International Hospitality & Tourism Marketing Strategies

CASE STUDY

YOTEL: an innovative, design led new business model for airport based accommodation
I expect YOTEL to be in the worlds top ten hotel brands in the next ten years.a top end product at below expectation price. Simon Woodroffe, Founder of YO! Everything BACKGROUND YOTEL is boldly claimed by its founders to be a revolutionary new hotel concept , creating a stir in the hotel industry. The concept and its execution demonstrate all the style of entrepreneurial initiatives that have driven so many leading developments in travel and tourism over the last 100 years. The original idea was conceived in 2002 when SimonWoodroffe, already interested in the Japanese sleeper capsule hotels concept, was upgraded to a first class sleeper cabin on a flight to the Middle East. He made the key connection between high-class design features of first class air travel and the concept of compact cabins built into a relatively small space. The concept would simultaneously deliver economies of scale within a minimum volume of space and a striking, convenient and appealing consumer experience at a relatively very competitive price. Creative entrepreneurs with the vision, courage and knowledge to put their concepts into place dominate the history of tourism. The stories of Sidney de Hahn, Forte, Laker and Vladimir Raitz (see Middleton 2007) are typical twentieth century illustrations of how visionaries can break the traditional mould of markets. Woodroffe may be on track to achieve the same impact albeit in twenty-first century style and at a speed of development appropriate to a globalized industry that was unknown to the earlier pioneers. Gerard Greene, a former hotel analyst and executive with Hyatt and Marriott hotels, now CEO of YOTEL read about the concept in the trade press. He wrote to Simon in 2003 saying I want to work with you on your concept. The two struck a deal in 2004 and the first lease on space was agreed for Gatwick in 2006 with the first YOTEL being opened at Gatwick Airport in summer 2007. Drawing on the experience of YO! Sushi restaurants that he created in 1997 and his associated YO! branded ventures, Greene and Woodroffe decided to translate the language of luxury airline travel into the Japanese capsule hotel concepts for implementation at airport locations.

THE STRATEGY The strategy is elegant in its simplicity. Modern airports are mostly the venue for highly disagreeable, high-tension experiences for many people. First and Club Class lounges certainly help those who can afford them to endure the scheduled transfer waits, flight cancellation and unexpected delays but after an hour or so even that experience loses its initial appeal. With millions of people travelling daily on a 24/7 basis, the opportunity for just a few to purchase a personal space to relax, do business in private, shower or sleep while waiting is highly attractive. Simple sleeping cabins have been available in some airports for many years but, thus far, have always been targeted as a basic functional utility rather than an attractive experience that can compete with rooms in an up-market airport hotel. The strategy was to provide an attractive high-quality personal accommodation experience for captive markets at airports using the best of modern design flair, achieving economies of scale and minimum marketing costs. It creates a win win formula that will generate year round high occupancy rates and profitable cost/ revenue outputs while providing excellent value for money. If the formula succeeds, the ability to reproduce it around the world is obvious and attractive to investors. THE PRODUCT The basic requirement for a YOTEL is a relatively small volume of space within airports that can accommodate a purpose built structure containing cabins in rows. The first at Gatwick has 46 cabins. Airport space obviously comes at a premium price per square metre but most have under-occupied areas and the footprint of a YOTEL is small. Because it has no requirement for space for parking or grounds or access roads and the cabins are much smaller than standard hotel rooms, footprint is much smaller than for a normal hotel with 46 bedrooms. All the basic utilities for heating, lighting, water and lavatory provision are already immediately available in airports. The original idea was turned into a prototype by an airline designer working with first class airlines. The cabins are built in rows within a construction frame. They have internal windows so they are suitable for locating anywhere in typical airport buildings or even underground. If the installation space permits, the cabins could be built off-site as modules ready to crane in and plug in to prepared spaces. There are two designs: Standard and Premium. Both are en-suite but the Premium cabins have large double beds that turn into sofas when not needed for sleeping. Standard cabins can also sleep two albeit on smaller beds. The focus is on high-quality design that involves adjustable mood lighting, climate control, attractive surface materials and luxury linen. All cabins are sound-proofed and have work stations, connections for WiFi and Internet and a techno -wall that provides access to a wide rang of TVand audio channels, films and audio entertainment including a juke box with 5000 disks to choose from. The product experience and customer feedback The brand is an innovative radical design led experience for all. Cocooning its customers into a secure, calm haven for relaxation, entertainment, sleep and rejuvenation. Every aspect of the customer experience of the product has clearly been thought through to reflect the brand values. The brand positioning and brand values define our personality and should be used to

