1. Blue Ocean Strategy Study Group Project On Yotel
Submitted to:-
Professor Kim Chan and Renee Mauborgne
Preparedby:-
AaniaAlam
AlkaLadha
Charlotte Burgess
CostanzaEufemi
Maanvi Prasad Dutt
AmanChopra
Amit Singh
Antoine Comar
Manish Dadhich
Siddhartha Jain
2. Q1&2.The Name of the focal Company launching the Blue Ocean Strategic
move and the focal Country where it was launched.
We are doing our Blue Ocean
Strategy project on a chain of
hotels called YOtel. It is owned
by YO! Company, a British
company fully owned by
entrepreneur Simon Woodroffe.
YOTEL was created by YO!
Founder Simon Woodroffe OBE
and YOTEL CEO Gerard Greene.
Simon conceived the idea after he
was upgraded into first class on a
British Airways flight. Inspired by this experience he decided to transform the
luxury of airline travel and a touch of Japanese influence into a small but
luxurious cabin.
Gerard spent a lot of time in staying at expensive hotels while traveling and
wanted to do something about it. He met Simon in 2002, secured funds and
pulled together a team to evolve the idea into reality. The first Hotel was
opened in 2007 at London’s Gatwick and Heathrow airports.
The Yotel airport hotels are located inside terminal buildings. They aim at
giving customers an extraordinary experience while they are minutes away from
departure or have just arrived. Check-in and Check-out times are flexible and
customers are charged by the hour.
Airports locations are Gatwick Airport, South Terminal. Heathrow Airport,
Terminal 4 and Amsterdam Airport Schiphol.
In June 2011 YOTEL opened their flagship city centre hotel just two blocks
west of Times Square in New York. Cabins are 30% bigger than the airport
product and come with floor to ceiling windows.
Will guests choose Yotel over other hotels? Will it be sustainable? Will it be
scalable? Will it revolutionize the hotel industry?
It’s too early to answer these questions. However, we chose Yotel as our
project because we felt they are applying Blue Ocean principles in a very
unique way. It’s a hotel that takes its design cues from Airline cabins rather
than hotel rooms, a hotel that hires aircraft designers rather than architects to
design its cabins, a hotel where robots take care of your luggage rather than
humans.
Our group felt that it’s a new age company that is going to revolutionize the
Hotel industry. They created a blue ocean in the highly competitive red ocean of
hospitality industry. Moreover, they are using Blue Ocean concepts on a regular
basis to offer new services to customers to ward off competitors and sustain
their blue ocean.
3. Q3. Describe the red ocean setting prior to the launch of the Blue
Ocean strategic move. For example, growth rate, number of
competitors and intensity of competition, factors the industry was
competing on etc. Please be as concrete and concise as possible. We
should be able to get a real feel for the difficulty of the setting.
Context of the Red Ocean Setting
The red ocean setting underlying our study describes the conditions that
prevailed in the hotel industry prior to the launch of YOtel in 2007.
Snapshot of the Global Hotel Industry
Size of global hotel industry in terms of total revenues in 2007 was $
472 billion1;
Europe and the US accounted for more than 70% of total industry
value;
Both Europe and the US saw a decline in growth with the onset of the
Global Financial Crisis with business and leisure travelers decreasing their
spend on travel and on hotels;
Asia continued to grow in importance as the “growth geography” in
this industry.
Middle
East and % Share of Industry Value
Africa
4%
Asia Pacific America
26% 39%
Europe
31%
Source: DATAMONITOR 360, report on “Global Hotels and Motels”.
Snapshot of the UK Hotel Industry in 2007 – Market Characteristics
and Growth
The graph below and the facts presented below it provide a high level
overview of the market environment before the launch of YOtel in 2007.
UK Hotels & Motels Industry Value in 2007
1
Calculated on the basis of Datamonitor data on Global Hotel Industry, the industry had a compound
growth rate of 3.6% between 2006 and 2010, industry size in 2010 was $ 543.9 billion.
