: The hotel owners used to rent the hotel rooms themselves in order to generate huge profits.
Such illicit and inefficient behavior made the company shift its Model to FRANCHISE MODEL.
FRANCHISE MODEL
The Franchise Model is not much different from the Aggregator model but definitely has some level of differences. Now the brand does not lease the Hotel’s inventory but operates the hotels under the Franchise of OYO ROOMS. They have good brand equity and boost the revenue of partner hotels by 100%.
But wait the heading of our blog says the model of operation of OYO ROOMS to be an OCTOPUS model
What does that mean?
OYO has several propositions to offer :
The value propositions of Oyo are its standardization of services to enrich the guest experience. These propositions it has the following services to offer:-
OYO TOWNHOUSE
( It is based upon the needs of millennial travelers)
Smart rooms’ with specially-designed beds, formulated toiletries, power sockets, and TVs with Netflix installed are offered with 24/7 kitchen services. ‘Smart menus’ can be ordered by a mobile application.
The company pointed out this is part of the Business targeting higher-income millennials, with six features that make those Townhouses different from the other products.
OYO HOMES
This model was based on turning the available apartments, bungalows, and villas into usable spaces.
The primary 2 points that OYO addressed in this case are:
Guests: The major concerns of infrastructure quality and residing experience.
Hosts/homeowners: The lack of a trusted partner who will take over the responsibility of maintaining the home.
OYO STUDIO SAYS
Through Studio Stays, people can book rooms for their internships, jobs, or corporate stays. They can rent rooms for either single occupancy or twin sharing. Rents are paid monthly. Commission (take-up rate) is charged by the owners if the customer comes through Oyo rooms.
OYO VACATION HOMES
They are designed by putting in concern customer behavior. The reasons in regards to low booking during a certain season are thoroughly understood in order to enrich the hospitality services being given by OYO. This segment has its main focus on the brands dealing with rental-management services.
OYO FLAGSHIP
Oyo leases whole buildings/apartments for its Oyo Flagship brand. These buildings give a homely atmosphere as well as the comfort of the hotel. Friendly staff, vibrant decorations, theme-based rooms, and building walls with lovely quotations are some of its unique features. The company has started leasing and franchising the hotels where they have full control over the operations of the business.
OYO SILVER KEY
It targets the corporate travel segment and provides executives and corporate clients executive apartments with private, spacious, and multi-utility services. This segment was initiated by the company as it believes that the corporate group is the key factor for its growth.
Weddingz. in
Oyo has also partnered with several banquet hall vendors to allow people to book their wedding venues through its easy booking services and within the best prices. This helps people to make accommodation facilities for their families during the wedding season.
OYO WIZARD
Oyo has introduced a subscription model where wizard members can avail of exclusive discounts, offers, deals, and cash-back advantages. Oyo offers popular packages and hot-selling deals for travelers.
These are the various services OYO offers and believes in their standardization throughout. The process of standardization of the experience starts with what OYO claims to be a 150-point checklist that goes from the booking experience to the support center and the on-ground Cluster Managers, ready to solve any problem it might arise during the experience of guests.
The business model of OYO is a blend of PLATFORM and BRAND with an aggressive expansion strategy focusing on increasing its verticals and reach in the short-term rental estate market.
PLATFORM MODEL
This model generates value through interaction among individuals, groups, and users by leveraging network effects. The organization moves from offering a product to creating an ecosystem for such interactions to take place.
It works the same as Ola and Uber, where the organization does not maintain its product inventory.
KEY ACTIVITY AREAS OF OYO
Platform – Creating, developing and maintaining Oyo’s website and app
Partnership– Partnering with hotels, vendors, event planners, etc.
Business growth – Developing a friendly and promising community to invite friends and attract people to sign up
Communication – Sustain effective communication with hotel partners, vendors, service providers, clients, and customers.
Customer experience – Ensuring the hotel services and maintaining quality.
CONCLUSION
The post implementation financials amazed everyone of us, the impact of this model lifted up the revenue by 4.5 from FY 18 to FY 19. The gross margin went up but loss also increased drastically simultaneously
This expansion strategy, which worked very well assisting the growth, is now backfiring as the pandemic hits on especially business models built on short-term real estate rents.
Due to this reason, as of March 2020, OYO started to cut its expansion strategy drastically, especially in China.
Nevertheless the Octopus Business Strategy i.e. the multi brand strategy played a crucial in transforming and shaping OYO’s success and market leader by assisting in growth and expansion
Comments