influence the way we look, speak and do things. The key to the cabins is that they are designed to offer inspirational luxury at affordable prices. They have the signature YO! Formula of innovation and entertainment combined in this case with luxury fi ttings. It is all about thinking outside the box, says CEO Gerard Greene. We aim to create visually and mentally stimulating experiences by creating a value-for-money yet high design, hip product that travelers desire. YOTEL aims to be the iPOD of the hotel industry. Greene also comments the majority of hotels around the world are either poorly designed, badly managed or ridiculously expensive. Especially in the context of airports and surrounding areas, many experienced business travelers will agree with that. Achieving an attractive price (see below) is also a part of the product experience. Customer feedback on the brand experience is achieved by e-mail derived either from booking processes or though a form completed in the cabins. In the first 12 months 88% of customers were rating aspects of their experience at 8, 9 or 10 out of 10 with 97% saying that they would recommend a friend. A combination of visits by operations management staff and mystery shoppers helps to keep the standards up and a software programme is able to send text messages to management so that immediate action can be taken if customer feedback reveals specific problems such as lack of cleanliness or poor food. There is an indication that the level of external noise outside the cabins can sometimes be intrusive but this has not affected the overall ratings noted above. DEVELOPMENT AND FINANCING There is clearly a significant up-front investment in building blocks of cabins. The seed finance for the project was provided by Simon, Gerard and some personal friends to get the project off the ground but a financial agreement arrangement was made in 2006 with Kuwait based IFA Hotels and Resorts. International Financial Advisors have a market capitalization of over $US 1 billion, have developed hotel interests in several countries and have global expansion ambitions. YOTEL is not competing with IFA Hotels and Resorts so with access to their international customers, the YOTEL investment provides a logical synergy for IFA with their other accommodation interests. THE MARKET The users are typically likely to be solo or traveler couples, accustomed to using four star or higher rated hotels. What they need at airports is a convenient, stress-free, minimum hassle experience with luxurious comfort in personal space for an overnight or shorter period of hours. They need it for functional purposes such as doing business for which privacy is needed over the Internet or phone and/or for relaxing before, after or between flights, with access to 24 h room service for food and beverages. With millions of passengers on the move for business and other purposes daily, 24/7, users will define themselves by their needs and ability to pay. The issue for marketing is creating awareness, especially initially. The customers effectively define themselves by being where the YOTEL facilities are located. Early indications are that the market divides roughly equally between business and non-business customers. Leisure travelers taking advantage of cheap budget airline flights timed to leave or arrive late at

night or in the early hours of the morning are also attracted to the offer of a few hours rest at either end of a flight. Pricing Pricing is organized and adjusted on line to optimize yield so it will vary by times of the day, week and so on. 2008 prices in the London Airports were quoted to start from 25 per 4 h to 56 per overnight for Standard Cabins and 40 and 82 for premium cabins. The equivalent price for a four-star room near the airport is more likely to be 150 plus the added time, hassle and cost of getting out of the airport and to and from the airport to the hotel. A typical four-star hotel room is most unlikely to provide more room facilities than the cabins and certainly not the visually and mentally stimulating user experience that is offered by YOTEL. Distribution, Sales Promotion and Advertising www.Yotel.com is described by the Company as the hub of everything. The whole concept could not work without the Internet and a user-friendly website. It defines and describes the product, identifies availability and price and provides instant online access to cabins. The site depicts the cabins visually with 360 degree camera views available. New software had to be designed to cope with the multiple bookings on an hourly as distinct from the industry standard overnight basis and cabins can be booked ahead or (if available) on the spur of a moment when a flight is unexpectedly delayed or cancelled. For the number of units involved in 2008 an expensive advertising budget could not be cost productive although feeding out news stories as the brand develops are of interest to the media and to in-flight magazines of airlines. For YOTEL, the website combines the brand awareness, product, price, promotion and distribution in real time. Awareness was created initially by media attractive PR stories of an innovative new product, followed up by investing in ways in which YOTEL can be readily and quickly accessed by search engines relevant to airport accommodation. The latter will pay off 24/7, which advertising will not. Cost efficiency of operations YOTELs are staffed by cabin crew, drawing on the airline terminology. There are typically two at any time in the galley, which provides 24 h access to food and drinks and these staff can also meet and assist customers if they seek help. One of these members is typically a senior crew with a role to supervise as needed. Two other crew members provide cleaning services around-the-clock. For pre-bookers, check in and out are automated at the entrance door of the YOTEL by a key pad accepting preissued reservation numbers and issuing magnetic key cards for the cabin doors. There is no need for any direct communication with staff unless customers seek it. Rooms are available in blocks of four or more hours and in airport conditions can theoretically be used by three or four customers in every 24 h. In fact, allowing for such multiple use, early indications are that cabins are already achieving occupancy rates that range from around 120 to 140% and recent press reports have indicated it may be higher at some times.

Many customers are likely to be repeat visitors once the number of YOTELs is expanded around the world and, provided satisfaction levels are high, the market can become self-perpetuating. Sustainability By the nature of its concept, its small footprint, low energy costs (the cabins are already situated in environmentally controlled airport spaces), with immediate access to utilities, YOTELs are already more sustainable than conventionally built hotels even of the budget variety. EVAC vacuum drainage for sanitation minimizes water usage and LED lighting reduces electricity consumption. Work is already in hand to utilize recyclable materials in the construction of new units. SUCCESS TO DATE With deals in process for more YOTELs to be built around the airports of the world and a new design of an economy cabin, the business model looks exciting at the time of going to print in mid-2008. No-one can know the future but the sheer volume of travellers at airports with needs that match the provision of YOTEL cabins exceeds by hundreds of times than the capacity likely to be built under any realistic scenario of the next five years. The quality of the customer experience is enhanced by a clear valuefor-money price and the business model should be more economic-crisis proof than others in the hotel industry and growth seems assured. No doubt competitors will emerge once profitability is proven but the leader with a clear brand will be well positioned to dominate market share. ACKNOWLEDGEMENT The information used in this case was kindly supplied by Gerard Greene (CEO) and Jo Berrington, Marketing Director of YOTEL whose support and permission to use the material is very gratefully acknowledged. Source: Middleton, V.T.C., Fyall, A. and Morgan, M. (2009), Marketing in Travel and Tourism, 4th ed., Elsevier Ltd., pp. 453 - 458