4. Source: DATAMONITOR 360, report on “Global Hotels and Motels”.
The size of the UK hotel industry during 2007 in terms of total
revenues generated was US$20.7 billion (13.4 billion GBP)2;
The UK accounted for approximately 14% of the European hotels
industry value3;
The UK hotel industry grew by a meager 1.2% from 2006-2007
although since then the rate of growth increased such that the period 2006-
2010 saw a CAGR of 2.5%;
The UK hotel industry was broadly classified into 2 segments
o Leisure segment: representing approximately 70% of the total industry
value
o Business segment: representing the remaining 30% of total industry
value
Development of new capacity in 2006-2007 added more fuel to the fire
and increased competition for the customer’s wallet. According to the
British Hospitality Association (BHA), over 140 new hotels opened in 2007
with 64% of those in the budget segment. London saw the most number of
new developments with 19 new hotels totaling 2700 rooms;
Increased investment on refurbishments and re-launches. According to
BHA estimates over 3 Billion GBP were invested in the UK hotel industry
for refurbishments and re-launches. All this was further increasing
competition in an already competitive market;
The UK hotel industry was increasingly characterized by thinner
margins with price based competition along with competition on other
non-price factors;
Industry Analysis
Internal Rivalry
High rivalry in the industry with a few global chains dominating the
market and fighting to grab market share and boost profitability;
2
Source: Data monitor 360. Report on “Global Hotels and Motels”.
3
Source: Data monitor 360. Report on “Global Hotels and Motels”.
5. Reliance on direct sales to try and boost revenues and beat
competition;
Due to negligible switching costs for the customer price based
competition in isolation was no longer a recipe for success. Brand
recognition and innovation increasingly became important to help attract
first-time customers and ensure repeat business;
Increased importance of brand positioning and differentiation.
Emergence of boutique hotels etc.
Buyer Power
Increased rivalry was also driven by an increasingly discerning value
driven customer;
Increased buyer power levels due to negligible switching costs and
price sensitivity of buyers with the exception of the premium segment.
Supplier Power
Suppliers include providers of various goods and services, as well as a
qualified workforce. Due to a high reliance on sophisticated technology and
systems and the growing importance of mobile communication channels,
some suppliers exerted strong supplier power;
The hotel industry is fairly labor intensive and relies a lot on well
trained staff who can provide customers with good levels of service.
However since staff do not exert major supplier power in the absence of
well-defined labor unions;
Overall the supplier power was becoming stronger with the reliance on
3 rd party providers of technology and IT solutions and the increased
importance of mobile communication channels (including digital
marketing).
Threat of New Entrants
Threat of new entrants was low to moderate because of the capital
intensive nature of the business. It would be an expensive proposition to
enter the industry because of the upfront investment in buildings, décor
and furnishings, ICT infrastructure and staff;
The competitive nature of the UK market at the time would have made
it difficult for a new entrant to compete credibly. In order to succeed a new
entrant would really have find a way to distinguish itself from what
currently exists in the market – International chains, budget hotels, bed
and breakfasts etc.
Given the relative saturation of the UK market it would be essential for
a new entrant to grow by grabbing market share from existing players
which is not an easy proposition.
Threat of Substitutes
Low to moderate threat from substitutes. Substitutes to hotels include
alternative forms of leisure accommodation, such as camping facilities or
recreational vehicles, or informal accommodation with friends and family;
Switching costs range from negligible to high (e.g. the purchase price of
a recreational vehicle). While all these substitutes offer the same basic
function of a place to stay, up-market hotels and motels often provide
added benefits, such as spas and restaurants. Additionally, whilst some of
6. these substitutes offer reduced costs to hotels and can undercut the hotels
and motels industry, this switch is often out of necessity rather than choice
so when consumers are in a more generally affluent position, the threat
from substitutes is not likely to be significant.
Key factors the Industry was competing on
Our analysis suggests that the industry at the time was competing on the
following factors:
Price reduction to entice customers
Increased efficiency and room occupancy rates
Branding and brand recognition
Emerging focus on innovation and service differentiation
Location
Increasing use of technology to make it easier for the customer to find,
book and pay for their rooms
Liasion with third party websites such as lastminute.com, expedia,
hotels.com etc to secure customers who urgently need rooms (this also
helps to increase room occupancy rate).
Question 4: Describe how the focal organization/company/government
challenged the conventional assumptions of competing to create a blue
ocean.
Major characteristics of the hotel industry in 2008:
Intense price pressure in the hotel industry. For example in Amsterdam, 5*
hotels were running at the rate of 3* hotel rates. Sheraton Amsterdam even
decided to continue business as a 4* hotel.
Metric of performance measurement: measured against a maximum of
100% occupancy.
Too much focus on increasing efficiency and accuracy while ignoring the
big picture – nobody challenged the competitive boundaries, rather continued to
compete within those boundaries by getting better at it.
Lack of innovation: incumbents and new entrants all followed Standard
Operating Procedures.
Market segmented based on customers’ Willingness To Pay, served by
hotels at different price points ranging from 1* to 5* hotels.
Overnight bookings only especially at airport hotels
Hotels of similar stature, usually at similar price points providing similar
service and with relatively little differentiation.
