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
13
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
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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:-
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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