The Airbnb Way with Dr. Joseph Michelli
The latest thing I am into is Airbnb. Airbnb properties have character, at least the ones that we chose. I like that when we use Airbnb, we stay places where we wouldn't typically.
I find Airbnb fascinating because it is an organization that is disrupting the hospitality industry. I wondered what the secret was to their success. After all, let's face it, having a business predicated on the idea that people would let strangers stay in their home sounds like a doomed venture.
However, it isn't doomed, and quite the contrary. Per USA Today, Airbnb has more than seven million listings in 100,000 cities as of early September 2019, and they plan to go public in 2020. They also reported revenues of over one billion in the second quarter of 2019, although there is no report on the profits.
New York Times best-selling author and keynote speaker Joseph Michelli, Ph.D., C.S.P. was our guest on a recent podcast to talk about the secret to Airbnb's success. As a certified Customer Experience Professional, he helps organizations and leadership change to improve their experience for their team members and customers. He has written nine books on companies like Starbucks, Zappos, Mercedes Benz, and Ritz Carlton. His latest book, The Airbnb Way, shares their insight for successful disruption and delivering an excellent Customer Experience to your customer community.
Dr. Michelli says he writes about brands that take care of their people and customers in a way that differentiates them in the marketplace. As a consultant for these brands, he gets an insider position that allows him to collaborate and share their story to others.
Having worked with and written about the Ritz Carlton Hotel Company, Dr. Michelli knew a bit about the elevated experience of luxury hotels. However, that was the established business model, a traditional hotel experience. He says that Airbnb has created a 21st-century Customer Experience.
The Airbnb story starts, as many things do, with technology. Businesses tend to take longer to adapt to technology than consumers, Dr. Michelli says. Businesses do improve, but incrementally over time. Consumers, on the other hand, sometimes jump right in. In this case, technology has provided a disruptor gap in the hotel business by changing customer behavior.
Dr. Michelli says that Airbnb found "that sweet spot of disruption." They saw consumers were looking for ways to travel differently and find better deals. They wanted to use their mobile technology to explore the world around them. Airbnb took advantage of these wants and positioned a solution that is high tech.
However, one of the things that makes them great is that Airbnb also brought in great people to ensure their listers would be great hosts. Dr. Michelli is quick to say that not all Airbnb hosts are great, but the ones that get it right execute the best of personal care. The excellent hosts also leverage all the best of convenience and personalization that you can get through technology.
Getting your Customers' Needs Met is Vital
Early on, Airbnb brought on Chip Conley, a hotelier and author of the book Peak: How Great Companies Get Their Mojo from Maslow. Conley helped them by looking at Maslow's hierarchy of needs. Once a person's physical and safety requirements are met, the next most crucial need is Love and Belonging.
Conley asked the question, what were the hospitality skills necessary to go beyond just providing a safe place of lodging to something that created a sense of belonging?
Dr. Michelli says that what Conley taught the hosts was a higher level "Wow!" experiences, which might also have been a part of a Ritz Carlton training. He was addressing the psychological factors that underlie purchaser's intent.
Before all these lofty concepts and famous hoteliers got involved, the founders discovered what made Airbnb special. The founders of Airbnb were three guys; it was two design students and a tech partner. They needed more money, so they didn't lose their apartment in San Francisco. A conference was coming to town, and they knew hotel rooms would be scarce in San Francisco. The founders decided to lease out one of their rooms because one of their roommates had moved out.
They bought some air mattresses and put them in that room. Then, they created a very rudimentary website that encouraged people to come and stay with them (quite literally an airbed and breakfast).
It worked. People came to stay at $80 per night to sleep on these air mattresses in their spare room.
However, the founders noticed that they were doing more than supplying a place to sleep and breakfast. They were taking their guests around town, engaging with them, and developing friendships.
They realized that you could do more with this transactional object of a place. You could build relationships, enable people to travel locally, and provide a different travel experience by infusing and curating your knowledge of your local community. Now, these concepts are foundational to what they do at Airbnb.
Dr. Michelli explains, the Ritz Carlton also is not selling a room, a warm shower, and a wake-up call. They're selling an experience similar to the home of a loving parent. Customers are buying the Ritz Carlton's nurturing anticipation of wants, needs, and desires.
Both Airbnb and the Ritz Carlton understand that they are not just selling a room. They are in the people business, and the product is the room. Both organizations see that it is all the other things you can imbue on that product that are competitive differentiators.
Dr. Michelli does not think every host who lists a property on Airbnb gets this concept or delivers it. He says there are property management hosts on the site that are no different than hoteliers. However, many people on the site have a passion for travel and others on the site have a passion for creating exceptional travel experiences for those who stay with them on Airbnb, too.
Part of the secret is knowing how to scale the experience across the participants in the program. The heart of the value proposition for Airbnb is that people should feel that they belong anywhere. The job of a host is to facilitate an experience that, "You belong here" mentality.
