Ntadbm final report

New Technology Application and Design of Business Model IIM A – NID Joint Course June – August 2014

ReverseBid Tailored Bidding for Customers

By Arnab Chowdhury | Anshul Bansal | Jyoti Narayan | PrachiBhagane

TABLE OF CONTENTS The Purpose of the App

3

Problem

3

Solution

3

User Scenarios

4

Competition for the App in the Market

4

User Interface of the App

6

Interface Picture

6

Unique Features of Reverse Bid

8

Business Model

9

Lean Canvas Framework

9

Reverse Bid through Lean Canvas Framework

10

Problem

10

Solution

10

Customer Segment

11

Unique Value Proposition

11

Unfair Advantage

12

Channels

12

Revenue Streams

12

Cost Structure

13

Key Metrics

13

Financial Analysis Profit and Loss Statement

14 16

2

The Purpose of This App Reverse Bid provides affordable accommodation solution for a last minute traveler by means of bidding. It also helps hotels to make money by utilizing their inventory which would go unused otherwise.

Problem "Travellers from Asia are most likely to book their accommodation relatively last minute, with 23% of Asian and Indian travellers booking up to two weeks before their trip. In India, nearly six out of ten i.e. 57% book up to three weeks to 2 months before their trip,'' said the TripAdvisor survey.

It is always been an issue for a last minute traveler to book an accommodation which is good and as per his budget. Mostly one either doesn’t know how good the hotel is or he ends up paying more money for booking at the last moment.

According to the Federation of Hotels & Restaurant Associations of India (FHRAI), average hotel occupancy in 2012-13 dropped to the lowest in a decade at 58.3 per cent and average room rate fell to `6,214, the lowest in six years. Downturn has hit the Indian hospitality sector, dragging occupancy and daily room rates down.

In case of hotels, service provided is perishable and if not used for the day, it is a loss for them.

Solution Solution proposed is an application for reverse bidding where hotels/ service providers like tours and travels and event organizers bid against the price quoted by the customer.

The application will consists of information about the hotels i.e. services provided, rates and the user rating and reviews in a particular location. Customer who is looking for the accommodation at the last minute is supposed to open the application and post his requirement and the rate according to his budget. The information is sent to the hotels and after that hotels bid for lowest price.

It is consumer’s decision to accept the bid or he can bid again. He can bid any number of times in the given time of one hour.

Salient features of the app:

3

1. The application gives the rating and the information about the services provided by the hotels 2. The application provides cheapest accommodation solution for the customer 3. It helps hotels/ service providers to make money by using their perishable inventory.

Hence the application provides a win- win situation for both- customer and the service provider.

User Scenarios Scenario 1: Only one day before, Rajat decides to travel to Kolkata for her job interview. The city is totally new for him and he looks for a good hotel for stay with the rates in her budget. Reverse Bid is the solution for him where he can book his accommodation according to his requirement and based on user rating which is also in his budget.

Scenario 2: Naina and her friend decide to go to a classical dance program. The program is scheduled after three hours and Naina wants to book tickets. Reverse Bid can help her to book the show on last minute. She can also get the tickets at the low rates.

Scenario 3: Owner of hotel Holiday finds that now days the occupancy rate of his hotel rooms is lowering and he is ready to rent the room is lower rate in order to make some revenue instead of losing the business by keeping rooms vacant. Reverse bid helps such service providers to generate revenue on their perishable inventory.

Competition for the app in the Market No such application exists in Indian market. So there is a first mover advantage. Though there are 2-3 websites which provide similar kind of facility.

4

Find My Stay

Find My Stay is a website which negotiates best price with the hotel on your behalf.

Here customer quotes price for one time and Find My Stay finds the hotel within his budget.

Bid2Travel

In case of Bid2Travel, customers submit their bid and hotels have an option to accept or reject it.

Comparison of our app with competitors Find My Stay

Bid2Travel

Reverse Bid

App

No

No

Yes

Website

Yes

Yes

No

Bidder

Customer/ user

Customer/ user

Service Provider

Time limit

Yes – 48 hrs to book

No

Yes- 2 Hrs

5

Service providers

Hotels

Hotels

Hotels, tours and travels, City Events

Bidding

Once

Once

No limit

ReverseBid is the only app available in the market which makes service provider to bid and having no limits on no of biddings within the given time limit.

User Interface of the App The very simple user interface has only 6-7 screens. The user has to select the requirement and quote the rate. Then the hotels will start bidding and it’s up to the consumer to accept or reject the deal. He can bid any number of times within the given time limit. The interface provides all the information about the hotels, past booking history and the current bid status. Once the booking is done, consumer will get the message from service provider.

