Air BnB Generic and Intensive Strategies
The growth of the sharing economy is one of the most important events of the twentieth century. Apart from Uber, one of the leading names in the sharing economy is Air BnB. While the brand has been running on venture funding, now the time to earn profits has come at last. Air BnB expects to earn as much as 3.5 billion dollars a year by 2020. Its presence around the world has steadily grown and the brand has also gained popularity owing to the fact that like Uber, its business model too has proved profitable for millions of people around the world which otherwise did not have any other source of revenue. Thousands of them have been able to pay away their home loans using the income of Air Bnb.
This article presents a discussion of the generic and intensive strategies utilized by Air BNB to earn a competitive advantage and to grow its customer base and expand its market share. Porter has outlined three key strategies called generic strategies that a business brand can utilize to build a sustainable source of competitive advantage. These strategies are – cost leadership, differentiation and focus. The third one he has further divided into two subcategories – Cost focus and differentiation focus. Apart from these generic categories there are intensive strategies to be used for growth in market share and for market expansion. They are market penetration, market development, product development and diversification.
Generic strategies used by Air BnB:
The main generic strategy used by Air BnB is that of differentiation. However, to some extent it has also used cost leadership. The service model that Air BnB has used is differentiated from the traditional hospitality business models. Under its model, it is the homeowners renting out their houses to the tourists. This model has helped fill both the demand and supply gap. It has on the one hand churned the demand for such services by bringing the prices of stay lower and on the other hand it has filled the supply gap by arranging for lower priced lodging services in plenty.
Millions of people around the world are renting out their homes to the tourists at the mutually agreed prices through the Air BnB platform. Tourists can find a home away from home and the homeowners have a new channel of revenue for them. This model has proved profitable for both the buyers and the sellers each of which is earning the benefits. Thus, the strategy used by Air BnB is a mix of both cost leadership and differentiation. It has helped it warn a sustainable competitive advantage in for of a cheaper option for hotel services. While the main enabler for this competitive advantage is technology, used in conjunction with cost leadership has helped it strengthen its competitive advantage.
Intensive Strategies used by Air BnB:
The main intensive strategies used by Air BnB are market penetration and market development. Market penetration is the idea of increasing usage by existing customers and market development means expansion to newer areas and markets.
The initial growth of Air BnB was not as easy as Uber and the idea took some time to gain acceptance. It took almost two years for the idea to grow popular in US but at last it did and as the people started knowing its service model and started understanding its benefits the business and its popularity grew. In March 2009 Air BnB had 2500 listings and around 10,000 registered users. This is how the sail caught the wind and advanced fast after two years of its foundation being laid. Customers loved its value proposition and found that the brand as offering something great at affordable prices. There was demand because on special occasions rooms inside hotels would be full and people would be forced to either cut their tour short or bear difficulties. Air BnB that started as Air Bed and Breakfast was now a recognized name offering unique services at affordable prices at a large scale and both buyers and sellers had started joining.
It is the process of expanding your market share by expanding into new markets and regions. Now, Air BnB has expanded globally and while it has kept running on venture funding all these years, it is expected to start earning profits from this year and by 2020 its profits would be running into millions. The brand’s market has expanded a lot and it has reached 191 countries and 34000 cities. The brand’s financial value and strength are growing fast. Its revenues can grow to $8.5 Billions an year by 2020.
This was a discussion of the generic and intensive strategies used by Air BnB to build a competitive advantage and grow its market share. Technology has become a major differentiator in the 21st century and businesses that have leveraged the power of technology have grown faster than the others. In case of Air BnB it has used both the power of technology and the cost leadership model to build a sustainable competitive advantage that will last it long term. While business took time to catch momentum, its growth during the recent years has been very fast and it will soon start running into profits in billions.
For Further Reading: Air BnB Pestel analysis