27th November, 2014

Student number: 1321972

Marketing: IB2090 (24 CATS)

Choose a British company (other than any airline or airline related organisation OR any firm which you have mentioned in a previous assignment), which you believe has achieved superior performance.

(1) Collect data/information regarding this company from published material (online or otherwise).

(2) Use relevant concepts and models to: a. describe and critically analyse the marketing environment of this company; b. identify and critically evaluate the factors in the marketing mix that (in your opinion)

have contributed to this superior performance and identify and discuss those factors in the marketing mix that are crucial for the long-term future success of this company.

Word count: 2997 (excluding appendix, bibliography, and titles)

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TABLE OF CONTENTS

Introduction

I. Macroenvironment ..............................................................................................................4

1/ Political and legal factors: legal troubles ..................................................................4

2/ Economic factors ......................................................................................................5

3/ Sociological factors .................................................................................................6

4/ Technological factors .................................................................................................7

II. Microenvironment ..............................................................................................................7

1/ Bargaining power of suppliers ...................................................................................7

2/ Bargaining power of consumers ................................................................................8

3/ Barriers to entry .........................................................................................................9

4/ AirBnB’s competitors ................................................................................................9

III. Marketing mix: .................................................................................................................10

1/ The offer ....................................................................................................................10

2/ Promotion and communication strategy ....................................................................11

3/ The price ....................................................................................................................12

4/ The place ....................................................................................................................12

IV. Future Prospects and critical success factors: ................................................................12

1/ Expanding its customer segmentation .......................................................................12

2/ More security standards .............................................................................................13

3/ Keep promoting the brand and its image ...................................................................14

Conclusion ................................................................................................................................15

Appendix ...................................................................................................................................16

Bibliography ..............................................................................................................................17

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INTRODUCTION

“In the service industry, there things that are deeply human that people want to participate

in”, has said Brian Chesky (co-founder and current CEO of AirBnB company). In 2008, Brian Joe

Gebbia and Nathan Blecharczyk developed a project of AirBed&Breakfast in San Francisco

(USA), based on the concept of shared economy.

AirBnB is an online marketplace for hosts and guests who want to rent rooms or properties.

It has literally changed the way people travel. We can now rent cheap well-furnished

accommodation, for a short period of time, well situated, and hosted by an individual. I have

decided to study the case of AirBnB mainly because it is a typical example of how the Internet and

the sharing economy have revolutionized the hotel industry.

I have also chosen this firm because it is a really good example of a company that has

experienced and achieved great success in a very short time. The firm has become much more

successful and valuable than many other big companies like Accor, which have already been

implemented in the market for many years. Accor (created in 1967), leader of hotels operators in

Europe and valued at $10bn, has recorded about 8 million nights booked per year. On the other

hand, AirBnB has seen its number of nights booked grow exponentially in four years, reaching

more than 10 million nights booked (Tech crunch, 2012). Today, the company is valued at $13bn,

and has now expanded its community to more than 25 million users (AirBnB, 2014).

Throughout this essay, we are going to analyze how AirBnB has managed to become one of

the fastest-growing travel companies in the UK, and how the different marketing strategies enabled

it to achieve this superior performance and maintain it in the future.

To answer this question, we will first analyze the firm’s environmental factors, and its

positive and negative impacts on the AirBnB’s activity. Then, we will examine the company’s

marketing strategy and the factors that contributed to its success. Finally, we will end this essay by

discussing how some of these factors could drive the company to achieve superior performance.

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BUSINESS’S MACROENVIRONMENT

1) Political and Legal factors: legal troubles

Firstly, in many countries in the world, AirBnB has been confronted by national laws

keeping people from renting their home for short stays (e.g.: less than 30 days). This is mostly the

case in the United States since 2011, where homes rented are viewed as “illegal hotels” according to

the New York Attorney General, Eric Schneiderman (The Telegraph, 2014). This would mainly be

because rented apartment owners do not have to pay hotel taxes, and because of the absence of

safety and heath standards in rented accommodations.

