Business Policy Strategy

Assignment-2

Chirag vinayak 6A Evening

00421401717
BBA- 308

OYO ROOMS CASE STUDY

 Background of the Company & its founding

Oyo Rooms (stylised as OYO), also known as Oyo Homes & Hotels, is an Indian hotel chain. It
is one of the largest and fastest-growing hospitality chain of leased and franchised hotels, homes
and living spaces. Founded in 2013 by Ritesh Agarwal, OYO initially consisted mainly of budget
hotels. The startup expanded globally with thousands of hotels, vacation homes and millions of
rooms in hundreds of cities in India, Malaysia, UAE, Nepal, China, Brazil, Mexico, UK,
Philippines, Japan, Saudi Arabia, Sri Lanka, Indonesia, Vietnam, the United States and more.
The company's investors include SoftBank Group, Greenoaks Capital, Sequoia India, Lightspeed
India, Hero Enterprise, Airbnb and China Lodging Group.

In 2012, Ritesh Agarwal launched Oravel Stays to enable listing and booking of budget
accommodations. After undertaking months of research and staying in various bed and
breakfast homes, guest houses, and small hotels across India, he pivoted Oravel to OYO in 2013.

OYO partners with hotels to give similar guest experience across cities. Shortly after launching
Oravel Stays, Ritesh Agarwal received a grant of $100,000 as part of the Thiel
Fellowship from Peter Thiel. OYO currently has over 17,000 employees globally, of which
approximately 8000 are in India and South Asia. OYO Hotels & Homes now identifies as a full-
fledged hotel chain that leases and franchises assets. The company claims to invest in
capex, GMs to oversee operations and customer experience as well as generating around a
million job opportunities in India and South Asia alone. OYO has also set up 26 training
institutes for hospitality enthusiasts across India.

The company is currently valued at $10 billion as per the last round of funding.

September 2018 – raised $1 billion, of which the RoC filing for the amount of $100 million
raised from Star Virtue Investment Ltd. was made on 13 February 2019.

October 2019 – Series F funding of $1.5 billion led by SoftBank Group, Lightspeed Venture
Partners and Sequoia India.

Founder & CEO, Ritesh Agarwal, through RA Hospitality Holdings (Cayman) in 2019 signed a
$2 billion primary and secondary management investment round, supported by global
institutional banks and his financial partners, subject to regulatory and shareholder approvals.
Lightspeed Venture Partners, and Sequoia India, OYO's early supporters, are selling part of their
holdings in order to help the founder increase his stake and thereby commitment while remaining
invested significantly in the company's long-term mission.

 Marketing Strategy Adopted by the Company

Marketing Mix of Oyo Rooms analyses the brand/company which covers 4Ps (Product, Price,
Place, Promotion) and explains the Oyo Rooms marketing strategy.

Product:

The product strategy and mix in Oyo Rooms marketing strategy can be explained as follows:

Oyo Rooms is one of the most popular hotel booking online brands in India. Oyo works on a
different scale in comparison to other online room booking sites or online travel agents. Oyo
Rooms work methodology is simple that they pitch the hotels available in different location to
the customers and on booking they take a commission fee as their income. Many times they also
do one thing that they book a few rooms of a hotel every month according to consumer request
and then they even rent these rooms to consumers at a lower rate at which they themselves has
taken from the hotel. This deal attracts consumers and make their trip way more comfortable at a
low cost. Their service of giving rooms to unmarried couples without any hassle also attracts
youngsters to a big deal. It takes only 5-6 days for Oyo to make up a deal with a hotel after
analyzing all of their services. As a comfortable service is one of their prime motto so Oyo
Rooms have also made up a special team which keep on visiting hotels in a fixed duration to
make sure that all the services are available as stated. This gives an insight in the product &
service offering in its marketing mix.

Price:

Below is the pricing strategy in Oyo Rooms marketing strategy:

Oyo Room’s strategy is to attract customers with a lower room price in comparison to the base
price of the hotel. The main goal is to offer at an unmatched price and which matches with the
budget of user. Their room price varies from Rs. 999 to Rs. 4000 depending on the location and
luxury of hotel. Due to this discount strategy many a times Oyo turns out to be at a major loss
which is then backed by different investors like Softbank group. Overall Oyo rooms are
following a very sensible strategy which aims to provide rooms at a moderate rate with awesome
services and generate loyalty from customers.

Place:

Following is the distribution strategy of Oyo Rooms:

Oyo rooms started from a single hotel in Gurgaon and now has extended its empire in all the
parts of country along with going beyond the seas in Malaysia and Nepal. Oyo rooms works
totally online, either with an app or through online sites you can go through the available hotels
with their estimated price. You can book it online with a confirmation and then you can avail the
services on reaching the booked hotel on specific date.

So Oyo’s total delivery system is online whether it is booking, complaint or feedback and its
online system is totally user friendly.

Promotion:

The promotional and advertising strategy in the Oyo Rooms marketing strategy is as follows:

Oyo prefers to promote completely through different social media sites like Facebook, Twitter
etc. Oyo uses digital platform to attract new customers with its unique services and lower prices.
Also retain loyal customers by coming up with new discount policies further on the low prices.
Oyo has also conducted various online campaigns like #Aurkyachaiye which we can see on
different other social media sites. Many of these campaigns also included Bollywood artist to
make them appear more attractive. One of the most recent campaign is “One for everyone”
which comprises of short 8 movies where customers are showing their own satisfaction with Oyo
services.

Since this is a service marketing brand, here are the other three Ps to make it the 7Ps marketing
mix of Oyo Rooms.