Interface Pictures

6

7

Unique features of ReverseBid •

Extremely easy to use [ The entire app will transition between 6-7 screens ]

•

Robust system integrated with SMS messaging

•

More than 50% of the inventory of the particular service will be on the app before launching

•

App will be present on all platforms

•

Limited bidding window of 2 hours for the hotels; Unlimited bids can be made in this period

•

Blind bidding. All the service providers will only be able to see the lowest bid. Customer will be able to see all the bids

•

A loyalty program to be instituted in the later stages

•

Customer will be able to view all details (images, reviews etc) of the bidding service providers before making its final choice

Backend, if possible, to be integrated with hotel systems [Tentative]

8

Business Model Reverse Bid is a completely new model of conducting the online travel agency (OTAs) business in the Indian context. Generally, OTA’s have a website where the hotels continuously update their inventory. The customers come, have a look at the existing inventory and out of those existing options, book their best choice. In this model however, the customer posts his requirements and then hotels respond with the prices for their remaining inventory. With an element of time pressures, hotels offer discounted prices and the travelers can use that to book their appropriate choice. We can look at the elements of this business model in more detail through the lean canvas framework.

Lean Canvas Framework Lean Canvas is a business tool used by concerned parties to communicate their business model with internal and external stakeholders. It uses a robust, yet succinct framework to lay out all the critical elements of a business plan. It also helps in visualizing the business and seeing the weak points / strong points in front of it. It breaks down the entire business model in eight questions which need to be answered in the order given below a. Problem– What problem is the business trying to address? b. Solution – What is the solution that is proposed to the identified problem? c. Customer Segments –Who are the customers we will be trying to serve through this business? d. Unique Value Proposition –What is unique about our business idea? How does this differentiate us from other competitors in the market? e. Unfair Advantage –What is the unfair advantage which we can have currently over our customers? How will this provide with a moat against competitors f. Channels –What are the channels through which our product / service will be sold? g. Revenue Streams –The sources of revenue for the business

9

h. Cost Structure –The splitting of the costs among the various elements of the business and how they will affect the profitability i.

Key Metrics –The key metrics which will be tracked by our business to see if it is on track to meet its goals

We will look at our business through the prism of the lean canvas model and then follow up with a financial analysis of the business.

Reverse Bid through the Lean Canvas Framework a. Problem Our app is basically trying to address three problems 1. Last travelers / consumers have to pay higher prices for goods / services in spite of their being ample supply for meeting their demands 2. Service providers who provide inventory which is perishable with time often end up losing large revenue due to failure to sell all of it 3. Service providers find it difficult to sell to different customers at different prices (theory of price discrimination) without inviting the outrage of the public.

All these issues have the net effect of reducing the seller’s profit and increasing the cost of purchase for the buyer. The seller’s profit decreases because inventory which could have sold at marked down prices is allowed to be unsold due to the fear of repercussions on the normal business. The buyer’s cost increases as the seller is unwilling to sell at lower prices in spite of the available inventory b. Solution Our solution is an app where hotels can discreetly sell their inventory at last moments.

The best way to understand the solution is to have a rundown of a scenario in which this app will be useful. The app will work in this manner:1. A person who late at night needs a hotel room will post his requirements on the app.

10

2. The app will simultaneously channel the requirements to a number of hotels. These hotels will respond with the rooms available and the price they are willing to charge for them. The hotels will have to bid within a fixed time period 3. The customer can either accept any of these bids or reject them The reason why this approach will work is that the hotels will be bidding at the end of the day, when they will be sure that the rooms not sold will not be sold at all. In such a scenario, selling at marked down prices makes much more sense for them than not selling at all. The fear that selling at lower prices will affect their image/normal business will also not be there as prices will explicitly sent to only those people who ask for it c. Customer Segments We are looking to target two customer segments primarily 1. Last minutes travelers/consumers who are looking to buy a product/service immediately 2. People who have highly flexible plans and are looking for a bargain by waiting till the last moment These customer segments have been chosen as they have the pain points which we can address through our app d. Unique Value Proposition Although the app is unique by the fact that it is the only product of its kind in the market, it will continue to have certain unique propositions even if competitors crop up in this space. The unique value propositions intended to build in the app are:1. Best selection of service providers (Ex. Hotels for the hotel app) on its platform. This means that the app covers all the regions and has options in all price ranges for the customers 2. The process will be extremely rapid with the outcome being decided in a short period from the initiation of the request. This will build pressure on both the service provider and consumers to make reasonable requests of the other party

