Deploying classic marketing strategies, U.S. based budget hotels in India are ready to target budget travelers in the nation. Many small cities such as Pune, Nashik, Mysore, Haridwar and Varanasi–which bear the right mix of urban market affluence in a second tier town setting, have become the chosen location for the hoteliers. No wonder there are American hotel chains in India with fusion names like Best Western Hindustan and Radisson Varanasi.

According to hospitality services firm HVS International foreign tourist arrivals in India during the year 2004 touched the highest ever figure of 3 million. And the size of the domestic tourism is presently estimated at $5.1 million. Demand for rooms across key commercial and leisure destinations across India are expected to grow on an average 16-20 percent annually over the next three to five years.

Unlike deluxe hotels, which have predominant customer mix of foreign travelers, budget hotels have a higher proportion of domestic travelers. Budget hotels, thanks to the comparatively lower fixed cost, can operate at 50 percent occupancy and still make profits. Also, room rates in this segment would not, rise sharply owing to intense competitive pressure. In the next five years India would need nearly 25,000 rooms in this segment.

Among the dozen foreign budget hotel chains entering India at the moment, prominent U.S. chains are Choice Hotels and Microtel. Every major Indian metro has at least one American hotel brand. Budget hotels like Best Western and Comfort Inn may upstage the up market Hilton, Hyatt, Marriott and Radisson brands. Best Western, which is the world’s largest hospitality franchise and Comfort Inn are not far behind.
Americans know them primarily as budget, family-friendly highway motels that provide value for money.

This new trend of U.S. budget hotels comes as tie-ups or joint ventures with Indian hoteliers. Marriott with the Welcomgroup and budget venture Carlson Country Inn & Suites (a subsidiary of Radisson’s parent company) with Chanakya Hotels are a few to mention. Marriott is planning to launch the budget Courtyard Lodging brand soon. Oakwood is planning its expansion in India by establishing serviced apartments in Bangalore, Hyderabad and Mumbai.

Following the trend are domestic players—Tata’s IndiOne a brainchild of management guru C.K. Prahalad plans to target customers at the bottom of the pyramid by spearheading Indian budget hotel interests. Tata has chosen Whitefield, the epicenter of Bangalore’s software geography as the location for IndiOne. At its facility there is no welcome entourage, no marble or granite flooring nor any complimentary goodies within its rooms but just smart basics for $21 per night. With occupancy levels at IndiOne exceeding 80 percent since inception, this strategy seems to be a success.
No–frills quality hotels are now the answer to affordable luxury to increase business volumes overnight. Yes 80 percent of five-star luxury at 20 percent the price is causing many to bite the bait.