OYO Rooms in Blue Ocean – A strategy that is working well!
I checked into a budget hotel and surprisingly everything was fine. When you book in an unbranded hotel, you are mentally prepared for leaky bathrooms, dirty beds, noisy air conditioners, etc.
But this time I booked my hotel room through Oyo Rooms, an aggregator of budget hotels in India. I’m sure you have already heard of Oyo Rooms. Started in 2013, it offers a network of branded budget hotels in India. In a very short span, Oyo Rooms has built a network of 2500+ hotels.
In a matter of 3 weeks I stayed in Oyo Rooms in 3 different cities across India and I can certainly tell you that consistent quality is one thing that stands apart.
As a practitioner of Blue Ocean Strategy, I can see in this success, Value Innovation at work.
Value Innovation is a central concept in Blue Ocean Strategy. Through this concept organizations can unlock immense value to customers and simultaneously reduce the cost to the company. Value is usually attached to tangible things, but in reality, true value to customers need not be something path breaking. For example, by providing valet parking when you visit your bank’s down town branch, the bank can unlock huge value. But valet parking is such a silly and trivial aspect as against bank’s core product features that bank may see it as a distraction rather than value add.
(Above illustrated from Blue Ocean Strategy book)
Oyo brings ‘predictability’ as a key value that is usually missing with budget hospitality sector.
For prices as low as Rs.1000 per night, one gets free wifi, breakfast, flatscreen TVs, spotless white bed linen of a certain thread count, branded toiletries, 6-inch shower heads, a beverage tray, etc.,
Oyo also have room recommendations for solo travelers, couples, business travelers, women, etc.
Most of what you see in 3 star hotels such as fancy lobbies, elegant lounges, superior spa, etc. are often not the reason one chooses such hotels. Instead, basic hygiene, descent environment and predictable service drive customers to such branded hotels. The core to Oyo’s value innovation is to eliminate fancy aspects but retain aspects such as hygiene and predictability.
As a result, Oyo is able to drastically reduce the price per room (in comparison to 3 Star) and simultaneously but disproportionally increase the value to customer.
Oyo unlocks disproportionate business by attracting 3 star customers to trade down while non-star customers trade up to Oyo Rooms. Thus Oyo is capturing the both segment of customers!
To understand this better, let’s look at that strategy canvas, a critical tool of Blue Ocean Strategy used to create value innovation.
Strategy Canvas is one of the simplest, yet most powerful tools of Blue Ocean Strategy to visually identify the factors that any given industry is competing on. It helps to strategize how differentiation can be carved out as against competition. Each factor in the graph that unlocks value to customers is rated in the 10 point scale and compared against competition or industry strategic groups.
Oyo is a evident case of Blue Ocean because in comparison to either the existing star hotels or non-star hotels, Oyo has chosen to differentiate themselves by Eliminating some existing features, Reducing some features, Raising some and simultaneously Creating few new features. Traditionally companies focus on outserving the competition but Blue Ocean advocates differentiation through Elimination, Reduction, Raising and Creating.
I should confess that Oyo Rooms isn’t the first hotel ever to try this. There are many such as Formula1 Hotels, Ginger Hotels, etc. which have attempted to create a differentiation. I should credit Oyo not only for their excellence in execution, but also in striving to find innovative ways to keep the financials intact. For example, Ginger Hotels unsuccessfully tried to target the same segment despite having own/leased properties. On the other hand, Oyo Rooms has positioned itself as an aggregator brand rather than a traditional hotel chain. This has helped them to stay fit on capital and operational costs, and more importantly, ramp up in no time.
In order to create Blue Ocean in your own industry, consider the steps involved in creating Blue Ocean are illustrated in the below image:
(Above illustrated from Blue Ocean Strategy book)
You can learn more about the 6 paths to create exceptional buyer utility here.
Oyo Rooms is already facing the heat of competition of me-too brands. In order to sustain position, Oyo will have to constantly refine its offering to unlock value for customers. For example, I found that none of the 3 Oyo Rooms I stayed in has overnight laundry or iron box on the house. I can’t land up for client meeting in wrinkled outfit J. Similarly none of them have tea bags and kettles in the room and room service didn’t start before 8 AM.
Super imposing the Blue Ocean Strategy and its framework is only an attempt to learn how innovations can become predictable rather than a chance of luck or brilliance of genius. If you are now tickled to create a blue ocean, this article has achieved its purpose and so would I.