Airbnb: Disruptive Innovation vs. Traditional Accommodation Businesses

Airbnb and Traditional Hotels

The performance of Airbnb against traditional accommodation types, namely hotels, has been an area of intense interest in recent years. Guttentag and Smith believe that Airbnb can be considered a disruptive innovation in the sphere of hospitality, as it has altered the existing landscape and changed the rules of the industry. According to their research, Airbnb shows excellent performance, when compared to budget hotels, because it offers better prices, conditions, and locations. The situation against mid-range hotels is mixed and depends on a variety of particular factors. However, Airbnb has enough potential to conquer this market, as well. At the same time, this disruptive innovation has not been able to compromise the positions of high-end hotels. In addition, Guttentag and Smith report that almost two-thirds of Airbnb guests use the service as a replacement for traditional hotel accommodation. The prospects of Marigold Star Hotel are not as daunting, but it is possible to expect a 30-percent customer loss in the upcoming years if Airbnb’s plans are implemented.

Potential Strategies

The research shows that three potential strategies may be implemented in this situation. The first one consists of adjusting the pricing policy of the hotel to compete with what Airbnb has to offer. Roma and others note that it is usually low-to-mid-range hotels that demonstrate pricing flexibility, while high-end hotels keep their tariffs at a considerable level. Second, it is possible to stay on the previous course and assume that Airbnb’s potential is exaggerated. This strategy is widely used in Istanbul, another popular destination, where hotel owners and managers do not see the peer-to-peer market as a significant threat. Finally, it is possible to follow the path of AccorHotels and acquire a share in the peer-to-peer market as a way of adapting to changes.

Maintaining the course

At the same time, some hotels do not admit that Airbnb is a disruptive innovation that may have a considerable impact on the market. According to such businesses, the accommodation market possesses strong traditions, which their customers value. This logic suggests that Airbnb is a different product, which cannot compete with the services hotels have to offer. Therefore, there is no need to adjust prices as a response to the company’s expansion. Furthermore, it is better to focus on improving the quality of proposed services in the same manner as before. Nevertheless, as it was said earlier, Airbnb has become the new reality of the market, and other players must adjust accordingly.

Entering the peer-to-peer market

Finally, there is another option, which may suit the equity company in this scenario. It is possible to accept the rules set by Airbnb and attempt to compete with it in its market. In this case, the equity company may purchase or rent property similar to Airbnb’s offer. However, this model implies significant expenditures, and it may negatively affect Marigold Star Hotel and its staff. Therefore, while this option may be viable for the equity company, it may not be the best solution due to potential consequences in terms of the hotel’s performance and funding.

Practical Recommendations

As for practical recommendations, it is necessary to conduct a comprehensive analysis of the guests’ experience at hotels and Airbnb properties to discern their preferences. This way, Marigold Star will be able to implement meaningful changes correctly. Second, it is necessary to focus on the mid-range market as the group with mixed reports. Budget-level accommodation is the sphere where Airbnb demonstrates a significant competitive advantage, whereas the company’s influence on the high-end category is not likely to skyrocket in the upcoming years. Revised bonus programs would give the guest of the hotel an impetus to become regular customers and opt for Marigold Star. A flexible pricing system, where tariffs may be lower on particular days, may attract a larger number of business travelers, as well. Overall, these recommendations focus on the short-to-mid term effects of Airbnb’s expansion and provide a basis for Marigold Star Hotel’s development.

Best Marigold Star Hotel Strategy

Effective pricing seems to be the optimal choice in the case of Marigold Star. Maintaining the course would imply ignoring the emerging market of peer-to-peer accommodation, which cannot be underestimated in the 21st century. Airbnb has been gaining importance in recent years, which is why some measures must be taken. At the same time, the third strategy is also questionable, as entering the short-term apartment rental market would require significant investment on behalf of the equity firm. Simultaneously, the hotel management would end up in an unfavorable position due to a lack of financing and attention. An effective pricing policy can respond to the interests of all parties, including the clients.

References

Alrawadieh, Z., Guttentag, D., Cifci, M. A., & Cetin, G. (2020). Budget and midrange hotel managers’ perceptions of and responses to Airbnb: Evidence from Istanbul. International Journal of Contemporary Hospitality Management, 32(2), 588–604. Web.

Glusac, E. (2016). Hotels vs. Airbnb: Let the battle begin. The New York Times. Web. 

Guttentag, D. A., & Smith, S. L. J. (2017). Assessing Airbnb as a disruptive innovation relative to hotels: Substitution and comparative performance expectations. International Journal of Hospitality Management, 64, 1–10. Web.

Mobley, E. (2020). Airbnb – Global strategy. Journal of Information Technology & Economic Development, 11(1), 15–24.

Roma, P., Panniello, U., & Lo Nigro, G. (2019). Sharing economy and incumbents’ pricing strategy: The impact of Airbnb on the hospitality industry. International Journal of Production Economics, 214, 17–29. Web.