AIRBNB, Exams of Business Accounting

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Analysis & Marketing

Plan

AIRBNB

Sarah Bryant, Joseph Morris, Elisa Morrison, Sofie Uhlending

TABLE OF CONTENTS

• INTRODUCTION:
• Industry Analysis
  • Market Review.....................................................................................................................
    • Factors of Demand
    • Five Force Analysis
  • Competitive Review
    • Brand Competitors
    • Product Competitors
    • Solution Competitors
    • Total Budget Competitors..............................................................................................
    • Three Most Significant Competitors
    • Current and Past Strategies
    • Financial Performance
    • Strengths and Weaknesses
    • Future Strategies
    • Impact on Airbnb
    • Type of Competitive Market
  • Customer Review
    • Potential Market
    • Purchase Process
    • Why customers buy and expectations
  • Microenvironment Review
    • Legal and Regulatory
    • Economic
    • Social and Cultural
    • Environmental
    • Technological
• Firm Analysis
  • Key Information
    • Size
    • Key Management
    • History
  • Primary Products/Services
  • Current Goals & Objectives
  • Current & Past Strategies
  • Performance
  • SWOT Analysis
    • Strengths:
    • Weaknesses:.................................................................................................................
    • Opportunities:
    • Threats:
  • Current Lifecycle Stage
  • Current Branding Strategy
• Core Competencies & Competitive Advantage......................................................................
  • Core Competencies...........................................................................................................
  • Competitive Advantage
    • Cost Advantage
    • Differentiation Advantage
• Segmentation
• Segmentation
  • Convenience Seekers:
  • Low-Budget Culture Seekers.............................................................................................
  • Event-Location Seekers
  • Experience Focused
• 3 CIRCLES
  • Target Market and Competition
    • Target Market Segment: Low-Budget/Culture seekers
    • Key Competitor: HomeAway
    • Context
  • Customer Perspective
  • Firm Perspective
    • 3 - Circle Map
    • Opportunities for Growth
    • Features that can be Eliminated
    • Features that should be better promoted
    • Points of Difference
• Marketing Plan.......................................................................................................................
• MARKETING PLAN
  • Marketing Goals & Objectives
  • Segmentation
    • Non-Current Airbnb Users
    • Current Airbnb Users.....................................................................................................
  • Targeting
    • Positioning Strategy
  • Marketing Implementation
    • Actions
• CONCLUSION.......................................................................................................................
• References

INTRODUCTION:

Travel as an industry has been evolving dramatically. In recent years, sharing economies have become more popular, giving rise to companies like Airbnb that utilize sharing economies to create an online marketplace for the exchange of private products and services. Sharing economies have complex dynamics in how they form relationships between market participants. The lines between customer and seller become blurred, and trust has become an increasingly important factor as this trend continues to grow. In the travel industry, in particular, Airbnb has been utilizing this unique structure to create a new type of experience for its customers. This paper aims to provide a comprehensive review of Airbnb, its competitors, and the travel industry as a whole. An analysis of the firm and industry are provided to determine whether the vacation rental industry itself is favorable. Next, the paper examines core strengths and competencies that Airbnb has developed in order to succeed in the industry. Four key market segments were identified as: business travelers, low-budget culture seekers, event-goers, and group/family travelers. Low-budget culture seekers were isolated as the ideal segment based on its potential to further Airbnb’s overall goals. Lastly, the paper will inspect how Airbnb fills the needs of its ideal segment in a way that is meaningful and differentiated from its competitors.

Market Review In order to examine the firm’s current situation, it is helpful to start with external market factors and then move inward. For this reason, the paper will begin with an overview of the market based on Porter’s 5 Forces model. Afterwards, a comprehensive view of competitors will be offered to better frame the external review. Each competitor will be examined based on its relation to Airbnb’s unique solution. Each competitor’s current strategy will be explored as well as the potential effects that each of those strategies might have on Airbnb’s strategic decisions. Once the competitors have been thoroughly evaluated, the paper will shift to internal factors focused on an analysis of Airbnb’s ability to compete in the current market.

