STRATEGY PGE M1 2024-2025

GUIDELINES FOR MID-TERM AND FINAL EXAM PREPARATION

Introduction
Your individual preparation will be tested with a mid-term and a final exam. These exams are closed-book. In
each of them, you will have to answer five multiple choice questions (MCQ) and one open-ended question
based on a mini case study (e.g., an article describing the structure of an industry and/or the strategy of a
company) that will be provided on the day of the exam. The mini-case study will be selected from an industry
analyzed during one of the case-study sessions. This exam will assess your ability to analyze and critically
evaluate strategic issues, which includes assessing your data literacy skills.

Preparation material
The preparation materials encompass all the documents, including the SmartBook chapters, slides, and various
supporting documents and materials that have been shared throughout the course. These resources are readily
accessible on both the K2 and CONNECT platforms, making them comprehensive and all-encompassing in
terms of the material and topics covered in the strategy course. You can rely on these materials to gain a
thorough understanding of the course content, ensuring you are well-prepared for the upcoming exam.

Mini case studies for the Fall 2024 mid-term exam session
The following industries have been selected as potential topics for the upcoming mid-term exam in the
strategy course:
• Ride-hailing services
• Car manufacturing
• Meat processing
• E-tailing
• Web services

The exam case will focus on a company either discussed in class or referenced in course materials. The case
will be self-explanatory regarding the firm's strategy, so your preparation should focus on understanding how
to analyze and critically discuss any strategy, as covered throughout the course. Prior knowledge of the
specific company will not be necessary, as all relevant information will be provided in the case study.

This should encourage you to review all case discussions and course materials. Multiple-choice and open-
ended questions related to the selected case will only be revealed during the exam.

Sample Previous Year Exam and Grading Rubric

In the following, you can find an illustrative past exam subject (either mid-term or final) along with its
corresponding grading rubric. This specific example – based on one of the case chapters of the Strategy
SmartBook on CONNECT–is from an industry not discussed in the course. Therefore, the case will not be
chosen for the current exam session. Furthermore, case studies may not necessarily be extracted from the
SmartBook. The main purpose of this example is to help you prepare effectively for the mid-term and final
exams and align your preparation and expectations with the course standards.

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Example of an exam
1. INSTRUCTIONS
The following mini case is part of chapter 3 of Rothaermel’s textbook “Strategic Management”, which you have
studied in the Strategy PGE M1 course. Carefully re-read the case and then answer the following questions.