11

3. Critical mass of users – Since competition will take time to replicate, our app will have a critical mass of users. Since bidding from hotels is a time intensive process, they will not have bandwidth to be active on a number of platforms. Hence, critical mass will help us attract them to our platform These unique propositions are expected to strengthen our time e. Unfair Advantage The unfair advantage we have is that of being the first mover in this market with a win win proposition for all stakeholders. Since we are the first movers, we will get a critical mass in terms of both service providers and consumers, thus making it difficult for other competitors to compete. This is very similar to a social network or a job search site. The more the number of people on these site, the more incentive there is for other people to join, resulting in a virtuous circle which is difficult to break. f. Channels This service to last minute service seekers will be provided through three channels 1. Mobile [All Platforms] – There will be apps on all the various operating systems (iOS, Android, Microsoft) through which users can use this service 2. Tablets – The service will be also be provided through apps on tablets Internet will consciously not be kept as one of the channels through which this service can be availed. This is because the utility of this app is expected for people who are on the go. We also believe that people on the go will be more serious about the commitments made through this app and hence, they are the ones which should be pursued. g. Revenue Streams The app will primarily have two revenue streams 1. Commission for the hotel rooms which are booked through the app. This can either be through a flat fixed rate or a rate which varies depending on the negotiations with each hotel

12

2. Advertisements – This includes the various avenues of advertisements like banners, google ads etc. This will used judiciously so that the user experience is not compromised in any manner The revenue streams are expected to scale up exponentially as the user acquisition goes in an overdrive. h. Cost Structure The app will majorly incur the following costs:1. Marketing Costs – The app will have to market for building a consumer base. While most of the marketing will be digital, there will be a certain component which will be in print and other traditional sources of marketing 2. App Development and Maintenance Cost – Although the bulk of this is a one time cost, it will still be substantial as the app will need to provide a constant user experience across all platforms. The maintenance will have two components – improving the performance/user experience of the app and doing fire fighting in case the app breaks down or some issues develop 3. Staff Costs – A high number of people will need to be employment for constantly finding suitable service providers and then negotiating and tying up with them. This will also involve building a presence in different cities 4. Miscellaneous Costs – There will be a number of other small costs involved in running the organization [Rent, Legal Costs, Daily Running of the Office etc] which can be clubbed in miscellaneous costs These costs will be spread out more time and involve careful continuous benchmarking i. Key Metrics A number of different metrics related to the performance of the app, the health of the community and the financial metrics will need to be tracked for seeing whether the app is performing to its potential or not. A few key metrics which we have thought are necessary to track are:1. Number of service providers on the app

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2. Number of active service providers [Defined by those who have bid in the last one week] 3. Number of customer requests per day 4. Cumulative Amount Saved Over Prevailing Service Provider Rates 5. Average Number of bids per customer request 6. Average Time for First Bid for a Request 7. Average Discount of Last Bid As Compared to First Bid 8. Number of App Downloads 9. Number of Advertisements / Per Spot 10. New Users Added [Monthly] 11. Split of customer requests between existing users and new users 12. Number of Transactions Per Day 13. Transactions in Each Category and Region 14. Split of Revenue [Revenue coming from advertisement and that coming from commissions] 15. Split of Costs [The % of costs which are being incurred under each head] 16. Average Time for Closure of a request

Financial Analysis The financials have been designed assuming a hub and spoke model for the organization. Each city will be an autonomous unit which will keep its own P&L. While the hub will be responsible for up keep of the app and coordinating company operations, the spokes cities will be responsible for tie-ups and local marketing. To reiterate the functions of the hub and spokes Hub – Responsible for Centralized Corporate Management, App Development and Upkeep, Digital and Web Marketing Spoke – Local Marketing, Staff Costs [Tie Ups with various service providers] The financial model looks at the costs split at these levels 14

Assumptions for the costs at the Hub Level Cost of Development of the App [One Time] –15, 00,000 App Maintenance Cost – 10, 00,000 annually Digital and Web Marketing Costs – 2, 00,000 annually Staff Costs [Assuming employee strength of 3 at 5 lakhs per annum] – 15, 00,000 annually Miscellaneous Costs [40,000 per month] – 4, 80,000 annually