Factors of Demand

The vacation rental industry is influenced primarily by the discretionary income of individuals according to the 2017 IBIS World Reports.^1 These reports also indicate that when discretionary income increases, people tend to spend more money on traveling, particularly on vacations and leisure trips. The price and variety of hotels, hostels, and other accommodations also influence demand for vacation rentals.^2 Individuals looking for a unique experience or trying to get a better value for long-term stays, tend to be more interested in vacation rentals than hotels. Last, but not least, the overall health of the tourist industry plays a large part in the health of vacation rentals since a thriving tourist industry promotes travel to a wider range of locations and boosts spending. (^1) http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid= (^2) http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=

Five Force Analysis

THREAT OF NEW ENTRANTS: HIGH

The threat of new entrants is high in the online, vacation rental industry. According to the 2017 IBIS industry report for travel agencies and online booking services, the competitive intensity is quite high.^3 Since minimal capital is needed to set up a website for people to list their home rentals online the barriers to entry are fairly low. One hindrance to new entrants is the networking effect, since sites with a reputation and a larger user base tend to attract more sellers and buyers. Homeowners that intend to list a rental will visit the site with the most traffic, and buyers tend to prefer the sites that offer them the widest variety in terms of price and accommodation type. BUYER POW ER: MEDIUM Buyer power is medium in the online vacation rental industry. There are alternatives including hotels, hostels, or staying with friends or family. These, however, do not offer the same benefits that a vacation rental would - such as privacy, price, or customization. For example, staying in a hotel could be an alternative, but there is little privacy due to the close proximity to other rooms, the prices are often astronomical, and, other than the number of beds, there is little room for customization. Staying with friends and family is a much more customized experience, but is not always an option that is readily available for travelers. While there are options for vacation travelers, options for staying in relatively private, customized lodgings are more limited. (^3) http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=

because the model is fairly easy to replicate.^5 It is important to note that, while there are several options, many of the new home-sharing businesses have not established notable scale. The second industry, accommodation booking through third party services, is an older industry with a reportedly high level of competitive intensity according to IBIS World’s Industry Report.^6 This industry includes travel agencies and similar full-service travel business. While it seems that home-sharing hasn’t become completely established, despite the rush of new entrants, the rental market is an established concept. For this reason, competitive intensity could be considered medium-high and increasing. IMPORTANCE OF COMPLI MENTS: HIGH The vacation rental industry relies heavily on other travel and vacation centered expenses. Transportation to and from destinations is important, whether that be by plane or by services such as Uber or Lyft. Access to local hot spots and tourist attractions also influences the attractiveness of a vacation rental. If a location is easier to access, it is likely to be more attractive to renters looking for a vacation spot. Vacation rentals are also strongly influenced by events such as concerts, festivals, and seasonal activities. MOST IMPORTANT FORCE The most important force in the vacation rental industry is the threat of substitutes, which is high. There are a lot of alternatives for places to stay. In many cases, price is a key driver for which platform consumers decide to book through. According to IBIS World’s report on Travel Agencies, “Travelers are increasingly booking directly with travel operators, or with travel sites that provide side-by-side comparisons of hotel rates for various destinations.”^7 (^5) http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid= (^6) http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid= (^7) http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=

This makes it similar to the airline industry, where customers rent from whichever site can give them the cheapest price for their desired accommodation. Airbnb is a sharing economy, which allows it a far greater degree of diversity than many of its substitute options. This is the key feature of a sharing economy. Offerings are less commoditized than a consumer would expect from a typical rental or booking service. The intersection between sharing economies and vacation rentals is where Airbnb operates. The industry has become considerably less attractive since Airbnb opened its service. The industry has just begun to saturate with new entrants, many of which are attempting to emulate Airbnb’s business model. The hotel and vacation rental industries are highly saturated and competitive. However, the sharing economy niche is still relatively new, which means there is likely still some room to become better established.

Product Competitors

Staying with friends and family is one example of a product competitor. It is a similar alternative to Airbnb in that it is a potential place to stay during travels; however, the usage is different in that it is not booked online and uses strangers instead of friends and family. Another product competitor is Craigslist. Craigslist is another online/app company that allows strangers to connect and share goods and services, however the focus of Craigslist primarily on goods rather than lodging. Another product competitor is Real Estate agencies, apps, and websites. These also allow people to find homes, but the focus of Real Estate agencies is mostly on buying rather than renting.