2. MINI CASE STUDY

Airbnb’s Pandemic Pivot
Not too long ago, it would have seemed impossible for a startup to disrupt the entire hospitality industry. The
business had been long dominated by giants such as Marriott and Hilton, which took decades to become successful
global brands. Yet in 2022, Airbnb had 4 million hosts in over 100,000 cities in some 220 countries offering guest
stays in almost every region across the globe. Guests can make reservations for low-budget spare rooms or entire
islands and castles. With its asset-light approach based on its platform strategy, Airbnb can offer more
accommodations than the three biggest hotel chains combined: Marriott, Hilton, and Intercontinental. And just like
global hotel chains, Airbnb uses sophisticated pricing and reservation systems for guests to find, reserve, and pay
for rooms to meet their travel needs.
In 2008, Airbnb was a fledgling startup on a shoestring budget. Today, it is a multibillion-dollar company that
competes globally. The company, for instance, reached a significant milestone (in 2021) with 1 billion guest
arrivals. Airbnb's success is even more stunning given the high entry barriers traditionally protecting incumbent
firms. How did Airbnb disrupt the global hospitality industry?
Brian Chesky and Joe Gebbia, the founders of Airbnb, were roommates in San Francisco (in 2007) struggling to
make rent payments. Both were industrial designers, people who shape the form and function of everything from
coffee cups to office furniture to airplane interiors. On a whim, they decided to send an e-mail to the distribution
list for an upcoming industrial design conference in their hometown: "If you're heading out to the [industrial design
conference] in San Francisco next week and have yet to make accommodations, well, consider networking in your
jam-jams. That's right. For an affordable alternative to hotels in the city, imagine yourself in a fellow design
industry person's home, fresh awake from a snooze on the ol' air mattress, chatting about the day's upcoming events
over Pop Tarts and OJ."
Three people took them up on the offer, and the two roommates made some money to subsidize their rent
payments. But, more importantly, Chesky and Gebbia felt that they had stumbled upon a new business idea: Help
people rent out their spare rooms. They then brought on computer scientist Nathan Blecharczyk, one of Gebbia's
former roommates, to create a website where hosts and guests could meet and transact. The three co-founders
named their site AirBedandBreakfast.com, later shortened to Airbnb. The three entrepreneurs tested their new site
at the 2008 South by Southwest (SXSW) conference, which celebrates the convergence of the tech, film, and music
industries. SXSW also serves as an informal launch pad for new ventures. Twitter, for example, was unveiled at
SXSW just a year earlier to great fanfare. However, Airbnb's launch at SXSW flopped. The conference organizers
had exclusive contracts with local hotels, which the Airbnb founders did not know. As a result, the conference
organizers didn't drive any traffic to Airbnb's site.
Undiscouraged, Airbnb decided to take advantage of the anticipated shortage of hotel rooms in Denver,
Colorado, at the Democratic National Convention (DNC) in 2008. After all local hotels were booked, the founders
prepared media releases with pithy titles such as "Grassroots Housing for Grassroots Campaign." This messaging
resonated with Obama supporters. As a result of their shrewd guerrilla marketing, both The New York Times and
The Wall Street Journal wrote effusively about Airbnb. The newly designed Airbnb website facilitated about 100
rentals during the DNC. Soon after the event, however, website traffic to Airbnb's site fell back to zero. To generate
some cash to continue their venture, Chesky and Gebbia decided to become cereal entrepreneurs, creating "Obama-
O's: The breakfast of change" and "Cap'n McCains: A maverick in every bite," featuring illustrated images of the
2008 presidential candidates on 1,000 cereal boxes. After sending samples to their press contacts and the
subsequent media coverage, the limited-edition cereal sold out quickly, providing Chesky and Gebbia with
additional revenue to continue marketing Airbnb.
The fledgling venture's big break came in 2009. Y Combinator, a startup accelerator that has spawned famous
tech companies such as Dropbox, Stripe, and Twitch.tv, offered Airbnb one of the few coveted spots in its program.
In exchange for equity in the new venture, startup accelerators provide office space, mentoring, and networking
opportunities with venture capitalists looking to fund the next "big thing." A year later, Airbnb received funding
from Sequoia Capital, one of the most prestigious venture capital (VC) firms in Silicon Valley. The VC firm had
already provided early-stage funding to then startups Apple, Google, Oracle, PayPal, YouTube, and WhatsApp.
Although it was not a first mover in the peer-to-peer rental space, Airbnb, with Y Combinator's support, was the
first to figure out that a sleek website design composed of professional photos of available rentals makes a huge
difference. In addition, Airbnb developed a seamless transaction experience between hosts and guests and was
able to earn a little over 10% on each transaction conducted on its site. The timing of these wins was fortuitous.