Airport hotels usually high end, with big rooms and lots of services, that
business travelers staying for a few hours during the flight connections
wouldn’t even need.
How Yotel challenged these conventional assumptions to create Blue
Ocean:
Customer segmentation based on their needs rather than their WTP: They
realized that travelers at airports need short term/overnight accommodation for
a little shut-eye only and these customers can’t even use all the services that 5*
7. hotels provide.
Expanded customer base: Airport hotels are generally 5* hotels which are
very expensive and usually occupied by business travelers only. Yotel, given its
relatively lower price-point appeals to regular middle class travelers as well thus
appealing to a whole class of non-customers.
Product: Yotel, removed all the bells and whistles from the hoteling
business providing only what the customers valued i.e. fast and efficient check-
in and luggage storage; small, yet clean rooms with a TV, reclining beds that
double as a sofa, a pull-down desk and foldable chair – thus cutting down on
space, while increasing the number of rooms for the same area.
Tertiary income: Yotel made drinks and light meals available 24x7. Since
the customers are generally at the hotel for a short period of time, they don’t
need fancy restaurants, but need easily available snacks and drinks even at odd
hours. With its 24x7 café, they have simple food and drinks that suffices the
requirements of the customers, who are virtually trapped since they don’t want
to go to the city during their short stay at the airport, and thus provides for a
substantial revenue source for Yotel.
Challenged 100% occupancy limit: Yotel challenged the overnight stay
concept and broke it down into 4 hour slots (for their airport hotels) which is the
typical time that a commuter wants to book a room for, during his/her transit.
As a result Yotel enjoys over 200% occupancy.
Highly differentiated product both in terms of quality of service and price:
The price point is usually 50% to 70% below a regular 5* airport hotel. Also
there is no hassle of checking in/out, as it is automatic; this efficiency appeals to
business travelers who are often pressed for time. While the quality of service,
especially the services that customers want during their short stay, namely light
snack, drinks, clean room, shower etc are provided 24/7. Therefore their product
has increased the effectiveness of attributes (cleanliness, efficiency) that
customers do value, thus creating a highly differentiated product customized to
the needs of their customers.
Pricing: By removing all the facilities that their target customers don’t need and
can’t use anyway, Yotel has been able to cut down on their costs significantly.
For example services like spa, receptionists, chefs etc. have been
9. 7) Discuss how the strategic move grew demand and drew in new
customers. Discuss who these once noncustomers are. In the charity
industry, for example, it could be a new group of donors like college
students.
VALUE PROPOSITION – FIRST CLASS EXPERIENCE AT AN AFFORDABLE PRICE
For the frequent travelers, particularly those having to brace against odd-houred
flights (such as early in the morning and late at night) or multiple transits,
having to make hotel reservations and arranging for conveyance to and from the
airport is a headache in itself. Additionally, it eats into the limited hours
travelers have, to catch their breath either between flights or during short stays.
Yotel recognized this blue ocean opportunity and positioned itself as the front-
runner in affordable and convenient luxury for travelers.
Price
Yotels offer three cabin types at airports (optimizing space utilization), a
'Standard' bunk style single cabin (can be shared by two), 'Premium' double
cabins and 'Premium' twin cabins. This allows Yotel to price discriminate
depending on cabin type. The rates for the standard cabin are 25 GBP for 4
hours and upward for 55 GBP overnight. The rates for the premium cabin are
40 GBP for 4 hours and upward of 80 GBP overnight.
Quality and Convenience
Yotel offers the luxury of first class travel, in combination with Japanese
minimalist elegance. Leveraging on its partnership with the IFA Hotels and
Resorts, it plays up the theme of affordability effectively by offering
comfortable and new edge functionalities and quality service:
Techno wall with clothes storage, pull down working desk with charging
points, network cable socket and free Wifi and wired internet access;
Mood lighting and luxury bedding to induce relaxation;
Bathroom with luxury fittings including shower, bespoke revitalizing body
wash, hairdryer, and soft towels with a heated mirror;
Flat screen TV system with over 60 free TV stations including Sky Sports
plus on demand blockbuster and classic movies. 80 radio channels plus a
jukebox with over 5,000 music tracks and a headphone jack;
Snacks, club meals and refreshments ordered from the TV system and then
delivered to the cabin or the ability to visit ‘The Galley’ where the cabin crew is
available 24 hours a day.
In addition - the Premium cabins include:
A double bed that deploys to a couch by the touch of button (think first
class private cabins on an aircraft);
Input for MP3/CD player to play music of choice through the TV Speakers.