Assumptions for the costs at the Scope Level Local Digital and Web Marketing Costs – 15, 00,000 annually Staff Costs [Assuming employee strength of 7 at 5 lakhs per annum] – 35, 00,000 annually Reimbursement of Travel Costs – 15, 00,000 annually Miscellaneous Costs [20,000 per month] – 2, 40,000 annually All the costs are expected to increase at 10% annually

Assumptions for Revenue The company will expand in two new regions every year [starting from 2nd year onwards] The growth in users and transactions will be exponential Revenue from Advertisements [Banners, Google Ads and Other Sources] will start at 1, 00,000 per month and increase at 5% per month till year 5 and 2% per month after that The Transactions will start 500 per month and grow at a rate of 5% till Year 5 and 2% after that for each scope (city) individually The blended cost of each transaction will be around Rs 2,000. This means that the commissions [revenue] on each trade will 10% which is equal to Rs 200. This will increase at 10% every year

15

Profit and Loss Statement Year 1 # of Regions in which app is present

Year 2

Year 3

Year 4

Year 5

1

3

5

7

9

15,91,713

28,58,487

51,33,432

92,18,907

1,65,55,832

Blended Cost of 1 transaction

200

220

242

266

293

Total Number of Transactions

7,959

30,210

70,169

1,41,931

2,70,550

Revenue from Transactions

15,91,713

66,46,104

1,69,80,937

3,77,81,994

7,92,22,573

Total Revenue

31,83,425

95,04,591

2,21,14,369

4,70,00,901

9,57,78,406

Hub Level Cost

46,80,000

34,98,000

38,47,800

42,32,580

46,55,838

Advertisement Revenue

Each Scope Level Cost

67,40,000

74,14,000

81,55,400

89,70,940

98,68,034

Total Costs

1,14,20,000

2,57,40,000

4,46,24,800

6,70,29,160

9,34,68,144

Total Profit

-82,36,575

-1,62,35,409

-2,25,10,431

-2,00,28,259

23,10,262

Year 6 # of Regions in which app is present Advertisement Revenue

Year 7

Year 8

Year 9

Year 10

11

13

15

17

19

2,43,36,901

3,08,65,074

3,91,44,377

4,96,44,535

6,29,61,275

Blended Cost of 1 transaction

322

354

390

429

472

Total Number of Transactions

4,71,283

7,39,407

10,79,453

15,10,713

20,57,656

Revenue from Transactions

15,18,01,275

26,19,80,964

42,07,09,716

64,76,69,695

97,03,69,028

Total Revenue

17,61,38,176

29,28,46,038

45,98,54,093

69,73,14,230

1,03,33,30,303

Hub Level Cost

51,21,422

56,33,564

61,96,920

68,16,612

74,98,274

1,08,54,837

1,19,40,321

1,31,34,353

1,44,47,789

1,58,92,567

Total Costs

12,45,24,633

16,08,57,739

20,32,12,219

25,24,29,018

30,94,57,055

Total Profit

5,16,13,543

13,19,88,300

25,66,41,874

44,48,85,212

72,38,73,248

Each Scope Level Cost

The app will break even in its 7th year

Number of Transactions The number of transactions can be calculated by seeing the number of centers which are open and the transactions which the steady state portrays will take place at a center which has been open for a particular time period

16

Year 1 # of Regions in which app is present Centres Opened in Year 1

Year 2

Year 3

Year 4

Year 5

1

3

5

7

9

7,959

14,292

25,667

46,095

82,525

15,917

28,585

51,334

92,189

15,917

28,585

51,334

15,917

28,585

Centres Opened in Year 2 Centres Opened in Year 3 Centres Opened in Year 4 Centres Opened in Year 5

15,917

Centres Opened in Year 6 Centres Opened in Year 7 Centres Opened in Year 8 Centres Opened in Year 9 Centres Opened in Year 10 Total Number of Transactions

7,959

Year 6 # of Regions in which app is present

30,210

Year 7

70,169

Year 8

1,41,931

Year 9

2,70,550

Year 10

11

13

15

17

19

Centres Opened in Year 1

1,18,208

1,49,916

1,90,130

2,41,131

3,05,812

Centres Opened in Year 2

1,65,050

2,36,416

2,99,832

3,80,260

4,82,261

Centres Opened in Year 3

92,189

1,65,050

2,36,416

2,99,832

3,80,260

Centres Opened in Year 4

51,334

92,189

1,65,050

2,36,416

2,99,832

Centres Opened in Year 5

28,585

51,334

92,189

1,65,050

2,36,416

Centres Opened in Year 6

15,917

28,585

51,334

92,189

1,65,050

15,917

28,585

51,334

92,189

15,917

28,585

51,334

15,917

28,585

Centres Opened in Year 7 Centres Opened in Year 8 Centres Opened in Year 9 Centres Opened in Year 10 Total Number of Transactions

