vacation rental economics

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Vacation Rental Economics

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

November 2009

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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”

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Introduction

❖ $25+ billion market

❖ 8% of total travel market

❖ increasing demand from market of vacation rental consumers

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Motivation

❖ de-leveraging

❖ the new entrepreneurism

❖ pre-purchase of retirement home

❖ leveraging assets

❖ the power of OPM (other peoples money)

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Competitive Forces

Rivals

New Entrants

Substitutes

Renters Suppliers

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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

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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

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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

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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

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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

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Macro Forces

Political

Economic

Social

Technological

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Political

❖ federal and local tax policy

❖ travel industry political lobby

❖ state and local regulations

❖ condo/home owner associations

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Economic

❖ economic growth

❖ consumer de-leveraging

❖ interest rates

❖ inflation

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Social

❖ trend away from mainstream

❖ acceptance of long tail market model

❖ online social networking

❖ reliance on peer review

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Technological

❖ empowerment

❖ management

❖ marketing

❖ brand development

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Competitive Advantage

ResourcesCapabilities

Competencies

Strategic AdvantageCost or

Product Differentiation

Value Creation(Value Chain)

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The Rent by Owner Competitive Strategy

Cost Leadership Differentiation

FocusCost and Differentiation

Low Cost Uniqueness

Broad

Narrow

Strategic AdvantageM

arke

t Sco

pe

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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

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Value Chain

Marketing Sales OperationsCustomer

RelationshipManagement

Maintenance/Improvements

Financial

Legal

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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

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Sales

❖ converting referrals to customers

❖ developing trust

❖ setting expectations

❖ cross selling/value added selling

Where the Rubber Meets the road

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Operations

❖ collecting payments

❖ scheduling guests

❖ preparing for guest arrival

❖ access management

❖ guest complaint resolution

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Guest Relationship Management

❖ guest feedback/review

❖ email list management

❖ newsletter

❖ special offer solicitation

Repeat Customers/Regulars areKey to Successful Business

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Support Activities

❖ vacation rental upkeep, improvements and maintenance

❖ legal - liability protection

❖ financial management - tax payments and preparations