vacation rental economics

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Vacation Rental Economics

How to Benefit From the Changing Trends in the Consumer Vacation Market

November 2009


Overview*

❖ introduction

❖ industry competitive structure

❖ macro industry analysis

❖ competitive advantage

❖ value chain analysis

*based on the work of Michael Porter, “Competitive Strategy: Techniques for Analyzing Industries and Competitors”


Introduction

❖ $25+ billion market

❖ 8% of total travel market

❖ increasing demand from market of vacation rental consumers


Motivation

❖ de-leveraging

❖ the new entrepreneurism

❖ pre-purchase of retirement home

❖ leveraging assets

❖ the power of OPM (other peoples money)


Competitive Forces

Rivals

New Entrants

Substitutes

Renters Suppliers


Industry Rivals❖ most vacation rentals operate independent of their

local substitutes or direct competitors

❖ highly fragmented market with no nationally recognized brand

❖ total number of vacation rentals is small compared to substitutes

❖ each vacation rental offers a singularly unique value proposition to a micro market of vacation rental consumers

The Power of Industry Rivals is Low


Power of Renters

❖ the renter market is highly fragmented with each renter looking for a unique value proposition

❖ demand from vacation rental consumers is increasing rapidly while the growth in the supply of vacation homes remains slow

The Power of Renters is Low


New Entrants

❖ purchasing a vacation home requires down payment, and additional capital to furnish

❖ adequate supply of vacation homes for purchase

❖ increase in home owner/condominium rules that prohibit renting

The Threat from New Entrants is Mixed


Industry Suppliers

❖ only commodity products and services required to run a vacation home

❖ many marketing channels available with the Internet the least expensive and the broadest reach

❖ many banks competing to offer financing at competitive rates

The Power of Industry Suppliers is Low


Other Alternatives

❖ many different lodging options for the vacation traveler

❖ chain and boutique hotels, resort destinations, bed & breakfast

❖ vacation rental homes offer significant value over alternatives

❖ vacation home pricing is usually not effected by local alternatives

The Threat from Alternatives is Low


Macro Forces

Political

Economic

Social

Technological


Political

❖ federal and local tax policy

❖ travel industry political lobby

❖ state and local regulations

❖ condo/home owner associations


Economic

❖ economic growth

❖ consumer de-leveraging

❖ interest rates

❖ inflation


Social

❖ trend away from mainstream

❖ acceptance of long tail market model

❖ online social networking

❖ reliance on peer review


Technological

❖ empowerment

❖ management

❖ marketing

❖ brand development


Competitive Advantage

ResourcesCapabilities

Competencies

Strategic AdvantageCost or

Product Differentiation

Value Creation(Value Chain)


The Rent by Owner Competitive Strategy

Cost Leadership Differentiation

FocusCost and Differentiation

Low Cost Uniqueness

Broad

Narrow

Strategic AdvantageM

arke

t Sco

pe


Focus Strategy

❖ concentrate on narrow market segment to achieve product differentiation

❖ tailored customer experience to a market that vacation home owners know very well

❖ achieve high customer loyalty

❖ reduce operating costs when managed by vacation home owner

Vacation Rentals Compete Strongly on Differentiation and cost


Value Chain

Marketing Sales OperationsCustomer

RelationshipManagement

Maintenance/Improvements

Financial

Legal


Internet Marketing❖ inbound activities - web presence/destination

❖ website

❖ listing sites

❖ social media; blogs, videos, social networks

❖ outbound activities - reaching out

❖ email marketing

❖ tweets

Getting Quality Referrals


Sales

❖ converting referrals to customers

❖ developing trust

❖ setting expectations

❖ cross selling/value added selling

Where the Rubber Meets the road


Operations

❖ collecting payments

❖ scheduling guests

❖ preparing for guest arrival

❖ access management

❖ guest complaint resolution


Guest Relationship Management

❖ guest feedback/review

❖ email list management

❖ newsletter

❖ special offer solicitation

Repeat Customers/Regulars areKey to Successful Business


Support Activities

❖ vacation rental upkeep, improvements and maintenance

❖ legal - liability protection

❖ financial management - tax payments and preparations