How did Airbnb "win big" by reducing its Marketing budget by 28%?
In the midst of an economic downturn, Airbnb made a groundbreaking impression in the travel industry by achieving its highest performance to date after shifting its focus from Search Engine Marketing (SEM) to Brand Marketing. So, why did the home-sharing giant make such a pivot, and how did Airbnb execute this plan?
Airbnb is one of the most popular online booking companies in the world. Since its establishment in 2008, it has revolutionized the hospitality industry by offering users unique lodging experiences at local destinations.
The shift from search engine marketing to building brand marketing, combined with the recovery of the travel industry after the pandemic, helped Airbnb achieve its strongest growth ever in the third quarter of 2022.
Airbnb Inc. stated that its strategy to cut advertising spending, invest in brand marketing, and reduce Search Engine Marketing (SEM) campaigns proved to be highly effective. As anticipated, Airbnb’s marketing budget was reasonably reduced starting in 2022 to avoid sudden cuts in the face of the impending economic downturn in 2023.
1. How Airbnb Implemented Its Brand Communication Strategy
“We see Search Engine Marketing (SEM) as a way to balance supply and demand rather than a way to attract a large number of customers.” — Brian Chesky, CEO of Airbnb.
Airbnb reduced its overall marketing budget. In the first quarter of 2021, the budget for sales and marketing dropped by 28% compared to the same period the previous year, down to $229 million. This cut was primarily due to reducing performance marketing costs, as Airbnb prioritized leveraging the power of Brand Marketing to attract potential customers.
CFO Dave Stephenson stated, “Our company is pleased with the return on investment we are receiving from our new strategic communication approach. We spent $383 million on sales and marketing in the three months ending September 30, 2022.”
He added, “The results from our Brand Marketing strategy are outstanding, with a high return on investment, so much so that we want to expand our services into more countries.”
Specifically, Airbnb made significant changes to its marketing strategy. In 2019, the company began experimenting with limiting search engine marketing and focusing more on broad marketing campaigns and public relations to build its brand image.
The company concentrated on PR activities, developing informative content strategies about its business operations, and launching advertising campaigns across various channels such as television, social media, video campaigns, user-generated content (UGC), and influencer marketing.
Airbnb CEO Brian Chesky further stated in a call that the company does not view marketing as a way to “buy” customers, noting that over 90% of the traffic to their platform comes directly without the need for search advertising. Instead, their strategy now focuses on using communication efforts to promote Airbnb Categories, which allows users to search for homes based on factors such as housing style or proximity to specific activities like surfing or skiing. Additionally, they are promoting AirCover, a policy designed to assist travelers facing issues like finding the wrong home or hosts canceling bookings at short notice. The company also offers AirCover for hosts, which includes liability insurance and damage protection.
When analysts asked whether Airbnb would cut advertising spending in light of the economic downturn or continue to invest in broader market expansion to attract consumers to new services, Airbnb executives indicated that they expect the percentage of marketing expenses relative to revenue next year to remain at similar levels as before.
2. What are the challenges for Airbnb when the wave of tourism marketing is back in full swing?
Mat Zucker, a senior partner and co-leader of global sales and marketing operations at consulting firm Prophet, noted that “Airbnb seems to have no priorities. They are actively integrating both.” One reason for this could be that Airbnb operates relatively leanly and is a newer player compared to traditional hotel chains. He mentioned, “They don’t have the burden of business structure, departmental divisions, and competitive personnel, which might be part of the reason they can do this seemingly easily.”
However, the Airbnb brand could face challenges if competitors ramp up their marketing expenditures. “I’m not sure if apartments are enough to maintain their share of voice,” Zucker said. “If hotel marketing comes back and spending begins to rise in the travel and hospitality sector, can Airbnb maintain its share of voice when hotels return aggressively?”
Airbnb has identified three strategic priorities for 2023:
- Make Hosting a Mainstream Trend
- Refine Core Services
- Build the Foundation for Future Products and Services
According to Chesky, this means investing in marketing to raise awareness and educate travelers about Airbnb's new services and offerings, such as Airbnb Categories.
The company expects to maintain its adjusted EBITDA margin in 2023, with a slight decrease in the first quarter as the brand increases its marketing spending. Sales and marketing will be higher by approximately 150 basis points as a percentage of revenue in the first quarter, but will remain unchanged for the entire year.
3. Enhancing Effectiveness and Scale by Balancing Branding and Performance
Novaon Digital, an agency providing brand experience solutions, believes that instead of approaching target customer groups in traditional ways, businesses need to focus on three key factors:
- Implementing Long-term Marketing Strategies: Companies should adopt a long-term marketing strategy that emphasizes brand experience while balancing branding and performance.
- Integrating Creative Content: Creativity should be integrated into communication and advertising activities, following the principle of driving creativity.
- Leveraging Technology: Businesses should apply technology in their marketing activities to scale up rapidly while managing data effectively and minimizing advertising costs. The application of technology should be streamlined yet systematic, using two methods: integrating a CRM system and automating processes.
As they strive to enhance customer experience, Novaon Digital consistently seeks new solutions, incorporating technological elements and creative content to maximize effectiveness and create a more positive experience for customers.
Source: WSJ - Megan Graham (Reporter, The Wall Street Journal)
