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Ian

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3

How to structure this case?

An international hotel group that operates in the upper-mid market and competes with Starwood Hotels like the Westin and the Sheraton has engaged your team to help them assess the growing threat from Silicon Valley start-up Airbnb, a service that allows anyone around the world to rent their apartment or home to travelers. The site saw over 800% growth in the last year and has booked over 2MM nights for travelers and is beginning to poach some leisure travelers from hotels. The group has asked your team to assess the threat and recommend potential courses of action.

An international hotel group that operates in the upper-mid market and competes with Starwood Hotels like the Westin and the Sheraton has engaged your team to help them assess the growing threat from Silicon Valley start-up Airbnb, a service that allows anyone around the world to rent their apartment or home to travelers. The site saw over 800% growth in the last year and has booked over 2MM nights for travelers and is beginning to poach some leisure travelers from hotels. The group has asked your team to assess the threat and recommend potential courses of action.

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Hi,

Before I frame, just want to point out that this case is a PERFECT example of why it's so important to be well-read. If you've been following the news, you'll know that the Marriott has recently announced it's response to Airbnb:

https://www.cntraveler.com/story/marriott-will-now-rent-out-homes-and-apartments

However, while it's good to note and leverage, don't let it limit your thinking.

There's a few ways to frame this question, and it ultimately comes down to preference, but the main focus (which is worth clarifying to be sure of the objective) is: Is AirBnB a threat, and if so, how do I stop it from poaching my existing customers?

Option 1 - Benchmarking, competitor comparison

1) AirBnB

  • What is their value-offering?
  • What is their demographic of customers (young, old, rich poor, leisure, business) - note, we have hypotheses here from both our knowledge and the case i.e. they're grabbing leisure travellers who have higher price elasticity
  • What is the demographic trend (not just current state but growth areas)
  • How does the value-offering match the customers?
  • What are they doing well/right?

2) Our company

  • What is our value-offering
  • What is our demographic
  • What is the demographic trend (not just current state but growth areas)
  • How does our value-offering match our customers
  • What are we doing well?
  • What are we doing wrong?
  • Speficially, what customers are leaving and do we know why? (What is value mismatch)

For this, I'd try and see if we have any exit surveys, data from comparison and review sites, etc.

The objective is to look at the value offering mismatch and see where we can match AirBnB's (either through enhancing existing services or creating new ones. We also need to consider cost).

Option 2 - Internal review. Focus: Rate of change of demographics

1) Customers leaving

  • What demographics are leaving? Are they leaving quickly and/or at an accelerating rate or is it manageable? (Case says some leisure travelers...is some acceptable?)
  • Do we know why they're leaving?
  • Are they are large part of our profit? If so, we need to fix this. If not, maybe we can afford to focus efforts elsewhere.
  • Can we make adjustments to our offering to stem/reverse this trend? If so, are these adjustments worth the cost?

2) Customers steady/growing

  • What demographics are steady/growing?
  • Do we know why?
  • Are they a large part of our profit?
  • Can we accelarate this growth? Is it worth the cost?

3) No customers

  • Have we overlooked a major segment?
  • Can we take customers from AirBnB that we never had?
  • Is this worth it? Would there be larger margins? Can we counter-act the loss of other demographics?

Ultimately, we want to know 1) Are we losing an important part of our business (i.e. a large % of customers AND/OR a high margin base)?

a) If yes, can we stop/mitigate this? What can we offer that counteracts AirBnB's offering? Can we also counteract this with growth elsewhere?

b) If no, perhaps minimal action required - let's focus efforts on growing where we operate best.

Hope this helps!

Hi,

Before I frame, just want to point out that this case is a PERFECT example of why it's so important to be well-read. If you've been following the news, you'll know that the Marriott has recently announced it's response to Airbnb:

https://www.cntraveler.com/story/marriott-will-now-rent-out-homes-and-apartments

However, while it's good to note and leverage, don't let it limit your thinking.

There's a few ways to frame this question, and it ultimately comes down to preference, but the main focus (which is worth clarifying to be sure of the objective) is: Is AirBnB a threat, and if so, how do I stop it from poaching my existing customers?

Option 1 - Benchmarking, competitor comparison

1) AirBnB

  • What is their value-offering?
  • What is their demographic of customers (young, old, rich poor, leisure, business) - note, we have hypotheses here from both our knowledge and the case i.e. they're grabbing leisure travellers who have higher price elasticity
  • What is the demographic trend (not just current state but growth areas)
  • How does the value-offering match the customers?
  • What are they doing well/right?

2) Our company

  • What is our value-offering
  • What is our demographic
  • What is the demographic trend (not just current state but growth areas)
  • How does our value-offering match our customers
  • What are we doing well?
  • What are we doing wrong?
  • Speficially, what customers are leaving and do we know why? (What is value mismatch)

For this, I'd try and see if we have any exit surveys, data from comparison and review sites, etc.

The objective is to look at the value offering mismatch and see where we can match AirBnB's (either through enhancing existing services or creating new ones. We also need to consider cost).

Option 2 - Internal review. Focus: Rate of change of demographics

1) Customers leaving

  • What demographics are leaving? Are they leaving quickly and/or at an accelerating rate or is it manageable? (Case says some leisure travelers...is some acceptable?)
  • Do we know why they're leaving?
  • Are they are large part of our profit? If so, we need to fix this. If not, maybe we can afford to focus efforts elsewhere.
  • Can we make adjustments to our offering to stem/reverse this trend? If so, are these adjustments worth the cost?

