Airbnb’s Business Strategies and Responses to the Challenges in the Tourism Industry

Introduction

Working in the tourism and travel field requires the companies involved to be highly flexible and able to address guests’ ever-changing needs. At the same time, for firms whose income directly depends on the number of travelers and their satisfaction with their vacation, the formation of business models yet depends on such traditional characteristics as demand and profit. As a target company in this industry to analyze, Airbnb is involved, which is an international online service for booking short-term accommodation for rent.

Given the assessment of strengths and weaknesses, appropriate business steps must be considered in responding to constraints during the COVID-19 pandemic, a shifted customer focus, existing legislative regulations, and other nuances affecting the operations. Comparing Airbnb to other businesses in the industry, such as major hotel chains and bed and breakfast operators, can help highlight distinctive features that help to gain profit and accomplish customer loyalty. Focusing on client safety, active engagement with social media, and partnerships with official agencies, such as insurers, are the main recommendations to strengthen Airbnb’s business and expand its market presence.

Business Models of Airbnb, Large Hotel Chains, and Bed & Breakfast Operators

Different business models promoted by individual entrepreneurial units focus on specific factors. Among them, it is essential to highlight the customer value proposition, or CVP, and the profit formula (Čirjevskis, 2019). These characteristics should be considered for Airbnb, an international online listing and rental marketplace.

According to Varlaro and Gamble (2021), due to its strategy of working in a virtual space, the company’s management has been able to address the interests of numerous clients in various market segments. Providing easy access to the functionality of the application, Airbnb offers a convenient search algorithm.

From the standpoint of profit, the company shows successful results. Earning a steady percentage of every completed deal, Airbnb had a market capitalization of $31 billion in 2018 (Varlaro & Gamble, 2021). Although this figure declined in 2020, the company continued to hold one of the leading positions in its niche.

As for large hotel chains, among which such market giants as Hilton and Marriott stand out, business results are also significant. Both these brands follow the principle of strict adherence to tradition, and due to a diversification strategy, their offerings vary for distinctive categories of customers (Koh, 2019). In terms of earnings, the brands also experienced a drop, and in 2020, the market capitalization of both was lower than in 2018 (Varlaro & Gamble, 2021).

However, the chains maintain high positions due to brand value and customer loyalty.

With regard to bed and breakfast operators, from the standpoint of CVP, the emphasis is on providing customers with the most comfortable stay. Along with respect for tradition, the ability to accommodate an area without large hotels is an advantage of this format of work (Qingyong et al., 2022; Varlaro & Gamble, 2021). The profit formula for such establishments is based on the basic principle of making a profit that can cover costs, and there are no significant achievements among participants in this market segment.

Airbnb’s Response to the COVID-19 Pandemic

Since Airbnb’s business is directly related to the hospitality and travel industry, the COVID-19 pandemic has had a critical impact on the company’s operations, mostly negative. According to Varlaro and Gamble (2021), lockdowns and barriers to movement have become major barriers to income generation. However, forced measures to maintain business sustainability were taken by the company’s management, and these decisions have allowed Airbnb to maintain its reputation as a reliable service provider. As a matter of urgency, the cancellation policy of the service has been revised to be more flexible in dealing with ambiguous situations, and specific cleaning guidelines have been implemented to address health risks (Lawani et al., 2019; Varlaro & Gamble, 2021). In addition, to keep the need to make a profit, some new options have been offered to customers, including virtual tours, to keep the public interested.

While comparing Airbnb’s measures to those of the large hotel chains, one might note that the online company’s steps have proven to be more resilient. Sharma et al. (2021) state that due to significant changes, global brands, such as Marriott, Hilton, and Hyatt, have been forced to spend huge amounts of money on the implementation of change programs. According to the authors, the situation showed that safety measures took precedence over marketing or organizational initiatives (Sharma et al., 2021). Forced to change their operating policies drastically, large hotel chains inevitably suffered more losses than Airbnb, largely due to the distinctive nature of the work in the real and virtual market. Therefore, one can speak of less damage to Airbnb and more effective adaptive practices of this company.

Strengths and Weaknesses

The comparison of different businesses’ strengths and weaknesses in the tourism and travel industry can be based on the assessment of such characteristics as brand value, breadth of services, and ability to recover costs. In large hotel chains, among the advantages that distinguish them from competitors, Deng (2022) highlights a variety of related services, such as different recreational options, parking areas, and catering sites, as well as a strong brand portfolio. Compared to these establishments, bed and breakfast operators cannot provide such a spectrum of services.

