Competitive And Economic Sensitive Hotel Industry Essay Example
Competitive And Economic Sensitive Hotel Industry Essay Example

Competitive And Economic Sensitive Hotel Industry Essay Example

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  • Pages: 3 (615 words)
  • Published: February 1, 2017
  • Type: Essay
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The hotel industry is a mature and saturated industry that generally requires firms to maintain substantial overhead (high fixed costs), substantial capital property, and brand reputation to successfully compete for fluctuating market shares. As a result, rivalry is high and there is little room for new entrants in the fiercely competitive and economically sensitive hotel industry. In some geographical locations, even suppliers can pinch firms in the hotel industry driving up cost and decreasing cost advantage. Consumers have gained some power in recent years by using online “best rate” websites on smart device apps such as “hotel tonight”.

Effectively, capturing the required share of demand (to create economic profits) in the hotel industry is difficult at best. Until recently, substitutes in the hotel industry have been almost non-existent. Competing with the hotelin

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g industry (as a substitute) without owning a chain of high cost hotels seemed impractical until three entrepreneurs introduced and established a disruptive concept call Airbnb (Air Bed & Breakfast). Airbnb has created a blue ocean market that enables almost anyone who owns sleeping space to become a competitor to hotels and traditional Bed and Breakfast establishments.

Airbnb’s web based hoteling application enables customers (who double as suppliers) to rent (short term) privately owned sleeping space to anyone looking for an affordable place to sleep. The services provided generate revenue for Airbnb and their customers (a reported $500 million in transactions in 2011) by allowing them to rent (short term) otherwise vacant rooms, houses, sleeper couches, or anyplace a person can lay their head to sleep. Airbnb’s core competency is its ability to use technology to manage future customer’s propert

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for rent and make it attractive and appealing to potential renters (guests).

While listing a rental on their website is free, Airbnb charges a 3% fee to the property owners for all bookings and 6-12% of the booking price to renters. In terms of dollars, Airbnb experienced gross sales of $45 to $50 million dollars in 2011. Considering the low overhead of a web-based hoteling application, and the cost of professional photography service; coupled with the apparent popularity of the unique (rare) experience provided to their direct customers (property owners) and their end user customers (guests), Airbnb appears to be highly valuable to both direct customers and their end user customers.

Since Airbnb’s cost do not include intense fixed cost, capital property investment, and variable service industry costs, they can accept relatively low margins (9-15% of all transactions) and still realize high economic profits if the value exists for their direct customers and their end users. Considering the current state of the economy, the opportunity to generate income from a couch, trailer, empty room, or vacant apartment has proven to be appealing to many property owners ($500 million worth of transaction in 2011).

Additionally, with a few clicks of the mouse, 100’s to 1000’s of property owners monthly are becoming Bed and Breakfast owners around the world every month, making lodging more affordable for millions of consumers and draining millions of dollars from the hotel market. Similarly, penny conscious consumers seem to become more and more adventurous in the interest of saving precious disposable income by cutting their lodging cost considerably and becoming more of a guest and less of a customer

in common homes (Airbnb listings) around the world.

Airbnb has a competitive advantage (price and differentiation), uniqueness, relevance, and . However, is this competitive advantage in cost and value sustainable? While the services they offer seem relatively easy to replicate, there doesn’t seem to be a large undertaking in entering their blue ocean. Perhaps by the time that other potential entrants catch on the value to both the property owners and the end users will diminish.

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