People:

Oyo team comprises of young and energetic people who wants to deliver maximum both for the
company and individual growth. With the dynamic team Oyo also provides a very friendly
working environment which helps in the employees work according to their convenience, come
up with new innovations and work beyond their strengths. Even the leaders of Oyo are two
youngsters who were driven by the need to create a change in the hospitability industry of India.

Process:

Oyo helps the users to search the hotels according to the location and price. It acts as an
intermediate between the hotels and the users and on booking collect their commission fees as
their income. The services provided by the hotel is not in the hands of Oyo but they help users in
picking hotels according to their convenience.

Physical Evidence:

Oyo provides a confirmation mail to the users registered email id on booking any room and also
send them a confirmation message on their mobile number which ensures their payment and
booking of hotel. This message or email is used to show your room confirmation while check in
the respective hotel. Hence, this completes the marketing mix of Oyo Rooms.

 Business/ Revenue Model of OYO

Oyo Rooms business model was similar to the usual aggregator business model (Uber for x
business model) but had the essence of the franchise business model as well. The company used
to –
1. Lease a part of Hotel’s inventory beforehand,
2. Organize those hotel rooms under their brand name – Oyo Rooms
3. These partner hotels provided standardized service to customers of those rooms as it was
decided in a contract with Oyo
4. Bookings were made through the Oyo Rooms website and mobile application.
The current operating model of Oyo Rooms is similar to what it was before. It’s just the
company doesn’t lease the hotel rooms anymore, but ask the hotel partners to operate them as
franchise. They have good brand equity and boasts a 100% increase in revenue to their partner
hotels.

Oyo Rooms, started and famous as branded hotel rooms aggregator, provides many more
services than just hotel rooms to visitors.

Revenue Model of Oyo Rooms

Earlier the brand used to lease hotels at a predetermined price and offered them to the users at
a take-up rate. This has been changed to a commission-based revenue model.
Oyo rooms charges a commission of 22% from its hotel partners. However, this commission
does vary according to the services provided by the brand.

 Expansion Plans

Oyo Hotels & Homes, the young and rapidly expanding India-based hotel startup, has announced
plans to invest $300 million into increasing the company’s footprint in its “newest home market”
of the U.S. The growth will be driven by two of the company’s budget hotel brands, Oyo Hotels
and Oyo Townhouse, it said. The expansion will focus on Oyo’s under-penetrated markets such
as New York, Los Angeles, and San Francisco. Oyo currently offers more than 50 hotels in 35
cities across the U.S., including Atlanta, Miami, and Dallas, where it recently opened a U.S.
headquarters in February. Oyo has racked up the venture capital dollars since its founding back
in 2013, totaling $1.7 billion, according to Crunchbase. In September the hotel chain raised $1
billion from top investors SoftBank Vision Fund and Sequoia Capital, among others, to help fund
expansion into China. The chain earlier this year doubled down on its expansion plans in Asia by
committing $200 million towards eclipsing 25,000 hotels in the region.

Agarwal believes his company will be the largest hotel chain in the world by 2023, already
sporting 23,000 hotels and 46,000 vacation homes in 74 countries to date. The company’s
“global stayed room nights,” or yearly customers, skyrocketed from 6 million guests in 2016 to
75 million guests at the end of last year.

 Results Achieved

 Revenue as per consolidated financial statements increased from INR 120 cr to

INR 416 cr, which is a 3.5X  growth in FY 2017-18. Revenue for FY 2018-19 is
trending at INR 1,481 cr with a 3.5X increase.
 Realized value (net off cancellations)  trending at INR 4,921 cr for FY 2018-19. 
 Margin expansion and high degree of operating leverage in the business model has
resulted in, losses as a % of total realized value (net of cancellations) coming down
from 44.5% in FY 2016-17 to 20.3% in FY 2017-18 and is trending at 10.4% in FY
2018-19. The robust business model with limited marketing spend generates double-
digit positive contribution margins. OYO continues to invest in technology and to
build long term capabilities while getting on-board, the top talent in the country.
 Majority of oyo’s demand is repeat with word of mouth customers accounting for
93% of revenues in Q4 2018 (Oct-Dec) and hence ensuring lower marketing spends.  
 Centralised operations have led to >2.5x staff efficiencies with OTHs having the
lowest staff to room ratio of 0.31 vs 0.85 and 0.87 for comparable chains.
 OTHs also have industry leading turnaround time – they are 2x faster than
comparable peers.
 3x growth velocity achieved by adding more rooms as compared to peers.
 Significantly higher Gross operating profit per available room of INR 3,700 vs INR
900 and INR 2,800 for two comparable chains.
 OTHs see 95%+ demand from direct channels with low dependency on OTA of 5-
10% vs 30-35% for comparable chains.
To summarise, globally Oyo has grown their stayed room nights by 5.7x from 13m in December
2017 to 75m in December 2018 (99m as per December 2018 peak) with Realised value also
increasing by 4.5x from $0.4B to $ 1.8B on y-o-y basis (annualised per December run rate).
From a financial year perspective, Oyo’s revenue increased by 3.5x to Rs 416cr for India
operations in FY 2017-18. Oyo significantly reduced their losses from 44.5% in FY2016-17
to 20.3% in FY 2017-18 for India operations through 54.3% economics improvement.

Even after a successful year, there is immense room for growth. There are more than 6 million
hotel and guest house rooms in the Indian subcontinent, 45 million in China and 158 million
globally. A huge white space exists in the economy segment to renovate and have the living
spaces arranged by leasing or franchising by us.

In FY19, OYO Hotels & Homes India business is on track to register revenue growth of 3.5x on
a year-on-year basis while improving economics  further, all while continuing to be hotel chain
of choice.