Pricing Strategy in Indian Hospitality

Sector
Microeconomics
Section B group 10

Somyata Rastogi 15P070

Lipika Agarwal 15P090
Pushkar Singh 15P100
Vikas Gupta 15P120

Deval Nigam 15P080

Pallav Singhal 15P097
Shrey Bhat 15P110

AGENDA

Defining the economic contribution of Travel & Tourism

Hotels market in India

Recent market trends

Market structure & classification

External factors

Internal factors

The budget hotel concept

Price value matrix

Competition

Different pricing strategies

ECONOMIC CONTRIBUTION OF TRAVEL &

TOURISM

STATISTICS AND FACTS ON TRAVEL AND TOURISM

INDUSTRY
Contributed Rs 7.64 trillion and 36.7 million jobs
6.7% of GDP to Indian economy against a global average of 9.8% in
2014
India the second largest tourism market in Asia after China
Ranked in the twentyfastest-growing tourism destinations
worldwide
Poised to grow 7.5% in 2015 over last year
Hotel prices in India are generally low, average daily
ratesof104.11 dollars
Mumbai was the second cheapest city in the world for U.S.
travelers staying in five-star hotels

HOTELS MARKET IN INDIA

Industry Growth
40

Rate Per Room

The average rate per room has undergone a full cycle having peaked
during 2008-09 season and has now settled to an average of around 95
USD

Axis Title

Average Occupancy
The occupancy has been somewhat constant although it peaked during
the 2008-09 season but has now settled at a healthy rate of around 60

20
10
0
2005 2006 2007 2008 2009 2010 2011e 2012e 2013e 2014e 2015e
-10

Size of the Market:

USD 24 billion by end of 2015
Estimated Growth:
Slated to grow at 7-8% CAGR 20132018E and 9-12% over next two years
2nd in terms of growth after China 250

Occupancy rate

Average Daily Rate

200

Average Daily Rate

(USD)

150
100
50
0
Ave rage Room Rate in Rs Source HVS

34.12

30

80
70
60
50
40
30
20
10
0

Occupancy rate

RECENT MARKET TRENDS

Although the crisis, Indian hotels enjoyed lucrative
margins
Increase use of Technology
Managing Manpower
Domestic Travelers
Outsourcing
Investment in smaller cities
Diversification into new segments

EXTERNAL FACTORS
Economic Scenario
CPI index
Seasonality of demand
Growth of IT/ITES professional services
Travel and Tourism

INTERNAL FACTORS
Occupancy rate
Expansion plans
High Competition
Geography factors
Cost elements

MARKET STRUCTURE - SEGMENTATION

Located in
business district
of metro cities
Cater to business
travelers and
foreign tourists
Considered to be
the most
expensive

-Cater to: Average

foreign and
domestic leisure
travelers.
- Also caters to
middle level
business travelers
- Offers most of
the essential
services of luxury
hotels without the
high costs

Do not offer as
many facilities as
the other
segments but
provide
inexpensive
accommodation
to the highly
price-conscious
segment of the
domestic and
foreign leisure
travelers

Certain
architecturally
distinctive
properties such
as palaces and
Forts, built prior
to 1950, have
been
converted
into hotels. The
Ministry
of
Tourism
has
classified these
hotels as heritage
hotels

Cheap motels
spread out
across the
country
Very cheap and
price is the only
selling point

THE BUDGET CONCEPT

A new concept emerged as number of tourists willing to pay a high price for luxurious hotels
has decreased while number of inbound tourist who travel has dramatically increased.
Comfortable accommodation is not luxury anymore
The Americans innovated the Motel concept in the 60s which was adopted by European in
the 70s with the creation of brands such as Ibis and Formula1, and Asia has come up with the
budget concept.
The new concept offers what the customer is willing to pay for a good night sleep so that
everyone is allowed to travel

SUPPLY DEMAND IMBALANCE IN PREMIUM HOTELS CATEGORY

Occupancy rate in year 2015 has improved 2% compare to last year

Supply is surpassing demand growth in coming year

ECONOMIC EXPLANATION OF THIS TREND

First figure shows how change in demand led to low price of hotels
Second graph shows how low demand coupled with high supply of rooms due to earlier
expansion plan

PRICING STRATEGIES

SECOND AND THIRD DEGREE PRICE

DISCRIMINATION

PRICING STRATEGIES

THE PRICE-VALUE MATRIX

Pric
e

Quality

COMPETITION

The Indian hotel industry is highly fragmented with a large number of small and
unorganized players.
The booming industry has attracted many international players as well. A number of global
players are already well established in India. These include Hilton, Shangri-La, Radisson,
Marriott, Meridian, Sheraton, Hyatt, Holiday Inn,InterContinental and Crown Plaza.
New brands such as manda, Satinwoods, Banana Tree, Hampton Inns, Scandium by Hilt and
Mandarin Oriental are planning to enter the Indian hospitality industry in joint ventures
with domestic hotel majors.
Premium

Service
Medium
Budget

Competition

PRICE VALUE BASED PRICING STRATEGY

Skimming

set your prices higher than the competition does in order to skim off
customers who are willing to pay more

Penetration

strategy primarily designed to get people in the door and in seats

low prices often seem the best way to entice consumers
can depress market prices and lower margins

PRICE VALUE BASED PRICING STRATEGY

Matching

set one rate comparable to competition and of another type of room slightly
higher

Undercutting

offer services at rates that are comparable to your competition and others that
are lower. Bundling of services with hotel rooms to beat competition

Surround

Set the first room type as the cheapest in the market, but offers other rooms with
better options at a price thats close to your competitors first available rates

CRITICAL SUCCESS FACTORS

CONCLUSION
India, with a population over 1.2 billion people and a rapidly growing economy at real GDP of
7%, is allowing the hotel market to prosper as hotel brands continue to expand their portfolio
in the main cities and in Tier II cities
The Indian hospitality sector is poised to grow at a CAGR of
foreign tourist arrivals FTAs is rapidly increasing at a CAGR
and Growth of IT sector driving the domestic demand

15% until 2015 as number of

of 7.3%, affluent middle class

Stable outlook on CPI and easing of inflationary pressures has eased cost pressures and
improved margins

THANK YOU