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The 2008-10 global financial crisis was in full swing, and people were looking for low-cost accommodations while
hosts were trying to pay rent or mortgages to keep their homes.
Resilience and agility have been a part of Airbnb's DNA since its initial startup during the challenging external
environment of a global financial crisis. These capabilities served them well as they pivoted in response to the
Covid-19 pandemic. A vast stream of user data from its site allowed CEO Chesky to quickly notice emerging
travel trends, such as local travel and remote working. He also noted that guests booked trips closer to home (but
not in metropolitan areas such as big cities) and with longer durations. Airbnb closely studied how consumer
behaviors were evolving and became convinced that the lines between travel, leisure, and living were blurring.
Applying artificial intelligence to the vast amounts of data generated on its website allowed Airbnb to pivot during
the pandemic. Meanwhile, many traditional hotels were closed or operated at much lower capacity because of
pandemic restrictions.
As the pandemic spread, Airbnb quickly realized that guests were willing to pay a premium for long-term rentals
with fast internet connections in desirable suburbs, rural areas, and vacation locales such as Boise (Idaho), Lake
Tahoe (California), Martha's Vineyard (Massachusetts), Maui (Hawaii), Palm Beach (Florida), and San Antonio
(Texas). Airbnb's superfast pivot in response to the pandemic was possible only because it uses an asset-light
approach. Airbnb can match changing guest preferences (demand) with hosts (supply) on its two-sided platform
in real time. In addition, given the dynamic nature of its algorithm, Airbnb can feature hosts on its site that can
best address current booking needs.
Airbnb was valued at a whopping $114 billion in early 2022, making it one of the world's most valuable startups.
Even more stunning, Airbnb's valuation is almost double that of long-time market leader Marriott, which stood at
$59 billion.
Even though Airbnb is one of the most valuable startups globally and offers more accommodations than the three
largest hotel chains (Marriott, Hilton, and Intercontinental) combined, not all has been smooth sailing. External
environmental factors discussed in this chapter present significant challenges for Airbnb. Economic, political, and
legal factors required tremendous agility from the company as it went public during a global pandemic.
Although early recognition of changing travel trends helped Airbnb prevent disaster during widespread pandemic
lockdowns, the pandemic's impact was non-trivial. As part of its Covid-19 pivot, Airbnb laid off a quarter of its
workforce in its first round of layoffs ever. In addition, CEO Chesky cut all noncore expenditures (such as generous
employee perks) and investments in future growth areas such as Airbnb Experiences, which provide a more in-
depth and personalized adventure by fully immersing guests in the host's unique world and expertise. These
experiences include making sushi with a famous chef, creating graffiti art, and participating in an exploratory tour
of an exciting destination. Airbnb Experiences are an essential part of Chesky's stated ambition to transform Airbnb
into a fully vertically integrated travel company. Experiences help to vertically integrate the company by providing
tourist offerings as part of the travel destination purchase options, ensuring that money spent at the destination
remains with Airbnb and hosts. More guests leave a five-star review after a stay if they have participated in an
experience. Despite the lower investment in Experiences during the pandemic, Airbnb remains optimistic that
Experiences will be an area of growth over the next five years.
As part of the pandemic pivot, CEO Chesky also needed to delay the long-anticipated initial public offering
(IPO). In December 2020, with the Nasdaq Composite51 up almost 60% from the pandemic low in March that
year, he finally took the company public. At the IPO, Airbnb's valuation was $47 billion. By early 2022, Airbnb's
market cap stood at $114 billion, an appreciation of almost 60%. Yet, in the same month that Airbnb went public,
it reported a record loss of $4 billion, making its total loss in 2020 higher than its losses in the previous four years
combined.
Since Airbnb began operations, it has faced evolving regulatory issues that affect the short-term rental and home-
sharing business. City councils, homeowners, and homeowners' associations have proposed or enacted regulations
to hamstring Airbnb. Such rules find their manifestations in local ordinances, lease agreements, insurance policies,
and/or mortgage agreements to limit hosts' ability to share their spaces using Airbnb and other short-term rental
platforms. For example, some condo homeowner associations in popular U.S. cities limit how many units can be
used for short-term rentals, if any. In Europe, a group of mayors representing 22 cities (including Amsterdam,
Barcelona, and London) has met with the European Commission (the executive branch of the European Union) to
seek increased regulatory control over short-term rental platforms. As a result of these moves, Airbnb and its hosts
are at risk of incurring significant penalties.
In addition, established companies with superior brand recognition launched retaliatory competitive moves in
response to Airbnb's disruption of the industry. Competitors are beginning to adopt elements of Airbnb's business
model. Numerous competing companies now offer homes for booking online, and Airbnb hosts frequently offer
their properties on multiple platforms. Moreover, Google's ability to promote its travel and vacation rental ads
more prominently in search results negatively affects Airbnb's traffic. Success breeds imitation: Airbnb's list of
competitors is growing to include online travel agencies, search engines such as Google, category-focused
metasearch sites (such as Kayak, Tripadvisor, and Trivago), hotel chains, and Chinese short-term rental companies
(such as Tujia).

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Yet despite all these challenges, Airbnb's pandemic pivot paid off. In 2021, the company reported record
revenues. Growth in bookings was strongest for overnight stays in non-urban areas. And, as work from home
becomes the new normal for many, Airbnb's guests are staying longer. Indeed, long-term stays of 28 nights or
more are its fastest-growing segment, already accounting for 20% of all nights booked.

3. QUESTIONS

Part 1 – Multiple-choice questions

For each question, select one among the possible choices (1 point each - 5 points in total: 1 point for a correct
answer; 0 points for either wrong or no answer).

1. Airbnb's vertical integration through the introduction of 'Experiences' allows guests to book activities
directly through the platform, rather than seeking external providers. This strategic move can reshape the
balance of power in the industry. How does this integration specifically impact the bargaining power of
suppliers according to Porter's Five Forces?
a) It increases supplier power by opening new revenue channels for local service providers.
b) It decreases supplier power by reducing Airbnb's reliance on external experiences and services.
c) It has no significant impact on supplier power as Airbnb's core business remains accommodation.
d) It diversifies supplier power by creating a wider array of services that Airbnb can leverage.
e) It consolidates supplier power by streamlining the range of experiences available to guests.

