George S. Day and Christine Moorman

How to be a Price Leader

Sunday Mar 27, 2011

When Arthur Frommer speaks, travelers listen!  Mr. Frommer is, after all, the voice of the Frommer’s Travel Guides. Recently Mr. Frommer has been talking about the budget hotel chain, Tune Hotels, which after launching in Malaysia and Indonesia, recently opened in London.[i] Fifteen hotels are planned in London by 2017. Tony Fernandes, the Malaysian businessman behind the low-cost airline AirAsia, is the founder of Tune Hotels.

In what some call a “bloated hotel price” market, Tune Hotels offer customers a simple value proposition.  The hotel promotes “5 star beds at 1 star prices.”  This no-frills hotel operates on a business model that charges for everything except the bed and the lavatory.  For the price of £50 for a double room, Tunes offers its customers a great bed but little else.  In fact, the bed is said to be the same brand, a Hypnos, travelers would expect to find at a 5-star European hotel, according to one London reporter.[ii] All other amenities, or what some travelers might call “essentials,” cost extra!  Even towels and soap are noticeably absent, but are available for around £1.50.  TVs, telephones, and minibars are available for rent.  Housekeeping is provided only on checkout, but can be purchased as a daily service for an additional fee.  The buildings are brand spanking new, but facilities like pools, gyms, and conference rooms are nowhere to be found.[iii]

Tune Hotels is an excellent example of a firm that knows how to compete as a fierce price value leader.  It targets a customer who wants only the barest bone quality level on a hotel room.  Its rock-bottom low price in London, where even simple rooms routinely sell for £100-200, is like a breath of fresh air to travelers who don’t care about anything but a good night’s sleep.  By splurging on a 5-star bed and cutting all the rest from the hotel experience, Tunes is likely to hit a sweet spot in the London market (and around the world for that matter).  This strategy delivers what its target market wants and nothing more.  Like Ginger Hotel in India and other low-cost service providers across the travel industry, Tune built its strategy first by knowing exactly what its customers want and then by ruthlessly eliminating everything else.

As we discuss Strategy from the Outside In, most companies are unwilling to be this focused in their choice of target market, value proposition, and business model.  This hedging not only costs more, it is also confusing to customers who want to easily understand what they are buying.  In the end, such fudging  rarely works because companies with laserlike focus enter markets with a decisive stand for something customers want—whether it is low price, fashion, innovation, service excellence, or customization.  The result is that customers with clear expectations line up and the company delivers.  That’s a song that more strategies should sing!


[i] Frommer, Arthur. “Is this the future of hotels?” The Herald-Sun, Durham, North Carolina, December 12, 2010: D3.

[ii] Hotel details are described at http://www.telegraph.co.uk/travel/hotels/7966244/Inside-the-Tune-hotel-Westminster-London.html

[iii] http://www.dailymail.co.uk/travel/article-1288557/AirAsias-low-cost-Tune-Hotels-mark-London-opening-1p-rooms.html

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