23Mar

Three Thoughts on the Emergence of Airbnb as an OTA

Author: Dan Skodol

As new lodging options emerge, specifically alternative accommodations such as Airbnb, the hospitality industry must evolve to the changing landscape. We’ve kept track of what consumers and industry insiders are talking about when it comes to trends in revenue management, and when it comes to Airbnb, there is plenty to discuss; specifically, the movement Airbnb has made towards opening itself as a booking channel for hotels. Here, I share three thoughts on the emergence of Airbnb as an alternative online channel, including how hotels can best leverage Airbnb, what hotels might want to consider when pricing on Airbnb, and what to keep in mind when managing online reputation.

How to Best Leverage Airbnb as a Hotel Booking Channel

Airbnb has considerable long-run potential as a booking channel for hotels, especially with its favorable commission structure. The commission structure might even prove Airbnb to be cheaper than the hotel’s direct channels; Airbnb charges a 3-5% commission while OTA sites typically charge upwards of 17%.  Airbnb’s customer base is composed in part by travelers with specific needs – for example, small social groups, families, or workgroups seeking a shared accommodation space and likely not shopping on traditional hotel channels. Hotels can target these customers via Airbnb and in turn be less concerned about Airbnb cannibalizing other channels. And because Airbnb tends to differentiate itself in terms of the accommodations and service levels they offer, customers looking for unique types of inventory are likely more willing to pay the service fees charged by Airbnb.  Hotels can capitalize on this theme of differentiation and personalization and capture a premium on unique room types like suites, cottages, or villas as well as accommodations that include butler or personal concierge services.

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Another benefit of leveraging Airbnb as a booking channel coincides with instances of large-scale, citywide events and high market compression periods. We found that during events like Mardi Gras, demand swells to exceed a market’s hotel room inventory, and in such high-demand times demand for Airbnb increased significantly. 

Finally, by listing your inventory on Airbnb, you can potentially harness the power of the billboard effect, using the listing as “free” advertising for your property’s offerings.

How to Price Your Airbnb Listing

One consideration when pricing on Airbnb is whether to maintain rate parity with your other channels. For typical hotel inventory I believe in parity across your online channels most of the time, but your Airbnb pricing strategy will likely depend on your assumption as to how your customers are shopping. 

If you believe your potential customers are open to various types of traditional and non-traditional accommodations and are therefore comparing many choices across multiple channels, then one option is to undercut OTA channels’ prices for the same inventory types.  You’ll likely see a shift in share away from OTAs and even your direct channels, but due to the lower commission structure you’ll still end up with higher net revenue.    

A second option is to treat Airbnb as a “premium” service/channel, and price your listings as such, limiting exposure through other channels for that same inventory and/or maintaining your listing solely on Airbnb.  If you’re considering being exclusive on Airbnb, leverage the fact that guests with specific needs might be shopping solely through Airbnb and not comparing across multiple booking channels. In charging a service fee, Airbnb captures the consumer surplus associated with the incremental value proposition.  The operator can capture some of that surplus for themselves by charging a price premium geared towards the Airbnb-focused customer. Why should Airbnb alone benefit from this scenario?

Another benefit of charging a premium on your Airbnb listings is based on the concept of anchoring, where a very high price for a premium product influences the perception of the value for “normal” inventory. Guests might judge a mid-range product as being of higher quality at a price that seems much more reasonable in comparison. For example, if you price your high-end penthouse accommodation at, say, $8,000 a night, the customer browsing prices for a more typical suite accommodation might view a $700 rate as attractive compared to the price of the penthouse. The strategy can be used by anyone offering a high-end listing alongside a moderate one.  Even if your premium listings don’t rent, you still stand to achieve somewhat of a billboard effect from the free advertising for your offerings.

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A final thing to keep in mind when pricing your Airbnb inventory is to consider that your competition on Airbnb might be different from your competition on other channels. Take a look at what comparable listings are pricing at, because your product, price, and value proposition will likely be compared to other Airbnb listings. The unique nature of what you are offering will make price comparisons to your competitor hotels more difficult, so take time to review what the market for listings like yours looks like on Airbnb.

Managing Your Online Reputation with Airbnb

The consensus is that you don’t have anything to lose by putting your listing on Airbnb, but one potential risk associated with Airbnb could stem from the expectation among Airbnb shoppers that your reviews be stellar. Anything less than five stars could hurt the perception of your listing. Airbnb is a channel where “trust” is very important, and the expectation for high-quality experiences and strong reviews seems now to be the norm. Hotels may have an advantage or will be held to a different standard if the customer shopping on Airbnb understands that the accommodation they are looking at is managed by a hotel, but because personalization and a high degree of “touch” is expected, you can’t let this slip through the cracks. Also, ensure a high response rate to those seeking your listing on Airbnb, as this statistic is also measured and displayed.

When considering how Airbnb will affect the future landscape in the hotel space, there’s a few future trends we can speculate on. Airbnb could extend its offering towards more traditional hotel accommodations, including standard rooms. Another strategy Airbnb might pursue is to bundle accommodations with other travel products, such as flights or rental cars, or perhaps package the experiences it already offers on the site with a guest’s stay.  It will be interesting to see if OTAs will change their commission structure or alter their business model in reaction to Airbnb’s growth.

The impact of alternative accommodations is clear. Time will tell the effect that Airbnb will have on the hospitality landscape moving forward, and how OTAs ultimately respond. For more on how alternative accommodations have and will impact hospitality in 2018 and what you can do about it, check out our blog series on revenue management best practices.

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