The Art of War in the 21th Century: Know Your Competitive Landscape
Strategy” is a commonly known word, but its meaning is greatly important for every businesses and organizations. It helps them achieve the competitive advantage to thrive and grow sustainably in the fierce commercial war.
Four hundred years ago, the Chinese military strategist Sun Tzu wrote The Art of War, which is one of the classical treatises on warfare, military strategy and tactics. The book contains many verses that has become modern day Chinese proverbs. For example, “Know the enemy and know himself well, one could win a hundred battles” and “Every battle is won or lost before it is ever fought.” These Eastern military proverbs can be applied not only to warfare, but also to marketing.
In 1980, the internet was invented and it had greatly impacted on our way of living since the invention of the steam engine. Many everyday activities have been transformed completely as a result, which means people can meet and talk to each other virtually on social networks. It means sellers can find buyers from online marketplaces. Not to mention, the internet gave birth to the “sharing economy” - allowing anyone to earn an income from renting out their houses, cars, and other belongings on digital channels.
According to Yahoo Finance/CB Insights in 2016, the valuation of Airbnb, the online marketing website for accommodation sharing, has exceeded the valuation of major hotel chain as shown in the chart below.
Furthermore, the VOX website stated that in 2018 Americans paid for accommodation rental on Airbnb more than on the Hiltons’ official website (as shown in the graph below).\
These figures prove that Airbnb has become the real competitor of hotels even though it does not own any real estate properties. Airbnb only let people rent out their houses or spare rooms to guests and by doing so they have gained market share into the traditional accommodation industry. In addition, it does not even have to invest in construction or hotel management; it simply connects people who would like to provide their properties for rent with people who are looking for a place to stay in that locale.
The example of Airbnb versus hotels leads us back to reconsider marketing strategy in this century. We should ask ourselves with the question “what is the right marketing strategy here and now?”
From the case of Airbnb, three questions are raised:
- Why is there a marketing opportunity left for Airbnb knowing that the accommodation industry has been here for a thousand year and are still growing?
- How can Airbnb gain more market share than other hotel booking website?
- Is it possible that hotels’ membership privilege offer is not quite appealing to customers?
There is a saying that goes, “The experience you get along the way to your destination is more valuable than the destination itself.” In a way, this saying demonstrates the key point of the experience that most customers could receive from using Airbnb’s services. They meet and share the residence with new people from all over the world, share passions and exchange perspectives with each other. Customers would never receive this kind of curated and unique experience if they book a room from luxurious chained-brand hotels.
Moreover, some customers need a place just for staying overnight before heading to their destination nearby in the morning. They are not interested in cherishing the precious moment with strangers, but care more about reducing time to reach the destination. So the location of accommodation is the most important factor that influences their decision to find a place to stay.
The case of Airbnb shows that digital transformation is vital for business. Even large, famous and well-established organizations and corporations, in the hope of surviving in this age, need to react and adapt themselves to the changing world by learning more about digital technology. For instance, chatbot, AI, blockchain and cloud computing.
How did Airbnb gained market share with a digital strategy?
The website Airbnb was launched in 2008. At that time, most chained-brand hotels have allowed customers to make a room reservation online on their official website. Besides, a lot of online travel agency websites providing online hotel booking service such as booking.com and agoda.com have been around since the year 2000. Some people may think that both online booking on hotels’ official website or online travel agency websites are the use of digital strategy of accommodation business. So what is the difference between this type of digital strategy and Airbnb’s digital strategy?
The difference lies in the implementation of insight data collection. The more businesses and organizations (not limited to companies or organizations in accommodation business) can learn about customers’ interests and behaviors, the more precisely they can understand customers. The ultimate goal is that they could comprehend customer needs. Airbnb successfully achieved this goal, because they can get access to insight data of customers via its digital platform (website and application) whereas the official website of hotels cannot dive into such data.
In a way, we can gain customers’ insight data from their buying decision process. The customers’ buying decision process can be roughly divided into three key phases as follows:
Ten to sixty minutes - This is the average amount of time that customers spend on one visit to a store or a product showroom. Within this period, you should approach your potential customers and observe them closely. This way you can identify customers’ interests and outline an effective plan to approach the customer.
One week to three months - This is the average amount of time that customers invest in
gathering information about a product and making product comparisons before making a purchase.
A period of ten years - This is the amount of time that we will see a significant changes in people’s needs, interests and behavior of each generation.
If a business organization takes all the changes from a person’s life time from young to old for analysis, it can estimate the value that can be derived from customers’ spending on its products and services.
For this reason, many companies usually segments customers into groups according to generations such as Generation X customers, Generation Y customers and Generation Z customers. After that, the customers from different generations are separated by gender. Then, companies will appropriate products and services to each customer segment. We can see that this method of customer segmentation is based on demographic information of customers.
However, using only demographic information might not be a practical marketing strategy in the digital age, because such information does not cover customers’ interests, lifestyles and behaviors. In marketing, these insight data are the key to customer needs and can make a big difference. The example case below will clearly explain this point.
Let’s say a man decided to buy a condominium unit in Chiang Mai Province. In the selling process, the real estate developer has collected the following demographic information from this man:
- He is male.
- He is 56 years old.
- He is single.
- He is a stock investor.
- He earns three hundred thousand baht a month.
- He wants to buy one-bedroom condominium.
- His reason to buy a condominium is either just for living or renting it out.
- Where he gets information about this condominium project.
From this information, the real estate developer only knows that this man needs to own a property in Chiang Mai and he may permanently live there after his retirement. Yet, the real estate developer will never know his insight data associated with his interests, lifestyles and behaviors. For instance, he travels to Chiang Mai Province twice a year. He is a nature lover and outdoor enthusiast. He dreams of living in a log house and he can afford to own one. If the real estate developer gets these insight data from this man, it can offer one log house to him instead of just one condominium unit. If the developer can sell the log house, it can earn more profits than selling just one condominium unit.
The case above indicates that demographic information is not enough for a precise determination of customer needs. In this digital age, businesses and organizations should gain customers’ insight data as much as possible. Knowing the real customer needs through insight data helps them to enhance their competitiveness in the marketing world. The more insight data gained from their customers, the more chances their marketing campaign will be successful. This is the strategy that Airbnb has applied to the way it runs business, so it became one of the top accommodation booking websites for thrill seekers. At the beginning, Airbnb just tapped into the need of people who want a place to stay overnight in San Francisco before participating in a morning seminar session. From then onwards, Airbnb has learned more and more about its customers from their insight data. Some customers may only want one night stay and some have a desire for local experience or meeting new people. On the other hand, most hotels, including travel agency websites, still rely on just demographic information of customers, for example, ID card information, check-in date, type of room and number of guests.
From the case of Airbnb and hotels, we can see that digital transformation in business does not depend on merely innovative technology, but it also requires the use of insight data. Put it another way, understanding customers through their insight data is the core of digital transformation in any business. It is in the same order of Sun Tzu’s saying in Chapter 1 of The Art of War—“One should evaluate the situation, know his position and understand the enemy before developing a strategy.”