However, these service providers are focused on a more personalized approach. Such establishments are located in accessible areas, and their owners are well aware of the interests of target customers, which allows them to provide in-demand services (Zhang et al., 2021). For Airbnb, the strengths of the business lie in the more affordable pricing policies promoted by the company and a more transparent operating model, which correlates positively with customer loyalty (Varlaro & Gamble, 2021). Nevertheless, some weaknesses in all three types of businesses can be identified.

The cost of doing business is a weakness of large hotel chains compared to the other two types of businesses under consideration. According to Deng (2022), tax regulations are strict, and fees are high, in addition to substantial transaction costs. For bed and breakfast operators, their costs are lower, but from a customer loyalty and brand value perspective, they are significantly inferior to larger businesses, which reduces their brand value (Zhang et al., 2021).

With regard to Airbnb, some restrictions can also be noted. For instance, as Varlaro and Gamble (2021) note, online business compliance is strictly enforced, leaving the business vulnerable to complaints and lawsuits from disgruntled customers. In addition, the need to necessarily involve third parties, particularly the owners of the rental apartments, brings additional risks and control challenges.

Changes in the Lodging Consumer

Today’s client preferences and requirements for temporary short-term rentals have changed significantly compared to how this activity functioned in previous decades. At the present time, with free access to millions of affordable housing options online, consumers have a wide range of choices, complemented by numerous and unbiased ratings and reviews. Varlaro and Gamble (2021) state that Airbnb has adapted to these changes in customer experience and has successfully built its business around these transformations. The authors cite a study sponsored by Goldman Sachs, which notes that customers who have used Airbnb at least once do not revert to traditional search algorithms for temporary short-term rentals and continue to use a convenient online search engine (Varlaro & Gamble, 2021).

In addition, according to Fang and Li (2022), by leveraging third-party virtual marketplaces that partner with Airbnb, consumers can count on faster search time and choose the right accommodations more quickly. The diversification strategy selected by the company has become a successful approach to meeting the needs of different customers (Xie & Mao, 2019). Therefore, one can speak of Airbnb’s success in adapting to changing customer preferences and an improved search system.

Key Factors Determining Airbnb’s Business Outcomes

The analysis of Airbnb’s business suggests that this online service can be characterized as successful, and several factors contribute to this. Firstly, the sharing economy principle pursued by the company is a favorable strategy to address expanded customer needs (Varlaro & Gamble, 2021). The range of available services is placed on different marketplaces, which enhances the spectrum of market coverage. Customer trust is a consequence of adhering to such a strategy because impartiality and transparency in the evaluation of business performance are achieved through a feedback system (So et al., 2022). Moreover, the loyalty of the pricing policy, where a small percentage is taken by the company for the provision of relevant services, acts as an additional incentive to attract a customer base.

Secondly, the focus on achieving the trust of the target audience is a significant tool for building brand value. According to Ladegaard (2021), a close personal connection with each customer allows Airbnb to count on consumer retention. The system of reviews and sharing stories about the experience of utilizing the online service are examples of how the company interacts with clients.

At the same time, despite favorable factors, some deterrents may affect the business in question negatively. Varlaro and Gamble (2021) mention federal regulations that deal with numerous rules for doing business in the format that Airbnb promotes. Any changes in the law, catalyzed by lawsuits or complaints, may push the company to increase the share of commissions due to the need to maintain profits, which, in turn, may deprive the service of a significant share of customers. For instance, as Lee and Deale (2021) note, cases of unsafe host accommodations or other quality-of-service issues inevitably affect Airbnb’s rankings, leaving the company vulnerable to unforeseen circumstances. Nonetheless, overall, the business is successful despite the aforementioned difficulties.

Recommendations to Airbnb

One of the main recommendations to Airbnb is to strengthen its competitiveness and reduce current and future risks concerning the aspect of improving customer safety. As Qi and Chen (2023) remark, client perceptions of safety are directly correlated with positive word of mouth, which is a valuable factor in promoting the business in the market. Therefore, active collaboration with the owners of rented apartments and regular checks of the quality of service are significant activities to enhance competitiveness.

