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BS7114 International Business Strategy With Simulation For Hospitality Industry

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  • Course Code: BS7114
  • University: Kingston University London
  • Country: United Kingdom

Questions:

1. a) Identify the main customer groups/market segments in the hospitality industry (up to three market segments); b) Define Airbnb business model and identify the main market segment(s) addressed by this company
 
2. Identify, within the hospitality industry, the specific strategic group of Airbnb. Critically assess the business microenvironment of Airbnb, in relation to its specific strategic group: use the Porter’s Five Forces Framework to analyze the main industry players. Evaluate the strength of each Force.
 
3. What is the competitive advantage of Airbnb? Explain how Airbnb creates value and what are the main sources of its competitive advantage.
 
4. What are the main changes/trends in the business (micro and macro) environment that might affect the competitive advantage of Airbnb in the next 10 years? Describe these changes and their likely impact on Airbnb.
 
5. Let’s assume that you are the manager (CEO) of a 3 star hotel chain in the EU: what should you do in order to respond to Airbnb (and thus to sustain your revenues and profits in the face of this rising company)?
 
 

Answer:

Introduction

Despite the fact that many business niches are made up of only a few of different enterprises, the hospitality industry fits nearly in most companies that deal with the satisfaction of customers and is centered on ensuring that leisure needs are met rather than the basic needs. With the vastness of the hospitality industry, it is critical to understand some defining factors. The hospitality industry is one of the major components that make up the service industry and comprises of lodging, theme parks, event planning and other additional sectors in the tourism industry.

Airbnb has over three million lodging listings all spread and located in over 65,000 cities and in more than 190 countries. Airbnb is a virtual market and a hospitality service that engages individuals to rent or lease on short-term basis accommodation that entails vacation and apartment rentals, hotel rooms and hostel beds. Instead of individuals booking on a hotel, the users stay on the property of other people enabling such people to enjoy an experience that is quirky and personal. Airbnb does not have its own lodging facilities, it is a broker that charges a certain percentage as a commission from the guests and the hosts as per the bookings. Users are tasked with searching lodging using a variety of options such as the lodging type, location and dates and the price charged by Airbnb can be found on the Airbnb website or other mobile applications such as the Android and the Apple.

A hospitality unit such as a restaurant or amusement park consists of units such as direct operations and maintenance of a facility that entails kitchen workers, management, bartenders and human resources. The hospitality industry is a multibillion-dollar investment that relies on the availability of leisure time, income that is disposable and customer satisfaction among other things (Novak, 2017). There are four components of the hospitality industry that is food and beverages, recreation, travel and tourism and lodging. 

 

Food and beverages

One of the largest segments of the hospitality industry is the food and beverage sector that is denoted by initials such as F&B.The F&B industry is projected to serve 50% of all the meals eaten in the United States of America as of today (Novak, 2017). It entails establishments majorly engaged in meals preparation, snacks, and beverages needed for urgent consumption on and off the enterprises. When a restaurant is one of the sectors of a hotel, the services rendered by such a facility can improve the experience of the guest through providing excellent food and customer service that can be ranked as first class.

 Travel and Tourism

Travels and tourism specialize in dealing with the movement of people from place to place. The buses, trains, and cabs are all components in the travel industry (Novak, 2017). Leisure travel occurs when people spend their finances on lodging, recreation, and even food while spending their vacation trip (Lee & Kim, 2018). On the other hand, business travel refers to spending while a person is traveling for work and spends the money on food and lodging. Some individuals also spend their money on recreation while traveling for business purposes. The primary motive behind tourism is to motivate people to travel. When people are traveling either for purposes of business or leisure, they spend money in one way or another on hospitality.

Lodging

Lodging refers to accommodation for a specific duration of time or a place where one can spend the night for one or two days (Novak, 2017). The lodging industry entails campgrounds, hostels and even motels that provide a place where people can spend the night. The businesses in the lodging industry are tasked with the responsibility for marketing other segments such as business travelers, long-stay travelers and special travelers such as individuals working for the government or airlines.

 

Recreation

Recreation refers to any activity that people engage in to rest, relax or for sheer fun and enjoyment. The primary objective of recreation is to ensure that the body and the mind get refreshed (Novak, 2017). Any enterprise that offers activities for purposes of rest, relaxation and sheer enjoyment to refresh the body and the mind of an individual can be categorized to be I the recreation industry. Entertainment enterprises that air shows such as movies and attractions that serve as regions of special interest of visits such as museums, sports, and zoos can all be said to be part of the recreation business.

