An in depth look at vacation rental economics through the perspective of Porter's Competitive Strategy

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Vacation Rental
Economics
How to Benefit From the Changing Trends in
the Consumer Vacation Market
November 2009

2. Overview*
*based on the work of Michael Porter,
“Competitive Strategy: Techniques for Analyzing Industries and Competitors”
❖ introduction
❖ industry competitive structure
❖ macro industry analysis
❖ competitive advantage
❖ value chain analysis
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3. Introduction
❖ $25+ billion market
❖ 8% of total travel market
❖ increasing demand from market of
vacation rental consumers
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4. Motivation
❖ de-leveraging
❖ the new entrepreneurism
❖ pre-purchase of retirement home
❖ leveraging assets
❖ the power of OPM (other peoples money)
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5. Competitive Forces
Substitutes
Renters Rivals Suppliers
New
Entrants
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6. Industry Rivals
The Power of Industry Rivals is Low
❖ 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
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7. Power of Renters
The Power of Renters is Low
❖ 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
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8. New Entrants
The Threat from New Entrants is Mixed
❖ 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
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9. Industry Suppliers
The Power of Industry Suppliers is Low
❖ 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
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10. Other Alternatives
The Threat from Alternatives is Low
❖ 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
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11. Macro Forces
Political Social
Economic Technological
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12. Political
❖ federal and local tax policy
❖ travel industry political lobby
❖ state and local regulations
❖ condo/home owner associations
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13. Economic
❖ economic growth
❖ consumer de-leveraging
❖ interest rates
❖ inflation
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14. Social
❖ trend away from mainstream
❖ acceptance of long tail market model
❖ online social networking
❖ reliance on peer review
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15. Technological
❖ empowerment
❖ management
❖ marketing
❖ brand development
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16. Competitive Advantage
Resources Strategic Advantage
Value Creation
Capabilities Cost or
(Value Chain)
Competencies Product Differentiation
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17. The Rent by Owner
Competitive Strategy
Strategic Advantage
Low Cost Uniqueness
Market Scope
Broad Cost Leadership Differentiation
Focus
Narrow
Cost and Differentiation
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18. Focus Strategy
Vacation Rentals Compete Strongly on
Differentiation and cost
❖ 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
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19. Value Chain
Legal
Financial
Maintenance/Improvements
Customer
Marketing Sales Operations Relationship
Management
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20. Internet Marketing
Getting Quality Referrals
❖ inbound activities - web presence/destination
❖ website
❖ listing sites
❖ social media; blogs, videos, social networks
❖ outbound activities - reaching out
❖ email marketing
❖ tweets
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21. Sales
Where the Rubber Meets the road
❖ converting referrals to customers
❖ developing trust
❖ setting expectations
❖ cross selling/value added selling
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22. Operations
❖ collecting payments
❖ scheduling guests
❖ preparing for guest arrival
❖ access management
❖ guest complaint resolution
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23. Guest Relationship Management
Repeat Customers/Regulars are
Key to Successful Business
❖ guest feedback/review
❖ email list management
❖ newsletter
❖ special offer solicitation
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24. Support Activities
❖ vacation rental upkeep, improvements
and maintenance
❖ legal - liability protection
❖ financial management - tax payments
and preparations
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