Case Question - What are the drivers for the accomodation market?

growth strategy Market analysis Market sizing
New answer on Aug 30, 2022
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Anonymous A asked on Aug 21, 2022

Hello togehter, 

during a case session I received the following case prompt and was struggling with the right approach: 

What are the drivers and factors for the accomodation market?

With accomodation market the interviewer meant vacation appartments. A specific country was not given, but we can focus on Germany as an example. 

I wasn't really sure how to handle this specific case, especially what in particular the the interviewer was expecting and how to structure the approach. 

Any hints welcome. 

Best

 

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Emily
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updated an answer on Aug 21, 2022
Ex McKinsey EM & interviewer (5 yrs) USA & UK| Coached / interviewed 200 +|Free 15 min intro| Stanford MBA|Non-trad

I love questions like this! Consulting companies are trying to make cases which don't fit traditional structures more and more as they want to see how you think, not whether you can remember a framework.

When you're faced with a question like this, my top tip is to put yourself in the shoes of either the company or the client and think through what they might think about in their day to day business. 

So in this situation:

If you own a hotel you'd be thinking about:

  • Step one: know who your customers are and ensure that customers know that you exist → marketing, rise / fall of large travel companies
  • Step two: make sure they can book → digital enablers e.g., booking and management systems
  • Step three: make sure they can pay you → digital payment systems, currency fluctuations, macro-economic changes
  • Step four: make sure that they can get to you → transport and logistics 
  • Step five: make sure they have a great time when they're there → weather, government stability and economic stability in the country where you hotel is, local economy (i.e., nightlife, tours)

And if you're going to a hotel you might be thinking about all of this plus:

  • Step one: choose a hotel which has the facilities and amenities that you want → facilities
  • Step two: book, pay, get there (same as above)
  • Step three: know that you're ok if you get sick → local healthcare; health insurance
  • Step four: be able to speak the language / communicate → language

So now you have a long list of factors, and you want to bucket them. I'd look over what I have and then do something like this:

  1. Macro-economic factors: are people travelling and can they afford to travel (either for business or for leisure?); have there been exchange rate fluctuations which would shift whether people can afford to come to the country or not?
  2. Marketing and digital enablers: marketing, booking systems, payment systems, shifts in how people book travel and the rise / fall of large travel companies
  3. Pricing: how much can you charge and how has this changed?
  4. Accommodation facilities: are people's wants and needs changing? i.e., shift from business to leisure; increased need for wifi
  5. Transport: are people able to fly / travel? How easy is it to access the accommodation? Once you're there how easy is it to get around?
  6. Local economy and infrastructure: What is the political climate in the area? What are the regulations? What things are there for tourists / business travellers to do? Is there a solid healthcare system? Is there a business presence and has it declined or is it growing? Do people speak English? How has the weather changed?

There is no right answer for a question like this! I hope that helps 

(edited)

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Ian
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replied on Aug 22, 2022
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Hi there,

I'm going to take a step back and answer the question you're really asking: How do I use frameworks in a case?

If there's anything to remember in this process, is that cases don't exist just because. They have come about because of a real need to simulate the world you will be in when you are hopefully hired. As such, remember that they are a simplified version of what we do, and they test you in those areas.

As such, remember that a framework is a guide, not a mandate. In the real-world, we do not go into a client and say "right, we have a framework that says we need to look at x, y, and z and that's exactly what we're going to do". Rather, we come in with a view, a hypothesis, a plan of attack. The moment this view is created, it's wrong! Same with your framework. The point is that it gives us and you a starting point. We can say "right, part 1 of framework is around this. Let's dig around and see if it helps us get to the answer". If it does, great, we go further (but specific elements of it will certainly be wrong). If it doesn't, we move on.

So, in summary, learn your frameworks, use the ones you like, add/remove to them if the specific case calls for it, and always be prepared to be wrong. Focus rather on having a view, referring back to the initial view to see what is still there and where you need to dive into next to solve the problem.

