Profit Making Approach
Large hotels generally earn their revenue through renting out their capacity to the customers and major expenses are incurred mainly on the services provided to the customers. The smaller hotels do not offer that much services and so their expenses are lower. Airbnb earns its revenue by taking small commission from the rent that owners receive from the customers. Airbnb offers a rating system so that customers can rate the service so that it can be kept at the required standard (Naseer, Peitz&Stuhler, 2015).
Reputation is the most important thing for the large hotels through which they expect to get repeated sales and thus profit. For this they strive for global reach and offer loyalty programs.However, the smaller hotels and the partners of the Airbnb, the home owners tend to focus on a single location where it is their unique position that make them market participant. Airbnb offers value to the customers through its technological edge as users can easily book cheaper renting options.
Large hotels tent to target profitable locations that helps them to offer greater value to the customer and maximize their profitability at the same time. The Airbnb partners on the other hand earn their profits through cost control. Airbnb has not much concerned with the costs and its objective is to increase its earnings by increasingly the popularity of its platforms by both homeowners and small hotels and the customers.
Comparison with Competitors
The major strength of large hotels is their brand image, reputation and resultant customer loyalty as the customers consider large hotel chains as more reliable as compared to small hotels. The customers believe that they will receive same services of a hotel chain wherever they go.
Airbnb partners’ homeowners and small hotels generally focus on one particular location. Sometimes, in small areas, they are the only available options. Otherwise, their lower cost is also an attraction for the customers. (Bashir &Verma, 2016).
The costs of Airbnb are related to the technology that it uses and keep updating it continuously. As it is considered by the customers as the industry leader and thus it is easier for the company to attract users.
Major weakness for the large hotel chains is their high cost of maintaining high standard of services and the structure that includes building, furniture and fixtures. Customers come to them for quality and thus they need to maintain it for sustainable business. It is tough to provide uniform service quality at each location due to have higher cost due to resource limitation that can impact the brand reputation and business negatively.
Airbnb Partners on the other hand depends often on seasonal visitors on particular location and thus it is difficult for them to generate consistent or sustainable revenue. However, in many locations this is not the case. The capacity of such facilities (hotels and homes) is limited and so they are unable to take full advantage of the peak seasons.
Airbnb’s business model is easy to imitate. Moreover, users sometimes consider that the lack of services is too much as compared to the costs they paid. There are also issues of tax evations, discrimination etc.
Airbnb have huge opportunities in the emerging markets as company expand to them. Moreover, it can also alter and advance its business model as well as product offering. Its lower cost and customized experience makes it attractive for the customers.
The main threat to the company is from the imitation of its business model as strong customers have emerge and more can emerge to take out the marker share. Laws and regulations are also impacting its ability to do business and may impact it more seriously in future.
Changes in Consumer Market
Customers’ values are rapidly changing mainly due to the advancement in technology. Airbnb I offering an online platform where homeowners and even small hotel owners can rent properties without offering standard amenities of hotels. Airbnb is not only using technology but also the way customers are interacting with business and the way they are de emphasizing ownership.
As Rimer explained, there are three main factors that lead to the success of the Airbnb, the accommodation, the idealistic motives and the economic benefits for both customers and Airbnb partners or homeowners. The company offers flexible prices as well as peer-to-peer lodging service that it refers to as the “sharing economy”. As a result, customers can rent properties for both shorter periods or long-term offered the local hosts. (Rimer, 2017)
The company also helps in growing the local economy through creation of income for the locals and the community. It charges just 3% commission fee in order to cover its expanses after the completion of each booking. Whereas the guests are required to pay 11% service commission for each booking. (Rimer, 2017)
The guests that use Airbnb also use it because they would want to be treated as traverlers and not the tourists on the basis of the values of sharing experiences of staying in each other’s home and introducing guests to the local community moreover, price and location are also important for the guests (Rimer, 2017).
Key Success Factors
Technological outlook is the most important success factor for the company as it sets it apart from the other competitors and helps it maintaining its market position.
Brand reputation is also very important in the hotel industry and impacts sales. Airbnb has to present a good image of the homeowners and small hotels in the eyes of the customers in order to generate business and then ensure the same quality in order to build brand reputation forerepete business.
Continuously increasing customer base is also very important for the company as it results in generating superior profits and growth. It would also enhance the brand reputation.
Legal problems are also important for Airbnb to sort out as legal challenges may harm its business model. Moreover, they impact the brand reputation and profitability as well.
Airbnb has a strong future being the business leader. Inspite of the fact that the platform is beneficial for both hosts and guests but it is facing some problems which it needs to sort out in order for the brighter future and long term viability.
- Customer Services: the guest and the hosts both need trust. Although the company has offered a rating system
- hosts and guests are having one issue: trust. Even though Airbnb has provided a rating system for both hosts and guests, however, these reviews could be unreliable because guests could review for themselves and rival also, therefore, it could affect the host’s reputation. According to Professor Dolnicar at UQ Business School, “this system rewards good host and good guest behavior and punishes bad host and bad guest behavior. Again, this is radically different than anything else in the traditional accommodation market. This is not helpful for improvement. In peer-to-peer networks guest feedback is more detailed. As such it enables hosts to continuously improve.” Meanwhile, the real constructive reviews are being ignore and underestimated by Airbnb. I think Airbnb staffs should pay more attention to the review and contact the reviewers to clarify the issues and take an action if necessary.
- Loyalty Program: Airbnb only charge a small transaction fee as the service between hosts and guess for every booking, but Airbnb doesn’t offer a promotion for loyal hosts and guests. I think Airbnb should follow the concept of hotels.com like offer 1 night free after 10 booking night or offers hosts service discount after certain period, etc. I believe Airbnb would gain more loyalty users in the future if they’re apply that concept into their current business.
- The safety and security of hosts and guests-this is difficult issues and can’t be easily resolve from both side. Guests might experience some issues like theft, destruction of property or even kidnapping, and they’ll pick the hotels in the future for safety purpose. Hosts, on the other hand, might expose themselves to legal and financial problem from accommodating guests, for instance, rooms and home being damage by huge parties. Airbnb should offer more information of its hosts within the city to the guests before their travelling so they’ll more options to choose from. For the hosts, Airbnb should work with insurance company to form more comprehensive plan that would shift the risk away from the hosts.
Bashir, M., &Verma, R. (2016). Airbnb disruptive business model innovation: Assessing the impact on hotel industry. International Journal of Applied Business and Economic Research, 14(4), 2595-2604.
Boswijk, A. (2017). Transforming business value through digitalized networks: A case study on the value drivers of Airbnb. Journal of Creating Value, 3(1), 104-114.
Neeser, D., Peitz, M., &Stuhler, J. (2015). Does Airbnb hurt hotel business: Evidence from the Nordic countries. Universidad Carlos III de Madrid, 1-26.
Oskam, J., &Boswijk, A. (2016). Airbnb: the future of networked hospitality businesses. Journal of Tourism Futures, 2(1), 22-42.
Sengupta, A. S., Balaji, M. S., & Krishnan, B. C. (2015). How customers cope with service failure? A study of brand reputation and customer satisfaction. Journal of Business Research, 68(3), 665-674.
Rimer, R. (2017). “Why do people choose to stay with Airbnb?” June 06, 2017. Retrieve from: https://www.modul.ac.at/index.php?elD=dumpFile&t=f&f=9045&token=b1c2e98f9345d5fa7e27859086428f3874ee9dc8
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