2) Customers steady/growing

  • What demographics are steady/growing?
  • Do we know why?
  • Are they a large part of our profit?
  • Can we accelarate this growth? Is it worth the cost?

3) No customers

  • Have we overlooked a major segment?
  • Can we take customers from AirBnB that we never had?
  • Is this worth it? Would there be larger margins? Can we counter-act the loss of other demographics?

Ultimately, we want to know 1) Are we losing an important part of our business (i.e. a large % of customers AND/OR a high margin base)?

a) If yes, can we stop/mitigate this? What can we offer that counteracts AirBnB's offering? Can we also counteract this with growth elsewhere?

b) If no, perhaps minimal action required - let's focus efforts on growing where we operate best.

Hope this helps!

Hi,

nice case and very common in real life interviews! We usually categorize such a case as a “competitive response” case and I ask this myself in interviews.

Without going into too much detail, this is how I would start structuring it:

  1. Know your industry
  2. Defend your market”

In more detail:

  1. Know your industry against the new market entrant
    1. Be clear on your customers
      • Which customer segment(s) do we target?
      • What are the differences in the need of these customer segments?
      • What prices are they willing to pay? --> Contrast these dimensions against AirBnB!
    2. SPG’s offering: overnight stays
      • What is the unique selling point?
      • Is the offering further differentiable against AirBnB?
    3. AirBnB (market entrant)
      • Which unique capabilities does AirBnB have that SPG cannot replicate? Which risks follow from these?
      • What is the cost structure of AirBnB, SPG? What does it mean for this case?
    4. (If you have more time: Do analyze the industry as a whole: )
      • Which other competitors are in the market?
      • What are the barriers to entry?
  2. “Defend-your-market” strategy:
    1. Defend market share
      • Increase switching costs for customers
      • Introduce customer retention / loyalty programs
      • Occupy market niches
      • Copy the market entrant
    2. Keep competitor away from market
      • Increase market entry barriers
      • Lock in your position using long-term contracts
    3. Acquire new customers
      • Launch marketing initiatives
      • Entice sales personnel / management from market entrant
      • Merge with/acquire the entrant

Of course, within these dimensions, be creative and add further elements as they are relevant to other "competitive response" cases. This is just a starting point to guide you structuring these types of cases.

I hope thie helps :) Message me if you have further questions.

Best regards

Hi,

nice case and very common in real life interviews! We usually categorize such a case as a “competitive response” case and I ask this myself in interviews.

Without going into too much detail, this is how I would start structuring it:

  1. Know your industry
  2. Defend your market”

In more detail:

  1. Know your industry against the new market entrant
    1. Be clear on your customers
      • Which customer segment(s) do we target?
      • What are the differences in the need of these customer segments?
      • What prices are they willing to pay? --> Contrast these dimensions against AirBnB!
    2. SPG’s offering: overnight stays
      • What is the unique selling point?
      • Is the offering further differentiable against AirBnB?
    3. AirBnB (market entrant)
      • Which unique capabilities does AirBnB have that SPG cannot replicate? Which risks follow from these?
      • What is the cost structure of AirBnB, SPG? What does it mean for this case?
    4. (If you have more time: Do analyze the industry as a whole: )
      • Which other competitors are in the market?
      • What are the barriers to entry?
  2. “Defend-your-market” strategy:
    1. Defend market share
      • Increase switching costs for customers
      • Introduce customer retention / loyalty programs
      • Occupy market niches
      • Copy the market entrant
    2. Keep competitor away from market
      • Increase market entry barriers
      • Lock in your position using long-term contracts
    3. Acquire new customers
      • Launch marketing initiatives
      • Entice sales personnel / management from market entrant
      • Merge with/acquire the entrant

Of course, within these dimensions, be creative and add further elements as they are relevant to other "competitive response" cases. This is just a starting point to guide you structuring these types of cases.

I hope thie helps :) Message me if you have further questions.

Best regards

(edited)

I would evaluate the extent of threat and advise on competitive response in the following three steps:

  1. Benchmark our client to its competitor by
    1. Defining
      1. TARGET (Market, Customers, Geography)
      2. VALUE PROPOSITION (Product, Price, Customer Service)
      3. GO-TO-MARKET (Channels, Sales, Marketing)
    2. Assessing the offering customers receive across these factors by our client and competitor
  2. Identify 'pain points' by outlining full range of experiences our customers have in using client's offering and revealing problems that the client failed to address
  3. Respond:
    1. Innovate (launch new product/service)
    2. Imitate (copy the competitor through 'starting green'/M&A/JV)
    3. Improve (customer retention/loyalty programs)

I would evaluate the extent of threat and advise on competitive response in the following three steps:

  1. Benchmark our client to its competitor by
    1. Defining
      1. TARGET (Market, Customers, Geography)
      2. VALUE PROPOSITION (Product, Price, Customer Service)
      3. GO-TO-MARKET (Channels, Sales, Marketing)
    2. Assessing the offering customers receive across these factors by our client and competitor
  2. Identify 'pain points' by outlining full range of experiences our customers have in using client's offering and revealing problems that the client failed to address
  3. Respond:
    1. Innovate (launch new product/service)
    2. Imitate (copy the competitor through 'starting green'/M&A/JV)
    3. Improve (customer retention/loyalty programs)

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