HOW AIRBNB DISRUPTED THE MARKET

Before Airbnb disrupted the market, people had limited choices since their ideas were also limited. Consumers were just bounded by known brands. To choose a hotel, one has to do a traditional visit. This really took much of the time and effort. 

A study conducted by Hui Li, Assistant Professor of Marketing, and Kannan Srinivisan, H.J. Heinz II Professor of Management, Marketing and Business Technologies, and shared in INFORMS journal Marketing Science entitled “Competitive Dynamics in the Sharing Economy: An Analysis in the Context of Airbnb and Hotels”, the success of Airbnb can be attributed to their sensitivity to pricing and distribution strategies based on the demand of travelers. This study took into consideration market conditions, seasonal patterns, hotel pricing and quality, consumer make-up and Airbnb supply in specific market, and, of course, its strategy toward business travelers, government regulations on Airbnb and changes in hosting costs due to tax changes and third-party services, along with the professionalism of hosts.

This study has come up with four key findings:

1.    Airbnb cannibalizes hotel sales. This is particularly true to low-cost hotels whose demand became too low and continued to show decreasing pattern as Airbnb expands. More so during peak seasons, as leisure travelers become more price sensitive, they prefer the amenities offered by Airbnb, and this, in effect, reduces the sales of hotels by 3.2 times as oppose to their sales with business class.

2.    Airbnb stabilizes or even increases demand during peak travel seasons. Traditional hotels have fixed capacity and they increase their prices during peak seasons and lower during off-seasons. With the flexible capacity of Airbnb, travelers are given more choices. This attracts more travelers to go to prime destinations. This challenges the hotels to lower their prices. Airbnb’s flexible lodging capacity disrupts traditional pricing strategies in some markets. The flexible nature of Airbnb, dampens the pricing strategy of traditional hotels. It is a common practice of hotels to increase their prices when demand is high since they cannot increase the number of their rooms. During peak seasons, the many choices offered Airbnb at friendly prices, tames the ones offer by hotels.

3.    Higher-end hotels are most likely to be affected. It seems that Airbnb continues to innovate itself to penetrate the business class market. It must be noted that 90% of its sales is generated from leisure travelers. It will not be too long when it will be able to capture the interests of high-paying clients. When this happens, high end hotels are most likely to be affected for this reason: they have high operating costs. As hotel prices are high, they will continue to experience losses. Therefore, their economic existence may be put at the mercy of the decrease or increase of Airbnb host prices.

Airbnb saw the needs of travelers. They felt and experienced the changing attitude of the market. They empathize with the feelings of the unserved segments and continue to pay court with the first class groups. With this, it has been putting a dent in the hotel industry.