Market segments by Airbnb

Airbnb targets mainly two groups of people namely travelers and hosts (Vizology, 2018). The two segmentations are crucial for the Airbnb structure since they are the center and determinants of the profits generated by the company.

The travelers comprise of a market segment that entails individuals enjoy traveling as opposed to spending their entire finances in a hotel room (Zunila, 2015). The travelers prefer spending on visiting tourist attraction places as they travel since they spend less money on the place they will be staying. Some travelers prefer staying in a place where they can relax and spend many days in such a place without necessarily emptying their pockets.

The hosts, on the other hand, involve the owners or renters who are willing and able to rent out their places. The reasons why the hosts rent out their property vary and depend on the needs of the hosts (Zunila, 2015). For some hosts, they will rent out their premises so that they can make some money from an unoccupied space and for others, they have an interest in meeting new people. Whichever the reasons, all hosts lookout for a place in the Airbnb so that they can have the ability to know the people renting their property. 

 

Porter’s five forces analysis

The motive behind Porter’s five forces is to establish the competitive edge of Airbnb to reach more travelers.

The threat of substitutions

The threat of substitutes can be said to be quite high due to the fact that the switching costs do not apply to the users of Airbnb. Customers can easily choose a conventional hotel, a hostel or even couch surfing as the next best alternatives in future (Liu & Mattila, 2017). As Airbnb is growing so are its rivals who are offering the same concept. The hotels, for instance, are considered as the most readily available and the most convenient for many travelers to stay. The establishment of Airbnb has made hotels to take note of changes in the customer preferences as a result of new social centered products, homier settings, and availability of many functional apps.

Hotels are thus managing to achieve demands in the hospitality industry by expanding their portfolios through the development of new brands intended to attract and appeal to millennial consumers in conjunction with those who want more connectivity with less service with regards to technology and shared space. Hostels, on the other hand, tend to be appealing to backpackers that are traveling alone and having the desire to meet travelers that are like-minded. Such accommodations not only offer ample opportunities for purposes of social interactions but also are cheap and more rejuvenating with an intimate vibe compared to a traditional hotel.

Bargaining power of customers.

The bargaining power of customers with regards to Airbnb can be stated too high since there is a wide variety of services to be chosen from by the clients (Morand, 2017). The development of tourism and hospitality industry has always been propelled by economic growth. In comparison to other services such as hotels and motels, Airbnb is the most preferred since it is cheaper as per the views of most travelers (Guttentag, 2016). Despite the fact that there is no room for price negotiations for the rooms with the host as per the Airbnb platform, customers have buying power with regards to an alternative of prices and styles they pick from and a thus consumers can decide the residences they want without exhausting their funds (Gurran & Phibbs, 2017).

Bargaining power of suppliers

The vendors’ bargaining power is meager since Airbnb controls the connection between the hosts and the customers makes it difficult for individuals who rent their apartment and rooms do not have access allowing them to connect with clients using the Airbnb App. According to Airbnb, the supplier is viewed as the host and is thus responsible for offering rooms or apartment to travelers. The host propels the business. The hosts are the primary level and thus provide services that potential clients need. Airbnb works in liaison with the host in ensuring that there are no problems with the clients. Though there are no unions for the vendors that can place demands on Airbnb, Airbnb accords host the freedom to set the conditions to their borders. It is the right of the host to decide if they want to alter the price depending on the condition. The rents, in this case, are exclusive and concentrate on unusual places for a large number of travelers thus providing a variety of prices for all types of consumers.

Inter-firm rivalry

Rivalry among competing firms is usually the greatest force among the five forces. In this context, the inter-firm rivalry can be categorized as moderate or low. There are a number of competitors offering quality services and similar to Airbnb with networks and similar websites to Airbnb. Sites such as HomeAway.com are fighting hard and overtime to supersede Airbnb from its incumbent position.Onefinestay.com is one of the competitors that caught the attention of Airbnb shareholders. Onefinestay has been I the industry for only five years and was a startup from London and operates an upmarket renting out homes to tourists in global cities while the owners of such homes are away. Currently, Onefinestay is operational in London, Paris and New York and has over 10000 homes listed in its records. The homes in the Onefinestay site are much swankier as compared to those on Airbnb site. However, Onefinestay property gets charged above $ 600 per night (Ward, 2017). Onefinestay also ensures that the property has been washed after and before individuals rent the property and also offers linen and skincare products offering the same service that a hotel would serve. The company also goes a step further in taking properties photos to market such properties. 