However, the situation is gradually changing in San Francisco. The “AirBnB law” recently

passed, allowing people to rent their apartment no more than 90 days in a year (Cnet, 2014). Some

other countries, like the United Kingdom, also start tolerating it, and politicians even began to

promote the trend of sharing goods and being more connected. Against British law, Eric Pickles has

got rid of the regulation regarding letting homeowners’ properties on holiday websites (The

Telegraph, 2014).

Moreover, regulations such as tourism taxes on online accommodation-sharing services like

AirBnB, recently emerged in some countries like France, and might then hinder the company’s

activity (Factiva database, 2014).

Finally, national organizations like the British Hospitality Association (BHA) are ensuring

that AirBnB accommodations meet safety and health standards. BHA, for instance, requires the

online sharing platform to include these standards to make people’s stays in the UK safer, and to

maintain the UK’s reputation of being safe (Buying Business Travel, 2014).

2) The economic factors

Firstly, with the recent economic crisis (2008), people globally tend to spend less of their

money on travel. Regarding the hospitality industry, they would rather look for cheaper

accommodation or room. With the crisis also affecting companies, business travelers are keener to

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find cheaper rooms or apartments to limit their charges. By offering cheap rents, AirBnB is offering

an alternative solution to people and businesses, and is a good response to the crisis.

Moreover, this 2008 crisis has led to a new concept of “sharing economy”, developed all

over the world. Nowadays, individuals tend to offer and exchange shared assets to other people or

organizations at a very low price. AirBnB is taking advantage of this new trend by matching hosts

and renters, and offering cheap accommodations. According to Olivier Grémillon (head of AirBnB

Europe), “sharing economy is a phenomenon with the potential to transform almost every aspects of

our lives”.

With the initiative of the Business & Enterprise Minister Matt Hancock, the UK government

is now promoting this new trend in order to boost London’s growing technology sector and

entrepreneurship. Nowadays, 25% of the UK population are part of the sharing online economy

(The Telegraph, 2014). It is also booming in other places across the world. Its global annual revenue

is estimated to rise from £9bn to £230bn by 2025” (The Telegraph, 2014).

!

3) Sociological factors

Firstly, the rise of online social networks has had a strong impact on people’s lives.

Nowadays, online platforms and forums enable us to exchange information and communicate with

each other more easily (e.g.: Facebook). We can also share our ideas on forums and our past lodging

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experiences (e.g.: Twitter). Networks are made to facilitate communication and create relationships

between people. For instance, in the UK, 31 million people were connected to Facebook and 15

million connected to Twitter in 2014 (Rose McGrory, 2014)

Moreover, with the recent expansion of the sharing economy, people see opportunities to

make money and have their own business. For some of them, AirBnB also enables them to have a

job and an income. In the UK, 63% of hosts use it to pay their bills, and 44% to pay their own rent

(AirBnB press, 2014). As Brian Chesky said, “there were people and there businesses” and “now

we live with the third category, which is people as businesses” (The Sunday Telegraph, 2014).

4) Technological factors

Created in 2008, AirBnB was born in a technological boom. The innovation of electronic

devices enables the firm to create a new version of the platform on smartphones and tablets, which

gives easier access to the service for its users. Moreover, the recent emergence of applications on

smartphones enabled AirBnB to create its own app and allows people to book apartments more

easily and from anywhere. On the graph below, we can see that the UK smartphone market is quite

important and is strongly increasing. Between May 2010 and May 2011, more than 20 million

smartphones have been sold to the UK population.

!

In addition to this, the Internet creates new ways of communication and information. Its

significant increase of use has also contributed to AirBnB’s success by connecting many hosts and

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renters on the platform. According to Internetworldstats, at the end of 2011, there were around

2.2bn of Internet users, which is about 32.7% of the world population.

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Percentage of Internet users in the world population

THE ACTORS OF THE MICROENVIRONMENT

1) Bargaining power of suppliers:

Although the suppliers (the hosts) are the ones who set the rent’s price on AirBnB, they are

constantly confronted by other competitors in the market. Therefore, their price-setting power is

quite weak as they have to adapt their price to that of the market. Furthermore, even if AirBnB

charges its suppliers a 3% commission on their payout, those will still need the AirBnB service

platform to promote their offer, as it is the leader of the online rent sharing and attracts more than

25 million guest users.