2. Airbnb's competitive advantage mostly derives from:

a) Low operational costs associated with property management.
b) The inimitability and variety of guest experiences offered.
c) Aggressive pricing strategies.
d) High asset turnover rates.
e) Strong brand partnerships in the luxury segment.

3. Given the 2021 data showing the global hotel industry's valuation at $550 billion and the peer-to-peer
accommodation sector, including platforms like Airbnb, at $85 billion, along with the faster growth rate in
the peer-to-peer sector, which of Porter's Five Forces could be most critically impacted for Airbnb's strategic
considerations?
a) Threat of new entrants, as the market growth could attract new digital platform entrants.
b) Bargaining power of suppliers, with the shifting landscape between different accommodation providers.
c) Bargaining power of customers, influenced by the increasing options in the accommodation market.
d) Threat of substitute products, considering the relative market sizes and growth trajectories.
e) Rivalry among existing competitors, given the competitive pressures within the fast-growing sector.

4. Airbnb recently acquired GamePlanner.AI, a technology firm specializing in artificial intelligence. In the
context of this acquisition and considering Airbnb's strategy around technology and intellectual property,
which of the following statements is true?
a) Patents are non-essential in the travel and accommodation industry since rapid innovation and market
execution speed are more critical for competitive advantage.
b) Patents in the travel and accommodation industry serve largely as marketing tools and do not offer
substantial legal protection due to the ease of replicating AI algorithms.
c) Acquiring patented AI technology can serve as a preemption strategy for Airbnb, protecting its
competitive advantage by limiting competitors' access to similar advancements.
d) Heavy reliance on patents by firms in the tech-driven accommodation sector suggests that the industry
has low entry barriers.
e) Patents are ineffective as a basis for differentiation in the accommodation industry because AI-driven
customer preference algorithms are widespread and easily duplicated.

5. Airbnb and Booking.com are both leading players in the online travel and accommodation industry. Airbnb
has a strong brand reputation for offering personalized and local experiences through a community-centric
approach. Booking.com is known for its extensive range of accommodation options. It has a powerful search
engine, a high volume of user reviews, and a strong brand presence in various markets. How do Airbnb and
Booking.com compare in terms of sustaining competitive advantage?

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a) Airbnb's unique listings and community-centric approach are valuable and rare, providing a sustained
competitive advantage; Booking.com's extensive range and powerful search engine, while valuable, are
increasingly imitable.
b) Airbnb's advanced technology and user-friendly booking experience are valuable but not unique, facing
competition from Booking.com's similar capabilities; Booking.com's marketing and customer
acquisition strategies are valuable and organized, offering a sustained competitive advantage.
c) Airbnb's global network of hosts and personalized experience offerings are easily replicated by
Booking.com, offering no distinct competitive advantage; Booking.com's established brand and
customer loyalty are unique assets that are difficult for Airbnb to imitate.
d) Airbnb's brand reputation and diverse listings offer a temporary competitive advantage as they are
valuable but increasingly imitable; Booking.com's user reviews and market presence, while valuable,
lack rarity in the online travel market.
e) Airbnb's reliance on individual property listings is a common and easily imitable model, offering no
competitive advantage; Booking.com's focus on traditional hotel accommodations is a unique approach
that provides a sustained competitive advantage in the online travel market.

Part II: Open-ended questions

For the following question, articulate your answer in the limit of 500 words (5 points).

Hint: The open-ended question below is meant to assess your analytical and critical understanding of strategy
topics and issues. There is a limit of 500 words for this answer. Do not just repeat or rephrase what you can read
in the mini case study, as this will not help you gain points with your answer. Instead, you should discuss and
elaborate your answers based of your knowledge of the topic and critical reasoning.

Question. Airbnb has been a disruptive force in the hospitality industry. With an analysis of the industry
using Porter’s Five Forces model, discuss how Airbnb’s strategy fits within this structure and identify
which force Airbnb’s strategy has most impacted and how. Thus, discuss how the industry structure might
evolve over the next five years, considering the strategic management concepts discussed in our course. (10
points; word limit: 500)

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4. SOLUTIONS
Part I: Multiple-choice questions
The correct answers for each question are (question-answer): 1-b; 2-b; 3-d; 4-c; 5-a.

Part II: Open-ended questions

The following outlines a list of feasible arguments to craft a well-articulated answer, providing a thorough
response to the open-ended question.

Argument A1. Analysis of the hospitality industry using Porter’s Five Forces model and how Airbnb’s
strategy fits within this structure.