Solution Competitors

Marriott is the biggest hotel chain in the world, with over 5,800 properties and 1. million rooms that cover 110 different countries.^10 As is common in the hotel industry, Marriott owns a small portion of its rooms, and instead franchise their brands to individual owners. This has reduced Marriott’s liability as a company as they are not heavily invested in properties that may be hard to liquidate. Hostels are a cheaper alternative to hotels, often with dormitory style housing. Hostels target students and people traveling on a very low budget, as they offer much less amenities and often require visitors to help with chores.

Total Budget Competitors

Airbnb’s major total budget competitors are expenses associated with travel and vacation. Travel expenses can include plane rides, food, and other transportation. Vacation expenses can include tours, local activities, and souvenirs. These costs have a large impact (^10) https://www.cnbc.com/2016/09/23/marriott-buys-starwood-becoming-worlds-largest-hotel-chain.html

on what lodging options are used during travel. Large purchases such as cars and TV’s also are a competitor because of their impact on vacations. People who spend their disposable income on material things instead of taking a trip, are obviously less likely to use Airbnb.

Three Most Significant Competitors

The three most significant competitors are HomeAway, FlipKey by TripAdvisor, and Marriott. These are the most significant competitors because they each pose as different types of competition within the vacation rental industry.

Current and Past Strategies

HOMEAW AY

According to VRM Intel, a site dedicated to providing up-to date news in the vacation rental industry, HomeAway’s past strategy was to give travelers a “one-stop shop for whole home vacation rentals in leisure travel markets.”^11 Its current strategy is fairly similar. It focuses on resort locations and emphasizes treating its landlords like business owners. On average guests pay a higher price, but typically stay longer at its locations.^12 One key distinction is HomeAway’s pricing strategy. Rather than charging guests extra fees, it charges the host either a 13% fee per booking or an $349-$999 annual subscription for its services.^13 This makes it more attractive for guests but offers slightly less incentive for hosts. (^11) http://www.vrmintel.com/airbnb-vs-homeaway-winning-race-top-vacation-rental-industry/ (^12) http://www.vrmintel.com/airbnb-vs-homeaway-winning-race-top-vacation-rental-industry/ (^13) https://www.tripping.com/industry/rental-companies/homeaway-vs-airbnb

Marriott’s current strategy is to attract more than just customers looking for a short- term stay through its timeshares and other hotel-sharing programs.^21 In 2010 Marriott changed its timeshares to a point-based system that allowed its members to travel to any Marriott hotel location in the world.^22 It continues to focus on leveraging its properties and multiple brands to create a unique, yet consistent experience for its customers around the world.

Financial Performance

HOMEAW AY

HomeAway had a revenue of $446,762,000 in 2014.^23 The market share of HomeAway within the vacation rental industry was 2.7% in 2014,^24 which was .6% higher than it was the previous year.^25 The net profit margin for HomeAway in 2014 was 2.9%, which is relatively low compared to other companies operating in this industry. FLIPKEY BY TRIPADVIS OR TripAdvisor had a revenue of $1,480,000,000 in 2014.^26 This is more than double that of HomeAway in the same year. TripAdvisor had a 9.1% market share of the vacation rental (^21) http://www.marriottvacationclub.com/ (^22) http://www.marriott.com/Multimedia/PDF/CorporateResponsibility/Marriott_Sustainability_Report_Update_ 0.pdf (^23) https://www.sec.gov/cgi-bin/viewer?action=view&cik=1366684&accession_number=0001193125- 15 - 062554&xbrl_type=v# (^24) https://www.statista.com/outlook/268/109/vacation-rentals/united-states# (^25) https://www.sec.gov/cgi-bin/viewer?action=view&cik=1526520&accession_number=0001564590- 17 - 001783&xbrl_type=v# (^26) https://www.sec.gov/cgi-bin/viewer?action=view&cik=1526520&accession_number=0001564590- 17 - 001783&xbrl_type=v#

industry. This market share was a .1% decrease from the previous year’s market share. TripAdvisor has a net profit margin of 8.1% which is relatively average for this industry. MARRIOTT Marriott had a revenue of $17,072,000,000 in 201 427 and a 27% market share of the hotel industry. The company saw a .5% growth in market share the following year.^28 The Marriott had a net profit margin of 8.01%, which is also relatively average for the hotel industry.

