When we start a business or a new brand, it is essential to aim for a long-term payoff for all our efforts and investments — A sustainable ROI. One of the ways to achieve that is to strive for getting maximum value from each customer(higher Customer Lifetime Value(CLTV)) — It means the brand should look for developing loyal customers.
The first step in building a loyal customer base is to position your brand inside a consumer’s mind that is called Brand Positioning. It is called the consumer’s perception of a brand with respect to competing brands.
The ways to enter their mind is
a) Becoming a leader in an existing product/service category(It would need massive investments in money, effort & time and not a practical option)
b) Becoming first in any new product/service category. In other words, you need to create a new listing.
Coke is the first cooldrink to enter the consumer’s mind under the Cola category. Seven-up is the first cooldrink under the Un-cola category. Redbull is the first cooldrink under the ‘energy drink’ category. Xerox is the first brand under the ‘photocopying’ category.
If you plan to create a new category, then the first place to start is to decide your target customers. It implies that the business has to choose a niche market.
Finding a Niche Market — The general rule is to start small. Focus on a particular need, work on it, make your product distinctive, and dominate the niche market. Narrower the segment, it is easier for the entire company to focus and meet the customer needs, wants, and desires. Once you become a leader in the niche market, you could grow your market.
1.0 AIRBNB & NICHE MARKET
The Exposition — During college days, Brian Chesky and Joe Gebbia had become friends by working together on several projects and social initiatives. Chesky was one year senior to Gebbia. As both of them found it comfortable working with each other, they strongly felt that if they start a business together, they could surely succeed.
After graduation, Gebbia moved to San Fransico as he got a graphic designer job in a company. At that time, Chesky was working at a design studio firm in Los Angeles. Though both worked at different places, they remained in touch and continued to brainstorm ideas for their venture.
The Rising Action — As months passed, Chesky began to find his work monotonous and dull. He felt that he had lost his motivation. So, he quit the job.
The Crisis — At the same time, Gebbia’s roommates suddenly moved out of the three-bedroom apartment after his landlord raised the rent. Chesky moved to San Fransisco and took one of the rooms. Yet, two of them could not cover rent for all the three bedrooms. To cover the cost for the extra empty room, Chesky and Gebbia began to brainstorm for ideas.
The Solution — After generating and reviewing several ideas, Chesky and Gebbia zeroed on one idea — Short term renting out a part of their homes.
The Business Idea — Story
The Exposition — Being designers, Chesky & Gebbia knew about several design happenings. That year, one of the prominent associations, Industrial Designers Society Of America(IDSA), was conducting a global event in late October in San Fransico. It would draw thousands of young designers/students to the city who would be looking for affordable room rents.
The Crisis/Opportunity — Chesky and Gebbia, being recent design graduates themselves, were well aware of those students’ needs. They knew that the limited hotel capacity in their city would push the rents too high, making it unaffordable for several students/young designers.
The Solution — Chesky and Gebbia pondered the idea of creating a bed-and-breakfast for the conference, from the available space in their home. Gebbia also happened to have three air mattresses in his closet. They thought that they could sell a cheap place to stay and even offer breakfast — and they could also advertise their offer on the known design blogs.
The Denouement — With the deadline to pay rent, they felt that they had nothing to lose from trying out the idea. Chesky and Gebbia made a rudimentary website and called it Airbed & Breakfast. They listed three airbeds in their apartment for eighty dollars apiece.
Design blogs saw it as a crazier idea and promoted it. Within a few days, they had booked three guests who were professional designers on a budget. Two of them were millennials like Chesky and Gebbia.
Thus the idea of Airbnb was born. The initial target customers(Niche) were millennials.
Chesky and Gebbia began to target other conferences — South by Southwest convention, the tech, music, and film festival — Democratic National Convention, Denver, and several other events.
NICHE — The Millenials
Chesky and Gebbia had several reasons for continuing to target millennials. They are—
- Chesky and Gebbia, being millennials themselves, had sound knowledge of the target customer’s needs, pains, and desires. A critical factor for succeeding in business is to have a thorough understanding of the proposed customer segment.
- Millennials wanted a greater sense of adventure at an affordable cost. Most of them were comfortable with venturing into the home of someone they’d connected with online. It’s not the same for other segments.
- An Airbnb report says that most millennials would prioritize travel over buying a home or paying off debt.
- Millennials are also called as Digital Natives as they grew up interacting with the virtual world. They would be the ideal segment for a web platform like Airbnb.