Airbnb pushes this message all the time. They have designed the business model to influence the participants to behave in accord with this higher value proposition. They measure the feeling of belonging in their metrics, and they reward hosts who are successful at it. Moreover, if you fail to provide that type of experience based on the guest's review, then your property will drop in the algorithm, making it harder to find your place.
The Importance of Trusting Your Customers
As I mentioned, the idea behind this business model sounded terrible to me, and I think that renting a room out in my house to a stranger is not for me, either. For me, it comes down to the idea of trusting strangers in your house. You don't have any idea who they are. It seems risky to invite them into your home.
I am not alone. Many, many investors told the founders the same thing.
Dr. Michelli agrees that it is risky and that the owners of the property assume most of that risk. However, he points out there are many times in our society when we trust strangers during an experience. For example, when we give someone our credit card at a restaurant, they take in the back and use out of our sight. Or when we get into a cab and have a stranger drive us somewhere, we feel safe because they have a license. However, do we know who that cab driver is?
Another essential secret to Airbnb's success is their extension of trust to their users. You could argue that it was optimistic to launch a business with foundations built on human connection and trust between strangers.
The host is crucial to the whole business model, and, as Dr. Michelli said earlier, they assume most of the risk. It is the hosts' investment and property they are leveraging. As a result, Airbnb nurtures hosts. They only take around 3% of the transaction by some reports. They also do all the marketing for the hosts.
Of course, Dr. Michelli says that there are times when customers break the trust, and they trash a property. However, when that happens, Airbnb's insurance covers the costs up to $1 million.
"At the end of the day, it's not that bad of a value proposition," Dr. Michelli says of the arrangement with hosts.
What Should You Learn from Airbnb?
There are a few key issues that Dr. Michelli says people could take away practically from Airbnb's experience. The first is that every organization should look at their business and challenge themselves to make their experience more comfortable for customers to get their needs met. Dr. Michelli says that this concept of making it easier to meet get needs met should be a mantra throughout the company. Airbnb started there and executed a solution on the technology side. However, for many organizations, it could be other things like:
- How do we make this personal for people?
- How do we make this more than something where they're exchanging money for the product?
- How do we understand some of the deeper psychological and emotional drivers behind customer behavior?
Dr. Michelli encourages all organizations to acquire the most in-depth understanding of emotional value creation. Having this knowledge allows you to provide higher value beyond whatever the benefits and attributes that limit your product. As I often say, it is these "greater value" issues that foster customer retention and loyalty.
Moreover, it is essential to assume the best intent on the part of the consumer to allow your organizations to deliver a great experience. Instead of thinking all customers will "do you wrong," and designing the experience with those bad apples in mind, treat them as the exceptions. Dr. Michelli says that brands protect themselves against the consumer are not positioned for what customers want. To gain trust, you have to extend trust.
So, along those lines, Dr. Michelli says to look at areas in your Customer experience that you can extend more trust. The end goal is to trust so you can be viewed as trustworthy.
I couldn't agree more. It annoys me intensely when organizations create processes for the one percent of customers that are not going to be trustworthy rather than the other way around.
There is a good country song by Luke Bryan that I like at the moment called, "Most People Are Good."
They are, when you think about it. It's just that some of the bad apples have made us nervous.
Interpersonal connections and community are essential to all of us. Consider the Comic-Con conventions, which are fan conventions of all things comic book and a celebration of comic book culture. More of these conventions are springing up, and that's because people want to connect and form relationships, even if they are short term, linked to what they value.
Too often, we neglect that core need and overlook it as a way to create great experiences and serve people better. Are there ways that we can pull that into our businesses? Are there ways that we can empower employees to develop those connections or facilitate connections amongst consumers? Or is this a new source of value that we're not entirely looking into because it is so powerful?
Brands that understand this concept leverage it provides their customers real value all around. Airbnb is creating a community with their platform and it is changing the way people travel. By making it personalized and emotional, as well as by trusting the customers to do right by the hosts, they have disrupted the hospitality industry.
What could you do to your industry by doing the same for your customers?
To hear more about What is the Secret of Airbnb in more detail, listen to the complete podcast here.
What customers say they want and what they really want are often different things. It is vital to know what drives value for your organization. Our Emotional Signature research can tell you where you are compared to other organizations and what to focus on to drive value for your customers. To learn more, please click here.
Hear the rest of the conversation on What is the Secret of Airbnb? on The Intuitive Customer Podcast. These informative podcasts are designed to expand on the psychological ideas behind understanding customer behavior. To listen in, please click here.
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Colin Shaw is the founder and CEO of Beyond Philosophy, one of the world’s leading Customer experience consultancy & training organizations. Colin is an international author of six bestselling books and an engaging keynote speaker.
Follow Colin Shaw on Twitter @ColinShaw_CX
AP. "Airbnb's long-awaited move announced: Home-sharing company will go public in 2020." Usatoday.com. 19 September 2019. Web. 25 September 2019. < https://www.usatoday.com/story/money/2019/09/19/airbnb-going-public-ipo-....