• Rivalry among existing competitors in the hospitality industry

o Analysis. The hospitality industry experiences intense rivalry, with hotels, vacation rental companies, and
online travel agencies competing for market share. The rise of peer-to-peer platforms like Airbnb has
further heightened competition, forcing traditional players to innovate.
o Airbnb’s strategy fit. Airbnb has amplified industry rivalry by introducing an asset-light, disruptive
model, competing effectively with both hotels and digital platforms. Its rapid scalability and diverse
listings have intensified competition, pushing hotels to adopt similar approaches. As rivalry continues to
grow, Airbnb's technological edge and global reach provide a strong competitive advantage.

• Threat of new entrants in the hospitality industry.

o Analysis. The hospitality industry traditionally required significant capital investments, particularly in
hotels, creating high barriers to entry. With platform-based models, these barriers have decreased,
allowing digital platforms to enter without owning properties.
o Airbnb’s strategy fit. Airbnb disrupted the industry with its asset-light, peer-to-peer platform. While this
lowers entry barriers for new competitors, Airbnb's first-mover advantage, brand recognition, and
network effects provide protection from immediate threats.

• Bargaining power of suppliers in the hospitality industry

o Analysis. Suppliers in the hospitality industry, such as property owners and service providers, hold
significant power, especially in areas with limited accommodation. Traditional hotels rely on these
suppliers, which can influence costs and services.
o Airbnb’s strategy fit. Airbnb reduces supplier power by aggregating a large pool of hosts, limiting
individual influence. While hosts depend on Airbnb for visibility, they have little control over platform
policies. However, increased regulation on short-term rentals could shift more power to hosts as options
decrease.

• Bargaining power of buyers in the hospitality industry

o Analysis. Guests hold substantial bargaining power in the hospitality industry due to the wide variety of
options, from traditional hotels to vacation rentals. Price comparison tools and online booking systems
make it easier for customers to find the best deals.
o Airbnb’s strategy fit. Airbnb strengthens buyer power by offering a wide range of accommodation options
at competitive prices. Its review and rating systems help customers make informed choices, while
personalized experiences differentiate its offerings, mitigating the impact of high buyer power.

• Threat of substitutes in the hospitality industry

o Analysis. Traditional hotels and platforms like Airbnb face many substitutes, such as vacation rentals,
boutique hotels, and shared living spaces. The wide variety of options allows customers to easily switch,
increasing the threat of substitutes.
o Airbnb’s strategy fit. Airbnb mitigates this threat by offering a broad range of unique and personalized
accommodations, often in locations where hotels aren't available. Its flexibility and the addition of
“Experiences” further differentiate it from traditional alternatives, reducing the appeal of substitutes.

Argument A2. Identification of the force most impacted by Airbnb’s strategy.

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• Force most impacted. Rivalry among existing competitors. Airbnb’s disruptive platform model has greatly
intensified competition in the hospitality industry, forcing traditional hotels to innovate and adopt new
strategies to remain competitive. The introduction of a two-sided marketplace that offers a broader range of
accommodations has reshaped the competitive dynamics and increased rivalry across the industry.

Argument A3. Evolution of the hospitality industry structure and its impact on the Five Forces.

• Technological advancements.
o Force impacted: Rivalry among existing competitors. As digital platforms, data analytics, and artificial
intelligence become more embedded in the hospitality industry, competition will intensify. Companies
will increasingly use these technologies to optimize pricing, personalize customer experiences, and
streamline operations, as Airbnb does. This will lower costs and make it easier for both traditional hotels
and new entrants to compete. In the next five years, these advancements will drive increased
competitiveness, pushing rivalry to even higher levels.

• Regulatory pressures.
o Forces impacted: Bargaining power of suppliers and threat of new entrants. Stricter regulations on short-
term rentals may reduce available listings, increasing the bargaining power of hosts who can still legally
operate. Regulatory hurdles will also raise entry barriers, as compliance costs could deter smaller
competitors from entering the market. This will moderate the threat of new entrants in some regions,
while hosts may gain more control and leverage against platforms like Airbnb.

• Consolidation of platforms and hotels.

o Force impacted: Rivalry among existing competitors. Industry consolidation, through mergers between
platforms like Airbnb and smaller competitors or acquisitions by traditional hotel chains, will result in
fewer but larger players. This will intensify rivalry as consolidated companies gain more resources,
allowing them to compete more effectively in pricing, scale, and innovation. Over time, competition
among the remaining players will increase, even if the overall number of competitors decreases.

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