- And, the crucial one for business growth— Millenials are trendsetters. They are the early adopters. The Early Majority segment follows what millennials do and how they travel.
Airbnb also focused on another niche — In the beginning, the brand targeted hosts from cities instead of vacation destinations in resort areas. The company predominantly became an urban phenomenon — 70 percent of Airbnb’s full-home listings were studios, one-bedroom, and two-bedroom units.
Thus, Airbnb’s niche was millennials and urban destinations.
2.0 CREATING A CATEGORY & VALUE PROPOSITIONS
After choosing the target segment, it’s time to create a category to establish positioning.
Creating A Category — A category is defined based on the brand’s value propositions. So, what value propositions did Airbnb offer in the beginning? How were they different from other brands?
To identify value propositions, we need to think from a customer’s shoes — What do they need? What do they desire?
We have already seen that the millennials loved experiential travel at an affordable cost. Let’s see the value propositions of Airbnb —
2.1 AUTHENTIC EXPERIENCE
Why Sell Experiences? — Every brand aims to build a long-term business. One of the ways to accomplish that goal is to try to maximize the benefits of an investment. It implies that a brand has to develop loyal customers who would purchase the product/service again & again without the brand prompting them to buy. In this way, the brand would gain maximum value without any additional investments of money, time, and effort on expensive marketing.
Developing Loyal Customers — One of the best methods to make a customer loyal to a brand is to entice him/her to spend more time with your product or service. He or she will allocate more time only if the product/service offers pleasant experiences.
The Decision-Making Mind — Research reveals that a person’s subconscious emotional mind was responsible for a large number of purchasing decisions. And, the product/service experience directly appeals to the emotional mind. So, the product experience matters.
The Viral Component — Experiences are also relatable and shareable. A customer may not talk about product features or benefits to his/her friends but would happily share his/her feelings about the product — the experiences while using the product/service. Stories are always appealing than listening to a list of features.
What experiences should a business provide? How to find out?
a) Think from a Customer’s Perspective — When Chesky and Gebbia developed the website for the first time, they thought from the customer’s shoes — Why are they coming to the design conference? What would they need to achieve their objectives? How could we help them to realize their trip goals? The questions helped Chesky and Gebbia to provide a pleasant experience to the customers.
When guests arrived, Chesky and Gebbia presented them with a welcome package that contained a BART pass, city maps, and spare change to pass out to homeless people. They served their guests breakfasts of untoasted Pop-Tarts and Orange juice. Chesky and Gebbia also showed their guests around the city — they took them to their favorite Taco place, Ferry building, and Stanford’s design school.
The guests loved their stay. They realized that they would’ve missed this experience if they’d opted to stay in a hotel. They were thankful to Chesky and Gebbia and became close friends with them. It shows how selling experience would convert a customer into a loyal one.
b) Overdeliver — One of the ways to determine what experience a company should sell is to go beyond the present customer needs at each touchpoint.
(From Reid Hoffman’s Blog) — Chesky says, “We basically took one part of our product and extrapolated — what would a 5 star experience be at that point? You knock on the door, the host opens the door and lets you in. You didn’t face any problems. That’s great. Would that be enough?”
Chesky, continues ‘What would a 6-star experience be?’
He imagined, “How about the host showing the guest around and welcome him/her with a gift that is to their liking. How about water in the fridge for them, toiletries in their bathroom?”
Would that be enough?
But, Chesky continued to ask himself, “What’s a 7-star experience be?”
“How about a host allowing the whole kitchen for the guest to use? How about organizing things a guest would like — For example, a cycle or a surfboard for surfing or special lessons or a car to move around or booking in a local restaurant. That could be way beyond.”
It is one of the ways Chesky and Gebbia brainstormed for new exciting experiences for their customers. Always overdeliver at each touchpoint.
Let’s see what kind of experiences, Airbnb delivered to the customer —
2.1A HUMAN EXPERIENCE
One of the exceptional advantages of Airbnb was the human experience — the intimate interaction a guest has with the host that could not be copied by hotels. Usually, when people travel, they would feel alone. In Airbnb, the host becomes a part of that travel, helping the guest to immerse himself/herself in the local culture. It is similar to how Chesky and Gebbia became friends with their first set of guests.
Airbnb focuses on providing a human experience with personalized touches.
2.1B CULTURAL EXPERIENCE
The critical experience Airbnb offers for a traveler is to experience new places as the locals do. It helps a customer to have a personalized experience.