On the other hand, AirBnB will always need the best offers on its platform, and in the best

locations, in order to attract customers and satisfy their needs. Therefore, suppliers have some

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power in the sense that the company should first attract its suppliers before its consumers. That is

why AirBnB now has more than 600,000 listings worldwide.

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AirBnB’s suppliers locations in 2014

2) Bargaining power of consumers:

Consumers’ power is very strong because the success and the reputation of the company

depends mainly on them. For instance, many guest users are sharing their experiences of their stay

with AirBnB on different forums and social networks. Price, location, and quality of the service will

then be the three main factors that will determine their satisfaction and any negative reviews will

strongly impact the brand image.

However, the more the business grows and becomes powerful, the lower the consumer’s

power is. Indeed, when the AirBnB’s attractiveness increases, more hosts and guests tend to use the

AirBnB platform as it is more likely they will find guests (for hosts) or find the right

accommodation (for renters). That is why the most popular services always attract the best offers.

As we can see below, the number of customers who use AirBnB is predicted to significantly

increase to 51 million by 2018.

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!

3) Barriers to entry:

It is quite difficult for a start-up to enter a rent-sharing market where there already exists a

big leader like AirBnB. As it attracts most of the hosts and guests on its platform, a new entry in this

kind of market would require high marketing costs and the marketing budget of AirBnB. For

instance, AirBnB has recently raised $500 million in capital, which makes a total of $820 million

raised from the beginning (Tech Crunch, 2014). Obviously, it is impossible for a new start-up to

raise this amount of capital. Therefore, barriers to entry are very strong for new entrants.

4) AirBnB’s competitors: how does AirBnB position itself in its market?

Nowadays, AirBnB’s main competitors are traditional hotels, Bed & Breakfasts, and other

big rent-sharing websites (like HomeAway, Wimdu, or 9flats).

Compared to tradition hotels, AirBnB proposes a different offer to its guest users. First, an AirBnB

accommodation offers a particular authenticity and personality as guests lodge in a country’s typical

house. According to AirBnB, about 85% of the UK guests want to “live like locals” (AirBnB Press,

2014) rather than classic hotel rooms. Consequently, an AirBnB room also allows guests to get a

well-furnished accommodation at a lower price than hotels. A study conducted in 2013 by

priceonomics.com platform service (Digital Trends, 2013) has shown that by choosing an AirBnB

accommodation, renters save on average 49.4% of what they would have spent on a traditional hotel

room.

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!

AirBnB advantages compared to Hostels and Hotels (August 2014, guesty.com)

Among other online rent-sharing platforms, HomeAway group is the main competitor of AirBnB

and have a revenue of $350 million (Le Figaro, 2014). Created in 2004, HomeAway (including

Abritel and Homelidays) now offers 1,000,000 apartments on its platform, in 190 countries. It also

only charges hosts on their payout, which makes it more profitable for guests. However, this

company principally targets families and groups who rent vacation accommodations, whereas

AirBnB attracts a wider segment of customers.

THE MARKETING STRATEGIES

1) The offers: how do they differ from that of its competitors?

As I said above, AirBnB’s offers are simple and authentic, and allows guests to live as locals

when they travel. As Brian Chesky said, “when you come to any city in the world we make you feel

like you belong” (The Telegraph, 2014). AirBnB’s accommodations are also quite cheap compared

to traditional hotel rooms. Furthermore, the company has well internationalized its offers as it is

now listing more than 600,000 rents in 34,000 cities (AirBnB, 2014). In 2012, the firm also decided

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to set up branches in 11 new popular cities across the world. Finally, originality plays an important

role as AirBnB offers a huge variety of accommodation. Among its listings, we can find islands,

boats, manors, castles, igloos and also tipis.

However, we can still question the quality and security of AirBnB’s offers. Most of its

accommodations do not include any safety or health standards (e.g.: smoking detector, alarm). And

compared to traditional hotels, the service and customer’s comfort are globally lower. This has then

led to a few complaints from dissatisfied guests and has a bad impact on the brand image.