 

Gaining competitive advantage

The development of an industrialized world increases fierce competition among firms in the same industry. In this century, the success and development of firm depend on the availability of information so that the firm can serve its customers better (Kurtz, 2014). Businesses that fail to embrace the power of information may be thrown out of the business because such enterprises are viewed as ineffective. The market is characterized by the existence of many structures and many services that are identical and identical that aim at meeting the growing demands of customers. Though the operations of Airbnb have stood the test of time,2009 saw the company being declared bankrupt and the company managed to prove itself as a survivor as it went through the tribulations encountered in the operations of the enterprise.

The competitive advantage of Airbnb

The ability of Airbnb to work on the basis of large-scale enables the firm to gain a competitive advantage over its rivals. One of the biggest competitive advantage that it has is the effects of the networks it has established over time (Adamkasi, 2017). This means that the large number of hosts that have subscribed to Airbnb translates to a greater number of guests thus a big number of booking will be affected by visitors through Airbnb. The great number of guests booking also means that many hosts will subscribe to the Airbnb websites due to the existence of many clients who are willing to be accorded the renting services (Adamkasi, 2017). The word of mouth and the reviews of the people on the lists make Airbnb distinct and unique from its competitors. However, despite the fact that there are no entry barriers, late entrants are encountering difficulties in competing with Airbnb in the industry with regards to geographical factors. Airbnb still has to work harder in gaining a competitive edge on grounds such as the niche inventory.

The services offered by Airbnb reflect current manifestations of disruptions that have prevailed in the travel and lodging industry (Adamkasi, 2017). A change has been initiated and brought reforms in the traditional system that was run by intermediaries such as the travel agents who are getting replaced by Airbnb. Airbnb has a competitive advantage over traditional agents since it is able to avail a variety of services, interactive channels that are the direct and easy accessibility of information. Airbnb has invested massively in the ICT department and this has played a critical role in gaining and attracting a large number of online customers.

Airbnb is also unique in the manner in which it helps its customers experience a reduction in the transaction costs through the use of ICT framework (Adamkasi, 2017). It also revolutionized the trade by bringing consumers to consumers together in an industry that relied on the traditional business to consumer model.

Trends and the Impact on Airbnb

The technology currently is the main driver for change in the hospitality industry (Oskam & Boswijk, 2016). In the past, the technology would influence the hotel operations and visitors’ entertainment, however that has changed as technology is now considered as one of the enablers that enhances business models. There is a need for integration between the physical and offline hotels that guarantees unimaginable connectivity (Liang, et al., 2018). The presence of high tech delivers a personalized approach with regards to the hotel visitor. The hotels of today do not deliver such exciting hotel guest experience but as of 2020, hotels will focus on the guest experience (Oskam & Boswijk, 2016). Airbnb will have to change the focus of putting heads in beads through facilitating guests’ meetings to between guests and locals as they will become a vital component of their business. The focus will shift from rooms to public spaces. The boundary between business and leisure will no longer exist in future. New hotels will now be strategically located in existing buildings. Hybrid concepts such as hospitality and care will emerge as collaborations with cultural institutions will also be the core of the business.

Apart from the demographic and social-cultural changes, millennials and BRIC visitors are also trends that influence the behavior of future hotel guests (Oskam & Boswijk, 2016). With this kind of guests, they are in control of their trip and will thus expect a well-customized experience and the usability of their own device in operating room facilities. From the experience of travelers, it is evident that tourists in future will move away from offers that are standardized and engage in local contacts and events that they have been using from Airbnb. The most fundamental consideration about guests is whether there will be more numbers in future (Oskam & Boswijk, 2016). According to a report by UNWTO, there are predictions that there will be the growth of tourism and there are opportunities in low-cost travel and thus the concentration of tourism in urban destinations will help facilitate impressive growth in cities such as Amsterdam as per the previous experiences (Airbnb, 2012). With such an increased demand, there will be an openness to accommodations that are non-traditional.

It is expected that the number of visitors will increase in major cities (Oskam & Boswijk, 2016). In cities such as Amsterdam and Berlin, tourism weariness will continue to stir debates. Tourism will continue based on policies that are developed and also as natural phenomena of displacement based on the visitor numbers. This will generate a positive impact on the economies and also lead to gentrification. However, with the existence of globalization and cultural integration, differences between cities will be blurred.