It was the underlying message behind Airbnb’s marketing campaign — Don’t Go There. Live There. They say that Airbnb is an opportunity to immerse yourself in the local culture.
“The Live There campaign is about tackling the tension that so many people feel when they travel,” said Jonathan Mildenhall, Airbnb’s CMO. “We know travelers want more. People around the world have told us they want to live like a local. They want a deeper connection to the community, to genuinely feel part of the places they visit. At the heart of this campaign is our antidote to commoditized travel — the unique, human connections that happen when you truly Live There.”
Cultural Experience for Hosts — Along with the guests, the hosts also gain cultural experience. They get opportunities to connect with people of different cultures across the world. They learn about their guest’s life and travel experiences.
2.1C SEAMLESS EXPERIENCE AT CUSTOMER’S VIRTUAL TOUCHPOINTS
Before Airbnb, the home rental market had similar websites — HomeAway.com, VRBO.com, Couchsurfing.com, BedandBreakfast.com, and Craiglist. So, Chesky and Gebbia’s idea wasn’t an original one. Yet, they cornered a niche, differentiated the brand from competitors, and grew. And, from the beginning, one component played a critical role in its initial success — It was Airbnb’s website.
Delivering a successful wholesome experience to a customer depends on identifying all the touchpoints where he/she would be interacting with the product/service. It’s not just physical but also virtual touchpoints.
For Airbnb, being a digital platform, virtual touchpoints are as critical as the physical ones because several activities happen over the website — Seeing ads, opening the webpage, searching a destination, booking it, paying, contacting the host, reaching customer care, and various other activities. The website is a critical part of the product experience. At each touchpoint, the founders wanted to make sure that the customer’s experience not only has to meet his/her needs but should go beyond his/her expectations.
Don’t ask -What specific experience would we offer at each touchpoint? Ask — What would delight the customers?.
Design Thinking — The Airbnb website’s success could be attributed partly to Chesky and Gebbia’s design background. From the beginning, they were determined to provide a seamless experience to a customer through the online platform. Their goal was to make it as easy as possible to book a room in someone’s house. Their field of knowledge became their biggest strength.
Chesky often told that when Steve Jobs conceived the iPod, he wanted never to be more than three clicks away from a song. He followed the same rule while designing the Airbnb website. It should not be more than three clicks away from booking a room. Save the user’s time as much as possible.
Airbnb’s digital experience played a significant role in its initial growth. It differentiated them from other brands.
Now, the next value proposition —
Though Millennials loved to have authentic, local experiences, they are also cost-conscious. Their priorities are different. They preferred spending more money on travel & experiences but less on accommodation.
Overpriced Monotony — Before Airbnb, the Millenials were frustrated with hotels as several of them charged higher rates when the rooms were in demand. Moreover, they hated the monotonous experience. Fortunately, for them, Airbnb was a boon at that time —The company gave them several options on a budget to escape the pricey hotel rooms.
The Price Positioning — Airbnb occupies a unique space among the traditional hotel chains. Its average price point is on par with the discount hotels but with an experience comparable to a medium/premium group of hotels. This positioning also met the two crucial criteria — a)It was compelling to millennials, and b)It differentiated the brand from competitors.
The Bottom-line Impact — Would lower-price not lead to reduced profits? Chesky and Gebbia had several reasons behind their decision —
- A lower price would lure noncustomers to try the product.
- Some millennials might pay the same as a hotel rate at Airbnb but would opt for a better place that offered additional amenities and exceptional experience.
- A part of millennials might choose lower-priced rooms but would extend their days of stay. So, the founders would have felt that the lower-price strategy had more pros than cons.
Research shows that in the beginning, most of the millennials were motivated to book Airbnb accommodations because of their low cost. Once they tried the service, they loved the experience, and most of them recommended the product to others.
The value proposition of the lower-price accommodations turned out to be the primary appeal of Airbnb to most millennial travellers.
CONCLUSION — To Summarise, for brand positioning, a brand has to determine the niche market. After choosing the niche, the company has to create a distinctive category about the brand in the minds of target customers. A category is defined based on the brand’s value propositions.
So, the preliminary niche market of Airbnb was Millennials and Urban areas. The value propositions were Personalized, Authentic Local Experience at an Affordable Price.
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References: The Airbnb Story by Leigh Gallagher, Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne, Positioning: The Battle Of Mind by Al Ries and Jack Trout, What is Strategy-HBR Article by Michael E. Porter.