Redesigning the Business model of FabHotels

Business innovation design project carried on FabHotels, by auditing the current business model and its operational components, to create a new viable collaborative model for successful agile response to changing landscape and ensure its sustenance.

Aim

The project aims to audit the current business model and strategies implemented by FabHotels. Industry trends, competitive edges, and consumer behaviors were mapped to find strategic insights and gaps to design a more dynamic business model for the organization.

Context

  • FabHotels is one of the market leaders in the budget hospitality sector, primarily catering to corporate travelers. FabHotel is only second to their direct competitor, OYO; but their USP lies in providing premium stay experiences at budget prices to business travelers. The pandemic-hit hospitality sector was made to rethink its actions and expansion strategies in 2020.

  • The aim is to provide the multiple services of FabHotels at every single hotel property and to introduce Fab as a multi-service brand​to re-engage their current loyal customer base.

Project Flow

Discover

Analysis

Insights

  • Understanding the Present Business Model

  • Finding gaps

  • Creating inferences

  • 5C analysis

  • User journey mapping

  • Design directions

Reframe Opportunity

  • Redefining problem

  • Choosing a boundary

  • New Target audience

  • Identify strategic intent

Design Intervention

  • Comparing inferences to secondary research

  • Finding gap areas and conflicts

  • Insights

About FabHotels

FabHotels is a chain of premium budget hotels, primarily focusing on business hotel destinations. It operates on an asset-light hospitality model, partnering with small hotels under a franchise model, thus, providing standardized services.

 

Founded by Vaibhav Aggarwal in 2014, FabHotels has raised INR 54 Cr from Goldman Sachs, Qualcomm Ventures, and Accel Partners India. On the B2B front, the team ties up directly with corporate and travel agents and currently offering stays at 600+ hotels in over 60 Tier 1 and Tier 2 cities.

Purpose

  • Provide a premium travel/stay experience at a budget price

Value

  • Comfortable hassle-free stay and easy bookings and connectivity

  • The feeling of Premium and Comfortable stay

FabHotels Service

​FabHotels offers stays in four different service categories under its brand name. This diversification was done to attract different customers with specific needs. The services are designed and priced according to these customers ' needs.

FabHotels

Comfortable, Economical Hotels

FabHotels Prime

Premium amenities, top quality service

Fab Express

Basics for travelers on a budget

Affordable getaways for millennials

Fab Escape

Existing Business Model

Fab BS (14).jpg

Making FabHotels more Customer-Centric

We started off by assessing the landscape of FabHotels: How does a customer perceive FabHotels? Does a business traveler need any additional services from an asset-light hotel? What trends can be seen in the budget hospitality industry in the next ten years? Our study was conducted with an aim to understand the business ecosystem of the organization

We conducted our study with an understanding of the business ecosystem of the organization. We analyzed Fab through macro and microlenses using various design research tools and Business Model Canvas. Case studies, trends, and all the other mappings helped us arrive at key findings to be considered. 

  • User Journey

  • 5C Analysis

  • Business Model Portfolio

  • Value Proposition Canvas

  • Trend study

  • Case study

  • Affinity Mapping

Secondary Research Findings

Facts about FabHotels

Premium amenities at the FabHotels mostly room based

​​High customer retention for Fab. Almost 60% are repeat customers.

Initially started as Niche Service provider to Corporate Travelers and presently diversifying into ​​other segments of the market.

Key Trends

Budget luxury on a high growth rate

The industry is moving from price to immersive experience- as the main selling point

The industry is moving from price to immersive experience- as the main selling point

Low brand image for direct customers, high/distinct for corporate travelers

Lesser properties when compared to competitors. Mostly available in tier 1 cities

OYO is the first brand people associate with budget living

Direct customer seldom associate premium with budget

OYO is the first brand people associate with budget living

Trusted for their reliable service in corporate travel space

Trusted for their reliable service in corpote travel space

Services and offerings from competitors are very closely positioned

High customer retention rate. Almost 60% repeat customers

The need of the Hour

Re-engagement of customers, to keep them retained is essential for the future success of FabHotels. The brand needs to redefine its service keeping it relatable to the original model. They need to reinstate on the purpose of a premium budget hotel experience.

Problem Statement

  1. FabHotels are losing out on customers by dividing its properties based on distinct price offerings with only an 8-10% SOW.

  • The budget hospitality industry's main selling point is the price.

  • FabHotels owns around 8-10% of properties in the market (as compared to 70% of OYO's)

  • These properties are then divided based on their distinct offerings, hence reducing options for the customer.

  • It increases steps to sell on the User journey.

Ideation: Combining two service offerings together

  • Clubbing two service segments into one - what currently are for different property types. This would result in two different kinds of services-like a combination of Prime and Hotels at a single property. This would provide multiple service options to the customers at a single property.

  • An increase in the no. of hotel locations for each service; and the ability to offer differentiating services at these locations without comprising on their core asset-light hospitality model would be added to the brand. The innovation would reduce the cost of building two separate hotels under one FabHotel umbrella and thereby reducing the cost. Switching services from fixed four offerings to a more user-centric one by providing them with a choice will add a flair of dynamism to the current static business operation approach at FabHotels.