Another recommendation concerns the more active use of social media as a platform for promoting Airbnb’s services. Schivinsky et al. (2020) argue that Internet users, who are the company’s primary target audience, tend to form brand preferences and loyalty based on positive social media feedback and communication with other users. Effective advertising and partnerships with large online venues can help expand Airbnb’s reach to new consumers, thereby strengthening its market presence and overcoming the competitive barrier.

Finally, to eliminate the risks associated with operational deterrents, active engagement with official regulators and insurers is a relevant measure. Complaints from customers and controversial situations that require the involvement of third parties incur both reputational and financial losses (Varlaro & Gamble, 2021). Therefore, productive collaboration with official representatives can minimize the threat of downgrading Airbnb’s ratings and maintain customer loyalty through the timely resolution of ambiguities.

Conclusion

Strengthening Airbnb’s market presence and competitive advantage can be achieved through several initiatives, such as a closer focus on customer safety, the active involvement of social media in marketing campaigns, and engagement with official regulators. The company’s business is mostly successful, but the COVID-19 pandemic has made its own adjustments, which has negatively affected the overall income results. Airbnb’s activities are associated with both strengths, such as affordable pricing, and weaknesses, including vulnerability to relevant legislation. The comparison of the business of this online service with those of large hotel chains and bed and breakfast operators has revealed key differences and characteristic operational nuances that influence profits and market coverage.

References

Čirjevskis, A. (2019). Designing organizational eco-map to develop a customer value proposition for a “slow tourism” destination. Administrative Sciences, 9(3), 57. Web.

Deng, J. (2022). Hotel brands and the impact of brand differentiation on the success of the global hotel brands. Highlights in Business, Economics and Management, 1, 265-276. Web.

Fang, Y. H., & Li, C. Y. (2022). Does the sharing economy change conventional consumption modes? International Journal of Information Management, 67. Web.

Koh, Y. (2019). Dynamics between brand diversification and segment diversification on firm value. Tourism Economics, 25(5), 819-826. Web.

Ladegaard, I. (2021). Strangers in the sheets: How Airbnb hosts overcome uncertainty. Socio-Economic Review, 19(4), 1245-1264. Web.

Lawani, A., Reed, M. R., Mark, T., & Zheng, Y. (2019). Reviews and price on online platforms: Evidence from sentiment analysis of Airbnb reviews in Boston. Regional Science and Urban Economics, 75, 22-34. Web.

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Schivinski, B., Langaro, D., Fernandes, T., & Guzmán, F. (2020). Social media brand engagement in the context of collaborative consumption: The case of AIRBNB. Journal of Brand Management, 27, 645-661. Web.

Sharma, A., Shin, H., Santa-María, M. J., & Nicolau, J. L. (2021). Hotels’ COVID-19 innovation and performance. Annals of Tourism Research, 88. Web.

So, K. K. F., Kim, H., & Min, S. (2022). Creating customer value in the sharing economy: An investigation of Airbnb users and their tripographic characteristics. International Journal of Contemporary Hospitality Management, 34(1), 23-45. Web.

Varlaro, J. D., & Gamble, J. E. (2021). Airbnb in 2020. In A. Thompson, M. Peteraf, J. Gamble, & A. Strickland (Eds.), Crafting & executing strategy: The quest for competitive advantage: Concepts and cases (23rd ed.) (pp. C-2-C-6). McGraw Hill.

Xie, K., & Mao, Z. (2019). Locational strategy of professional hosts: Effect on perceived quality and revenue performance of Airbnb listings. Journal of Hospitality & Tourism Research, 43(6), 919-929. Web.

Zhang, X., Liu, J., Zhu, H., Huang, Z., Zhang, S., & Li, P. (2021). A comparative study of customer perceptions of urban and rural bed and breakfasts in Beijing: An analysis of online reviews. Sustainability, 13(20). Web.

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StudyCorgi. "Airbnb’s Business Strategies and Responses to the Challenges in the Tourism Industry." December 23, 2024. https://studycorgi.com/airbnbs-business-strategies-and-responses-to-the-challenges-in-the-tourism-industry/.

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StudyCorgi. 2024. "Airbnb’s Business Strategies and Responses to the Challenges in the Tourism Industry." December 23, 2024. https://studycorgi.com/airbnbs-business-strategies-and-responses-to-the-challenges-in-the-tourism-industry/.

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