Strengths and Weaknesses

HOMEAW AY

HomeAway’s primary weakness is that it is more expensive on average for hosts to list their accommodations on, the prices are generally more expensive for guests as well which is a drawback. HomeAway’s strength is it can tap into economies of scales due to its ownership of multiple vacation rental sites. This allows it to leverage its core competencies across multiple platforms and reach a wider spectrum of people. FLIPKEY BY TRIPADVIS OR FlipKey by TripAdvisor struggles since it is does not have a strong brand. Its connection to TripAdvisor is beneficial, but at the same time it is also detrimental. FlipKey is just viewed as supporting TripAdvisor whereas its competitors have a more narrowly defined focus on providing unique vacation rentals for customers. Its advantage is that it only charges a 3% booking fee which is cheaper than its competitors (^27) https://www.sec.gov/cgi-bin/viewer?action=view&cik=1048286&accession_number=0001628280- 17 - 001506&xbrl_type=v# (^28) https://csimarket.com/stocks/competitionSEG2.php?code=MAR

marketing strategies. The main personality that the company has been, and will likely continue to, try to convey in its marketing efforts is a fun and trustworthy personality. MARRIOTT Marriott will likely follow a different approach to the previously mentioned companies in its marketing strategies in the future. Marriott has taken to a more content-based marketing strategy in which the company puts out information not only about themselves, but also information and content that its customers would be interested in.^30 The company has been on a mission to establish itself as the authority in the travel lifestyle and it will convey this using storytelling tactics as well as its history.

Impact on Airbnb

HOMEAW AY

HomeAway’s strategies are most likely to directly impact Airbnb. This is because they operate in the exact same niche of the vacation rental industry, sharing economies. Airbnb and HomeAway use similar strategies to reach their consumers, humor and vacation appeal. HomeAway also has a strong parent in Expedia, which has allowed it’s successful use of celebrity endorsements. Airbnb capitalizes on “fun” and “cool.” Often, marketing strategies are centered toward building a close-knit and trendy community of travelers. In 2015, Airbnb hosted a ‘floating house’ publicity stunt that on the Thames River in London, which was attended by several important social influencers.^31 The resulting coverage and brand engagement that followed (^30) http://adage.com/article/cmo-strategy/marriott-a-content-marketing-mecca/308365/ (^31) https://www.theceomagazine.com/business/6-things-can-learn-airbnbs-marketing-strategy

were immense. Airbnb has also paid for a few celebrity trips in return for social media acknowledgement, but it has yet to make any lasting relationships with celebrity endorses.^32 Depending on the strength of HomeAway’s endorsements, Airbnb may need to consider a more lasting celebrity approach. Because HomeAway appeals to a similar demographic, it’s also important that Airbnb maintains its online communities. Currently, it hosts a large online community with detailed profiles, communication options, and a strong review focus.^33 The Airbnb Community even offers “Meetups,” which allow you to meet new people in Airbnb hosted events all around the world. A local function allows Airbnb users to find clubs and events that they can attend nearby, even if they’re not currently paying customers.^34 HomeAway does not currently have the same set up, but it could easily be emulated by a business in their position. For this reason, Airbnb should focus on better integration to continue to support the digital hub it’s started. TRIPADVISOR The greatest danger of TripAdvisor is the easy comparison of prices, and the fact that businesses and users can use TripAdvisor for free.^35 Unfortunately, the nature of Airbnb gives it very little control over price. TripAdvisor’s strategy of building consumer trust and comparing prices across channels appeals primarily to consumers whom might be less comfortable with traveling and searching for accommodations. TripAdvisor doesn’t seem to be targeting the same young and trendy demographic that Airbnb has focused on, but TripAdvisor does offer a wide variety of listings from multiple sites and could compete with (^32) https://www.theceomagazine.com/business/6-things-can-learn-airbnbs-marketing-strategy (^33) https://community.withairbnb.com/t5/Community-Center/ct-p/community-center (^34) https://community.withairbnb.com/t5/Cities/ct-p/cities (^35) https://www.tripadvisor.com/