Intend

Redefining Methods

Building Resilience Ongoing action and integration

Help us reduce choice and hence steps to purchase

Assess and leverage internal capabilities

Static to Dynamic: Introducing Agility

Create a stronger presence in the market

FabHotels + FabExpress

Combining spaces of Fab-Express with standards of FabHotel to provide a more premium experience specifically in Tier 1 cities.

FabHotels + FabPrime

Provide premium experience, specifically in Tier 2 and 3 cities, avoiding any chance of losing a high-level corporate customer to other competitors accounting for the unavailability

of the service.

Agenda

  • To reduce the cost of building two separate services under FabHotels umbrella and thereby reducing the cost

  • Making FabHotels services accessible at newer locations

Agenda

  • Introduce Prime option in Tier 2 and Tier 3

  • Avoid chances of Corporate Customer to switch to competitors due to unavailability of the service

Fab BS (17).jpg

This idea is inspired by the contemporary asset-heavy hotel model - which offers multiple room types across leveled price points at a property. The services are distinguished by room-based services and external factors like room views. FabHotels's premium services are room-based, hence the innovation can be taken up without drastic changes in the current resources. 

Fab BS (15).jpg

Business Model Innovation

After doing the evaluation of the existing business model, each block of the BMC was evaluated individually; keeping the purpose of the company as a benchmark, and evaluating the returns to map conflicts in the business model. Following changes were proposed within existing model.

1.

Value Proposition

  • Premium travel experience with standardized pan-India services and prices, in a budget hospitality domain

  • The abundance of choices at affordable prices

  • Convenient-centrally located properties

After evaluating the existing business model, each block of the BMC was evaluated individually; keeping the purpose of the company as a benchmark, and evaluating the returns to map conflicts in the business model. Following changes were proposed within the existing model.

2.

Customer Segmentation

  • Niche segment - Corporate Travelers

  • Target Group- Premium business travelers

  • Corporate event bookings

  • A majority of Fab's budget is spent to attract direct customers. (Outcome is just 20% of customers)

  • Direct customers don't recognize Fab as a distinct brand (seen as a substitute to OYO)(not seen as a premium luxury brand)

  • In an attempt to attract direct customers, it places Fab as a direct competitor to OYO, which has 4000% more resources. It also reduces Fab's current brand image with corporate travelers.

3.

Cost Structure

  • Expenditure for listing on OTA platforms

  • Fixed costs like employee salaries and office space rent

  • Investing in digital assets like website, application, and analytics

  • Discounts provided on corporate tie-ups or to direct customers

  • OTA's commission on each booking Advertising expenditure

Revenue Stream

  • Fixed

    • Revenue sharing model (revenue split between a hotel owner and Fab )          

    • Franchisee amount at the time of the agreement 

    • Partner collaborations- beauty and wellness-VLCC

  • Variable

    • Renting out the full/partial property     

    • F&B providers/restaurants

Profit Formula Analysis

A comparison between cost and revenue differentiators resulted in plotting the revenue margins.

A radical difference in who is targeted (direct customers) and how the value is delivered (corporate

travelers) provided us with the gap in the cost structure for the hotel chain brand.

Problem Statement

FabHotels is losing money by spending their revenue trying to target direct customers, instead of investing in their profitable target audience - corporate travelers.

2.

  • FabHotels have started to attract travelers and other customer bases, which demands for investment in new properties and might need to leave the niche market providers to mass market caters.

  • Direct customers don't recognize Fab as a distinct brand (seen as a substitute to OYO). Their customer segment mainly includes travelers and weekend travelers which need a different curated set of services.

  • This approach put FabHotels into direct competition with gaint service providers like Oyo who has almost 70% market share and can play better in the price sensitive market.

  • Due to the low entry barrier and availability of choices available to them, their bargaining power increase, making it very difficult for Fabhotels to perform in a cost-effective manner.

Introducing Fab Experience

Creating FAB as a multi-service brand catering to budget luxury for their niche audience of business travelers. 

A collection of premium experiences in the travel and hospitality sector, a growing trend in the industry. It is provided at budget prices with the credibility under the trusted brand name of Fab. The business model innovation aims at helping the brand expand laterally.

The experience model provides leverage to Fab in expanding to uncharted segments in the budget hospitality and experience sector.

Fab BS (19).jpg
  • Adding new services to retain the existing target audience by creating a new experience, then diluting the current services to attract a new target group. Redefining our services helps Fab in creating and pursuing new opportunities to drive change in the future without giving up on their premium budget target segment. The innovation design pushes the brand to become bigger than the product and keep its business model as its core, by utilising it for multiple services.

  • This creative integration helps increase the customer base without actually changing our customer; leading to higher footfall. Direct customers are targeted by offering membership rewards to the corporate travelers, in an attempt to convert them.

Business Model > Strategy > Product

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Business Model Innovation Canvas

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