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Lemon Tree’s 100% Moneyback Gamble

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Even as a price war is raging in the Indian skies with Air Asia’s introductory Rs 990 tickets, down on terra firma Lemon Tree Hotels appears to be triggering a crazy fight for consumer footfalls.

The chain set up by maverick hotelier Patu Keswani has just introduced a 100 per cent money back offer wherein guests who check in at a Lemon Tree property get vouchers for the same amount as their billing amount. The vouchers can be redeemed on future stays at the hotel on services such as Food & Beverage (f&B), laundry, spa and salon or wi-fi.  But, the next stay has to be booked direct through the hotel’s website

“Right now one third of our guests are repeat customers. This value for money offer is to ensure that half of our customers become repeat guests,” said Rahul Pandit, president and Executive director of Lemon Tree Hotels.

He brushed aside comparisons with Air Asia’s price war and said this was an effort to drive loyalty by offering long term sustainable value to domestic guests. “We have 200,000 members who are part of our loyalty programme Lemon Tree Smiles. We hope to raise this to half a million members,” said Pandit, admitting that the purpose of this offer was also to decrease dependence on third party channels, and drive more booking through their own website.

The vouchers are also transferable and can be gifted to family and friends. Although Pandit said the small print did not hide any rude shocks such as blackout dates, the offer is not applicable on discounted rates.

Lemon Tree currently has 25 hotels in 15 cities with a total of 2800 rooms, making it the third largest chain in India,  but is ramping up furiously with a dozen more projects. By 2017-18, the chain expects to have 5000 rooms across 30 hotels.

All over India, the supply of hotel rooms has grown significantly and is touching nearly a lakh rooms in the organised branded category. There has been a 150 per cent growth in rooms in the last seven years according to consulting firm HVS Global Hospitality Services. HVS projects a 13 per cent growth in supply in 2014-15.

The oversupply is clearly leading to desperate struggles among hoteliers to maintain 60-70 per cent occupancy levels and most markets have witnessed rate wars. This latest salvo from Lemon Tree appears to be yet another attempt to fill its rooms.

But what if the bold gamble backfired and the chain ended up sacrificing profits? What if others came up with similar enticing offers? “If it leads to a shake-up in the ecosystem, it’s good for the customer isn’t it,” was Pandit’s parting shot.

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