2) Promotion and Communication strategies

Being an online based company, AirBnB focuses mostly their promotion on digital

advertising. To expand its audience and target worldwide customers, it has created partnerships with

some social media companies to promote its brand and increase their number of listings. For

instance, in 2011, to improve brand awareness, the company invested in Google Display

Advertising, providing the best overview of the platform to its customers, with properties’ images

and ad campaigns of their rent offers (ThinkWithGoogle, 2011).

The firm also used Youtube TrueView ads to introduce AirBnB’s service. In more than 100

Youtube video adverts, it explained to its users the way the service works. This has allowed the

company to reach and attract more Youtube users (SearchEngineWatch.com, 2011).Thanks to these

Google and Youtube partnerships, the number of nights booked has increased from 800,000 to 2

millions in the year of 2011 (EyeForTravel, 2011).

Furthermore, big news like its recent capital raising of $500 million have been published in

most of the online business platforms like TechCrunch or BusinessInsider, and traditional British

economic newspapers. This attracts more consumers on the platform as they are aware of the recent

company’s activities.

Finally, online social networks, like Facebook, Twitter, LinkedIn and Instagram have also

helped AirBnB to promote its brand. Since these big social platforms are used by many people in

the UK, using their online services is a good strategy to attract people and promote the brand.

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3) The price: how is the consumer’s price sensitivity?

Today, with a huge worldwide hospitality service, constituted by the traditional hotel

industry and expanded with the arrival of new rent-sharing platforms, customers now have access to

a lot of offers at different prices. Therefore, consumers would tend to be very price-sensitive.

However, as I said in the microenvironment part, an AirBnB accommodation is cheaper than a hotel

room. AirBnB’s consumers would pay only half of a traditional hotel room’s price. Moreover, the

company has the ability to always adapt to its consumers budget and purchasing power, with its

different offers and a huge variety of prices.

4) Place: Where do users have access to the service?

AirBnB’s offers are mainly sold on the Internet. Firstly, the most common online place is its

own platform where customers have access to the offers and every informations about the company

(e.g.: contact, help...). Furthermore, partnerships with other online companies also allow AirBnB to

sell its offers to new customers. For instance, as I say below, partnership with the Concur Company

enables consumers to have direct access to AirBnB’s offers through the Concur platform.

FUTURE PROSPECTS: “CRITICAL SUCCESS FACTORS”

1) Keep expanding its customer’s segmentation by creating special services

AirBnB’s profitability largely depends on its number of users. In order to expand its

community, AirBnB should target a wider variety of potential customers, and attract them through

partnerships with powerful and influential organizations.

Business travelers, for example, represent about 10% of its clients. The company has

recently shown some interest in expanding into this consumer market. To target them, AirBnB has

made a partnership with Concur company (travel and expenses management service) which is now

used by more than 70 of the top Fortunes 100. AirBnB is now able to provide a different service

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through a recent innovation, that only shows business travelers the right accommodation with

amenities corresponding to their needs.

Nowadays, according to Tim MacDonald, executive vice president at Concur, “business travelers

are increasingly taking advantage of a new generation of suppliers like AirBnB”, (Internet Retailer,

2014).

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2) More security standards would improve customers’ stay

The main difference between AirBnB accommodation and other hotels is the level of health

and safety regulations met. Indeed, the hotel industry focuses a lot on its clients’ comfort by

constantly improving the service, whereas AirBnB does not include safety standards in its priorities

(Hotel News Now, 2014). Therefore, its lack of regulations has led to many complaints from guests

due to problems during their stays.

Improving the quality of AirBnB’s offers by imposing new safety standards (e.g.: fire safety)

in hosts’ apartments should now be the new challenge of the company. It will allow the firm to

improve its brand image, which will attract more consumers. Moreover, in the UK, the British

Hospitality Association has an important role by making sure traditional safety standards are met by

AirBnB’s hosts.

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3) Keep promoting the brand and its image

Finally, AirBnB will keep being the leader in its market only if it keeps promoting its brand

image. To increase the size of its community, AirBnB will have to strengthen its advertising, and

increase its marketing budget to find new ways of promoting the brand.