CEO of a 3 start hotel

One effective way of combating with a firm such as Airbnb is to engage in massive advertisement through the proper media channels. The website, for instance, should have all the portals needed by the guest with all options and pricing on the company’s website. The use of appealing images of the hotels and rooms that are exclusive should be posted and updated regularly on the company’s portal.

 Also, it is crucial to offer first class services to the clients such that they will have a lasting image and this has the effect of ensuring that such clients always come back for more in future. Innovation is always the concept that enhances company growth and success. The company should strive at providing products that are not offered in any other place if it is to establish a competitive edge over Airbnb.

The offers and packages should also be offered at a discount ensuring that the prices charged are customer-friendly. Investing in technology is also important if the company is to thrive in such a fierce industry. Information is the driving force for modern companies as it enables firms to understand the needs of customers thus tailoring the needs and demands of such customers as per their needs. Developing products and packages that are tailored to suit the needs of various clients should be the number one priority as people have varying tastes and preferences.

Conclusion

Airbnb has been at the forefront in the hospitality industry and has transformed the way things were operated in this Industry. The firm has established a competitive edge over its rivals despite the fierce competition from its competitors. With increased expectations of tourist increments in future and also the increased demand for rental houses by visitors, there is a bright future for Airbnb in the hospitality industry. The hefty investment in information technology by the firm ensures that the company gets timely information that helps Airbnb understand the needs of its clients and address them in a timely manner.  

 

References

Adamkasi, 2017. Competitive Advantage of Airbnb’s. [Online]
Available at: https://www.competitiveadvantageanalysis.com/competitive-advantage-of-airbnbs/
[Accessed 21 April 2018].

Airbnb, 2012. Study Finds that Airbnb Hosts and Guests Have Major Positive Effect on City Economies. [Online]
Available at: https://www.airbnb.nl/press/news/study-finds-that-airbnb-hosts-and-guests-have-major-positive-effect-on-city-economies
[Accessed 21 April 2018].

Gurran, N. & Phibbs, P., 2017. When Tourists Move In: How Should Urban Planners Respond to Airbnb?. Journal of the American Planning Association, 83(1), pp. 80-92.

Guttentag, D., 2016. Airbnb: Why Tourists Choose It. [Online]
Available at: https://www.dg-research.com/Papers/Summary%20doc%20-%20Airbnb.pdf
[Accessed 21 April 2018].

Kurtz, M., 2014. Airbnb’s INROADS INTO THE. [Online]
Available at: https://www.hospitalitynet.org/file/152005413.pdf
[Accessed 21 April 2018].

Lee, S. & Kim, D.-Y., 2018. Brand personality of Airbnb: application of user involvement and gender differences. Journal of Travel & Tourism Marketing, 35(1), pp. 32-45.

Liang, L. J., Choi, H. C. & Joppe, M., 2018. Understanding repurchase intention of Airbnb consumers: perceived authenticity, electronic word-of-mouth, and price sensitivity. Journal of Travel & Tourism Marketing, 35(1), pp. 73-89.

Liu, S. Q. & Mattila, A. S., 2017. Airbnb: Online targeted advertising, sense of power, and consumer decisions. International Journal of Hospitality Management, 60(3), pp. 33-41.

Morand, D., 2017. Airbnb - Business analysis based on Porter 5 Forces. [Online]
Available at: https://www.slideshare.net/DavidMorand1/airbnb-business-analysis-based-on-porter-5-forces
[Accessed 21 April 2018].

Novak, P., 2017. What Are The 4 Segments Of The Hospitality Industry. [Online]
Available at: https://www.hospitalitynet.org/opinion/4082318.html
[Accessed 21 April 2018].

Oskam, J. & Boswijk, A., 2016. Airbnb: the future of networked hospitality businesses. Journal of Tourism Futures, 2(1), pp. 22-42.

Vizology, 2018. Business Model. [Online]
Available at: https://vizologi.com/airbnb-business-model-how-do-airbnb-works/
[Accessed 21 April 2018].

Ward, L., 2017. How Airbnb Affects Home Prices and Rents. [Online]
Available at: https://www.wsj.com/articles/how-airbnb-affects-home-prices-and-rents-1508724361
[Accessed 21 April 2018].

Zunila, 2015. Airbnb’s Target Audience. [Online]
Available at: https://airbnb2015review.wordpress.com/2015/07/07/airbnbs-target-audience/
[Accessed 21 April 2018].

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