15,917 4,71,283

7,39,407

10,79,453

15,10,713

20,57,656

For any center, the profile of transactions is expected to move in the following manner:Year 1 –7,959

Year 2 – 14,292

Year 3 – 25,667

Year 4 – 46,095

Year 5 – 82,525

Year 6 – 1,18,208

Year 7 – 1, 49,916

Year 8 – 1, 90,130

Year 9 – 2,41,131

Year 10 – 3, 05,812

The profile of the advertisement revenue and the number of transactions by each month is as follows:-

17

Month

Ad Revenue

Transactions (Per Scope)

Month

Ad Revenue

Transactions (Per Scope)

1

1,00,000

500

21

2,65,330

1,327

2

1,05,000

525

22

2,78,596

1,393

3

1,10,250

551

23

2,92,526

1,463

7

1,34,010

670

24

3,07,152

1,536

8

1,40,710

704

25

3,22,510

1,613

9

1,47,746

739

26

3,38,635

1,693

10

1,55,133

776

27

3,55,567

1,778

11

1,62,889

814

28

3,73,346

1,867

4

1,15,763

579

29

3,92,013

1,960

5

1,21,551

608

30

4,11,614

2,058

6

1,27,628

638

31

4,32,194

2,161

12

1,71,034

855

32

4,53,804

2,269

13

1,79,586

898

33

4,76,494

2,382

14

1,88,565

943

34

5,00,319

2,502

15

1,97,993

990

35

5,25,335

2,627

16

2,07,893

1,039

36

5,51,602

2,758

17

2,18,287

1,091

37

5,79,182

2,896

18

2,29,202

1,146

38

6,08,141

3,041

19

2,40,662

1,203

39

6,38,548

3,193

20

2,52,695

1,263

40

6,70,475

3,352

41

7,03,999

3,520

81

26,96,325

13,096

42

7,39,199

3,696

82

27,50,252

13,358

43

7,76,159

3,881

83

28,05,257

13,626

44

8,14,967

4,075

84

28,61,362

13,898

45

8,55,715

4,279

85

29,18,589

14,176

46

8,98,501

4,493

86

29,76,961

14,460

47

9,43,426

4,717

87

30,36,500

14,749

48

9,90,597

4,953

88

30,97,230

15,044

49

10,40,127

5,201

89

31,59,175

15,345

50

10,92,133

5,461

90

32,22,358

15,651

51

11,46,740

5,734

91

32,86,805

15,964

52

12,04,077

6,020

92

33,52,541

16,284

53

12,64,281

6,321

93

34,19,592

16,609

54

13,27,495

6,637

94

34,87,984

16,942

55

13,93,870

6,969

95

35,57,744

17,280

56

14,63,563

7,318

96

36,28,899

17,626

57

15,36,741

7,684

97

37,01,477

17,979

58

16,13,578

8,068

98

37,75,506

18,338

59

16,94,257

8,471

99

38,51,016

18,705

60

17,78,970

8,641

100

39,28,037

19,079

18

61

18,14,549

8,814

101

40,06,597

19,461

62

18,50,840

8,990

102

40,86,729

19,850

63

18,87,857

9,170

103

41,68,464

20,247

64

19,25,614

9,353

104

42,51,833

20,652

65

19,64,127

9,540

105

43,36,870

21,065

66

20,03,409

9,731

106

44,23,607

21,486

67

20,43,477

9,925

107

45,12,079

21,916

68

20,84,347

10,124

108

46,02,321

22,354

69

21,26,034

10,326

109

46,94,367

22,801

70

21,68,555

10,533

110

47,88,255

23,257

71

22,11,926

10,744

111

48,84,020

23,722

72

22,56,164

10,959

112

49,81,700

24,197

73

23,01,287

11,178

113

50,81,334

24,681

74

23,47,313

11,401

114

51,82,961

25,174

75

23,94,260

11,629

115

52,86,620

25,678

76

24,42,145

11,862

116

53,92,352

26,191

77

24,90,988

12,099

117

55,00,199

26,715

78

25,40,807

12,341

118

56,10,203

27,250

79

25,91,623

12,588

119

57,22,407

27,795

80

26,43,456

12,840

120

58,36,856

28,350

19