Being located inside airport terminals (New York, Heathrow, Gatwick, Schipol)
it gives customers the convenience of being minutes away from the check-in
counters and security clearance, without having to take buses or taxis even to
10. shuttle around. The rooms have the flexibility of being rented by the hour,
making the product offering very well suited to transiting travelers. The check-
in and check-out to the hotel rooms is fully automated as well.
Earlier Non customers
Business class ‘corporate customers’ – usually up to a few hours
Business class customers and frequent fliers, who usually book expensive
hotels, often situated at a reasonably far distance from the Airport can now
easily avail services of Yotel cabins. Not only is Yotel conveniently located a
stroll away from the departure, they offer services like Wi-Fi and multi point
boards for easy access to last minute presentations, meeting preparation
material.
Transit Customers
These customers would earlier be sleeping at airport terminals, but now can
avail of these facilities. A comfortable bed to sleep is their basic and only
requirement, which they could avail at the Standard cabin very reasonably
priced and conveniently located.
Travel related to pleasure and entertainment
Younger people who often travel for pleasure and entertainment and often go
back to college or work on an early Monday morning can avail of these
facilities. Shower with favorite music is one feature that would definitely attract
this segment along with an option to have a comfortable sleep.
Business Women & men looking to freshen up etc. for business related
meetings – usually hourly
Very often client meetings are scheduled early mornings and men and women
might need to quickly freshen up to attend these. This might be a good place for
them to book it for an hour and change into fresh clothes or put fresh make up
and make last minute revisions of their presentations.
Q8. Discuss performance consequences of this strategic move.
Given that Yotel do not publish their financial statements, it is difficult to
provide the exact profit and revenue growth that they have experienced since
their launch. In addition to this, they will have invested heavily in their fixed
costs and are continuing to invest in data software and information systems
(Exhibit 1), therefore looking at their NOPAT may not be the best indicator of
their success.
However despite this the concept and design of the cabins have received much
critical and public attention. From a design and hotel industry perspective, in
2011 alone they received Boutique Design Awards, Gold Key Awards for
excellence in hospitality design, Award for most innovative concept at the
Worldwide Hospitality Awards, as well as two Travel Weekly Magellan
Awards. In 2009 Yotel won the winner for Business Accommodation from the
Business Travel World Awards and further to this they have won awards
celebrating their design and innovation every year since their launch.
11. In terms of publicity, the concept has generated as much press as it has
collected awards. It has been dubbed ‘The iPod of the hotel industry’ and the
Awards have been well documented in the press. However it is really since the
launch of their fourth hotel in New York that the interest has gained breadth
further than the concept and design of the cabins. With 669 cabins, it is Yotel’s
first opening outside of the international airport locations, and it is also the
largest hotel opening in New York in 2011. The press articles that ensue focus
on the loyalty program they have started with their New York branch and the
Sound Architects and Artists they have partnered with. It is difficult to quantify
the value of this free publicity, however it is all compounded by the strength of
the Yo! Brand.
To gauge an idea of the social publicity they are gathering online, the online
tool Specify helps to aggregate all the conversations that are happening on
twitter, YouTube, Flickr, etcetera to give a flavor of what is being said about
the hotel chain.
http://www.spezify.com/#/yotel
Exhibits
Exhibit 1:
YOTEL selects MICROS's CRS and OPERA Enterprise Solution
News NewsWire published by MarketLine on 08 November 2011
MICROS Systems, Inc, a provider of information technology solutions for the
hospitality and retail industries, has announced that YOTEL, a progressive hotel
concept based in the UK, has selected MICROS's myfidelio.net Central
Reservation System, or CRS, and OPERA Enterprise Solution for its new
location in Times Square, New York.
The new YOTEL New York Times Square was designed to be transformable
with convertible spaces that possess a warm, futuristic, and technology savvy
feel. To manage this new property, YOTEL has implemented a MICROS
solution including myfidelio.net CRS to manage hotel distribution on GDS,
MICROS Channel Manager for direct 2-way interface with major Online Travel
Agencies and with OPERA Kiosk module to allow for guest self-check-in and
check-out. With MICROS's cloud-based distribution product, myfidelio.net,
YOTEL can control cabin inventories, rates, reservations, and guest profiles
from one single point with capabilities for real-time changes that publish
directly to sales channels, the company said. "MICROS has provided the
ideal solution to addresses all of our technology requirements and to streamline
our operations," stated, HanifJivraj, Director of Revenue Management, YOTEL
New York. "Our customers are active, on-the-move travelers and MICROS has
provided a complete solution that serves to elevate the guest experience from
the time a reservation is made, to guest check-in via the front desk or OPERA
Kiosk, and throughout the check out process."