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Lucie
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replied on Aug 21, 2022
10+yrs recruiting & top BCG trainer & BCG Project leader & experienced hire & ICF coach

Hi there, 

coming from the hospitality field prior consulting, happy to answer it. 

Accommodation is driven by mostly 2 factors (and you can plot it as a matrix)

1. the tourist 

  • Size of the source market (domestic, international)
  • GDP per capita/disposable income/income brackets
  • Demographic, preferences 
  •  Population, GDP growth

2. destination:

  • Relative Attractiveness (why to visit)
  • Accessibility
  • Value/price
  • Safety
  • Closeness

Then each destination would be different, let's see example:

Apartments in Barcelona will be driven mostly by:

  • Size of the youngsters in Western European tourists (UK, France, Nordics)
  • Cheap flights 
  • Events & weather in Barcelona

 

Apartments in Jeddah (KSA) will be driven mostly by:

  • Size of the families in the Arabia Saudi
  • Growth of middle class travelers in Saudi
  • Curious, independent, young foreign travelers coming to visit Saudi
  • Events & weather in Jeddah

Lucie

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Udayan
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updated an answer on Aug 21, 2022
Top rated McKinsey Case & PEI coach/Multiple real offers/McKinsey EM in New York /6 years McKinsey recruiting experience

With a question that focuses on drivers for a market, they are trying to assess your approach to understanding new industries. Specifically, can you quickly narrow down what drives demand for the industry from consumers. 

If you look at the vacation apartment market (I assume you mean Airbnb, VRBO etc.), a good approach here is to see what are some factors you would consider when renting one. For example, when I am looking at where I want to book an Airbnb rental, I look at the following criteria

  • Location -
    • First - is it a popular and trendy vacation spot like Berlin or a less trendy spot like Frankfurt) and
    • Second - how easy is it to get there - for example many direct flights means a lot more traffic vs multiple modes of transport will make it dependent on other factors
  • Weather/Seasonality  - Many sports do great during one season and not so great during other seasons. For example summer in Europe vs Winter. Other spots are great year round like the Caribbean
  • Affordability - Some places like Norway are more expensive than others like Portugal which impacts demand as not everyone can afford to pay a lot for a holiday
  • Availability of alternate accommodation - if there are many hotels around that are quite cheap then it may not always make sense to rent an apartment for a few days

Now these are all factors that can easily be extracted from a macro perspective as well and all drive demand for vacation rental

Now you can also add additional elements that impact any industry

  • Regulation - every industry including vacation rentals are impacted by laws that can help proliferate or limit availability
  • Supply limitations - there can be zoning laws or just limited availability of land to create vacation housing

Those would be some of the biggest factors that impact vacation rental markets. 

 

Best,

Udayan

(edited)

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Anonymous B on Aug 25, 2022

I would also add the following factors: event-driven, recurrent traffic and one-time visits. The first bucket could be due to mega-event such as olympics or conferences, summits etc. The other terms are self-explanatory

Sidi
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replied on Aug 22, 2022
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 350+ candidates secure MBB offers

This is a very classical Brainstorming question. Nothing “unconventional” at all!

 

The big mistake that people make is to just wildly throw out random buckets. That's NOT how a good Consultant works! 

 

So you have to first start by aligning on the focus metric which the client is concerned about. “The market” is not a proper starting point! For example, here I could imagine it could be something like “Number of yearly customers who book accommodation”. THIS is a metric that can be worked with.

 

The following steps are very standard: break the metric down into logical drivers and sub-drivers, and then develop ideas about which factors are influencing each sub-driver. And that's it. Logic-based problem solving, instead of immature bucket throwing.

 

Cheers, Sidi

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Pedro
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replied on Aug 30, 2022
Bain | EY-Parthenon | Roland Berger | FIT | Market Sizing | Former Head Recruiter

A way to think about this is how you would estimate the market size of the accomodation market, and then what are the drivers impacting each of the factors that you considered to estimate the market size.

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Emily gave the best answer

Emily

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Ex McKinsey EM & interviewer (5 yrs) USA & UK| Coached / interviewed 200 +|Free 15 min intro| Stanford MBA|Non-trad
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