For instance, on the 17th of November, AirBnB unveiled its first business magazine called

“Pineapple”. This will basically represent another efficient way for the firm to inform its users

about news and features, and attract more people.

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CONCLUSION

Throughout my analysis of the company’s marketing, we have seen that many of AirBnB’s

business environment factors, both inside and outside its market, have strongly influenced the firm’s

activity and operation. The firm has got a huge opportunity especially with the increase of the

sharing economy and the rise of online social networks. We have also analyzed how the firm has

developed its marketing strategy to achieve such successful performance in the UK since its

creation in 2008. The business attracts everyday more users to its platform. However, some

challenges are crucial for its future performance. The quality of its offers is yet to be improved, and

the company always needs to attract more worldwide users by improving the promotion of its

service.

AirBnB has also expanded the sharing economy culture on a global level. As Brian Chesky

said in a recent interview, “the biggest revolution will be in the biggest asset of all”. This new

concept has given birth to new companies based on this idea of sharing assets, like Uber (car-

sharing platform created in 2009). By encouraging entrepreneurial spirit, people can now run their

own business, and earn money easily and very quickly. Basically, the world has entered a new era

of micro-entrepreneurs.

We cannot be absolutely sure about the future of AirBnB, but we can forecast a bright future

for it. The sharing economy concept could be a response to current economic problems. As we

know that about half of AirBnB’s hosts depend on the rent to live (McKinsey&Company,

November 2014), this new idea will allow people to get a new job and receive incomes. According

to Brian Chesky, it could “provide tens of millions of jobs or income streams” in the future.

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Appendix:

Strengths: - Service itself . People can travel at lower cost as AirBnB’s rents are cheaper compared to hotels. Guests save money. . Simplicity and Authenticity: being lodged in an individual’s apartment makes them live like locals. . A large variety of offers (manors, castles, boats, islands...) to satisfy most of guests. - Promotion . Develops new ways of promoting the brand (mainly online): Google and Youtube partnerships, brand awareness on social platforms - Position among other online rent-sharing platforms . Leader in its market, which allows it to attract the best offers from hosts, and be more likely to satisfy its consumers’ needs (brand loyalty) - No working capital . The company has no assets to sell, or inventory to stock. It facilitates AirBnB’s cash flow.

Opportunities: - A huge market: . After the economic crisis, customers are looking for cheaper rents (lower purchasing power) . Rise of the sharing economy trend (there is no limit to it) - Sociological . Rise of the online social networks creating new ways of communicating and sharing informations. - Technological innovations . Innovation of smartphones, tablets (and other new electronic devices) have allowed AirBnB to create new versions of its service. It gives an easier access to informations to its clients (e.g.: AirBnB app) - Legal issues . In the UK, recent legalization of renting apartments for short periods of time - Segmentation . More segments of people show now some interest in the concept of shared rents (e.g.: business travelers). This can expand AirBnB’s community.

Weaknesses: - The Offer’s security . Safety and health standards in apartments are not often met. - The offer’s quality . Customers’ comfort is not guaranteed. If a customer is not satisfied, it will strongly damage the brand image.

Threats: - Legal issues . In countries (like USA), laws do not allow people to rent their apartment less than 30 days. - Marketing costs

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. With the huge number of competitors (especially hotels) and the arrival of new entrants, marketing costs are likely to rise.

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AirBnB CEO: Cities are becoming village, available at: http://www.theatlantic.com/international/

archive/2014/06/airbnb-ceo-cities-are-becoming-villages/373676/

AirBnB expands into business travel, available at: http://bits.blogs.nytimes.com/2014/07/28/airbnb-

expands-into-business-travel/

Comparison between AirBnB, Hostels and Hotels, available at: https://www.guesty.com/blog/

airbnb-vs-hotels/

Pineapple Business Magazine, available at: http://uk.businessinsider.com/airbnb-is-releasing-a-

magazine-2014-11?r=US

The War on AirBnB, available at: http://mises.ca/posts/blog/the-war-on-airbnb/

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27th November, 2014

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