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PM Perspectives

December 2010
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Volsky's View: All About Me!

Posted by gvolsky Dec 7, 2010

Hi!  I’m George Volsky – the person responsible for posting blogs on the Community about vacation rentals in relation to property managers. This first blog is devoted to ME--who I am, what I’ve done, what I’m good at, and what I plan to do with this blog.

 

To start with, I’m a bit dysfunctional and really bad with names, but on the upside, I’m good with concepts and systems and I’ll remember your business issues even when I can’t remember your name.  I can say (modestly) that I have as comprehensive an understanding of this industry as anyone, because of the time spent talking to rental managers about the business.

 

I pour over industry statistics.   I’ve written white papers and delivered hundreds of educational seminars over the years on virtually all industry topics.  I love this industry.

 

What I enjoy most is figuring out how everything about this industry interacts with everything else. I like questions like:

 

  • “What is more important to rental managers--inventory or renters?” 
  • “How can you change your fee structures to insulate you from discounting?”
  • “When is it better to omit add-on fees from your advertised price?”
  • “Which markets are best and worst to compete in?”
  • “How should you compete with hotels and cruise lines?”
  • “How do you deal with competitors who cut commissions and rents?”
  • “How fast can a rental manager grow?”
  • “How do you compete with a competitor that has more money, homes, etc.?”
  • “What does the growth of rent-by--owner mean for the future of rental managers?

 

In my blog, I’ll be talking about issues like these--as well as about issues you raise in the forums.

 

Many vacation rental managers have already attended my seminars at national or state association meetings, software user conferences, regional seminars hosted by vendors and webinars.  For you, I hope to continue sharing my perspectives about our changing industry and your options for adapting.

 

But there are literally thousands of rental managers who are not active in industry events.  For you, I hope to share insights that have evolved from the collective wisdom of your colleagues.  It is my hope that these insights will help you grow, increase your revenue, and navigate the Internet and competitive challenges that are shaking up the vacation rental industry.

 

Anyway, back to the main topic for this blog--ME.

 

My first job out of college was as a transportation industry analyst, where I worked with government analysts and economists, learning about travel economics, and this led to too many years as an attorney, setting up and working with airlines (I still apologize for those years and am grateful that bankers have taken up their share of the burden as public targets). 

 

My first job after leaving the law was as a vacation rental manager on the Outer Banks, where I dove into the company’s reservation data in an effort to learn in a few years what took eight years for vacation rental managers.  Anyway, I started talking about my discoveries, and this led to a 12-year term as a consultant.  I have worked closely with many of the nation’s leading vacation rental companies, large and small, in all areas of the country.

 

I’ve studied the competitive and pricing strategies of competitors in entire markets, valued companies for purchase or sale, designed decision support software, projected the economic impact of vacation rentals on state and local economies, and served as industry consultant for the 2008 PhoCusWright study that sized and valued the vacation rental industry. 

 

I currently monitor industry statistics and do monthly trend reports.  I have served as Director of Research for the nation’s leading reservation software companies, Instant Software and Escapia, which, as of October 2010 were acquired by HomeAway.

 

I’ve now said “I” enough times that I can only bear to say it thrice more in this blog:

 

  • I’m looking forward to sharing my views and
  • I hope, over time, to get the benefit of yours;
  • I’ll share my next blog in time to wish you a happy holiday.

 

Geo

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As 2009 came to a close, the lead story in Wall Street Journal’s November 16 Money & Investing section was captioned “Earnings are Strong, Sales are Another Story.”  Eighty percent of companies in the Standard & Poor’s 500 stock index beat analysts’ expectations during a period when revenue was on pace to fall 10 percent.

 

 

“Cost-cutting” drove profits for these major companies.  Cost cutting is similarly a priority for many vacation rental managers, which leads to the point of this blog:


 

The most direct paths to cost-cutting in vacation rentals can lead to a reduction in a company’s long-term profits and competitive stature.  The paths that best protect profits are often counter-intuitive.  So pick your path cautiously.

 

 

  • “Knee-****” cost cutting often jeopardizes future profit and growth;
  • It generally costs money to properly find and implement cost cuts;
  • The best cost-cutting opportunities arise from industry changes.

 

 

What to Expect from Cost-Cutting.

 

 

  • As noted in the Wall Street Journal article, cost cutting can only boost profits so long, but companies that learn to run lean in bad times can expect to see profits surge when sales improve.
  • In my view, cost-cutting is “reckless” when it is the goal; it is “safe” when it is the byproduct (intended) of a goal to make your company more efficient.
  • Your goal should be to become more efficient pursuant to a plan all players understand and buy into.

 

 

When Does It Cost Money to Cut Costs Properly? 

 

 

  • Time.  Generating plans and buy-in is expensive because staff must stop doing something they may not want to stop doing--making their jobs harder--and devote time, money and energy to developing a new plan, acquiring any required resources, testing the plan, and implementing it.
    E.g., the woodsman who responds to the well-meaning passerby’s suggestion that he might cut a lot more wood if he sharpened his ax:  “I can’t—I’m too busy.”
  • Systems Development.  Often, the best efficiencies require your company to change the way it does business, requiring an investment in new systems design, technology, training, promotion and customer hand-holding.

 

 

Why Do You Need Staff “Buy-In?”  

 

 

  • If a player doesn’t understand how your plan will work, he can’t execute well. 
  • If he doesn’t buy in, he won’t execute well.  He’ll be happy to let your plan fail so he can return to the system he is used to. 

 

 

Trimming Fat.  Successful companies can get “fat” during good years because they can afford to hire people and buy services.  I know a company that trimmed several top managers without losing a beat.  But the common pitfalls arise when you ask people to do more with less, without a plan they buy into. 

 

 

  • This causes tension among employees, increases turnover (reducing your staff’s skills), reduces service quality, saps energy required to get new customers, and—ultimately—makes it difficult to keep and attract homeowners and renters. 

 

 

Look at Competitors Before Identifying Cost Cuts.   Difficult times pose problems for some but create opportunities for others who find ways to use them to leapfrog ahead of their nearest competitors.  You can’t decide which expenses to cut without knowing whether your competitors are redistributing their resources.  Are they:

 

 

  • Going hard after your homeowners?
  • Soliciting your renters?
  • Trying to get extra bookings from their existing renters?
  • Offering new services to existing renters and homeowners?
  • Replacing expensive staff services with computer services?

 

 

Categories of Promising Cost Cuts. Look carefully at the following: 

 

 

  1. Changing your business model.
  2. Use of technology to free staff for other jobs;
  3. Elimination of services to renters or homeowners  who don’t need them;
  4. Downsizing of promotional activities that may no longer be cost effective;
  5. Trimming of fat to become more lean and fit.



 

 

 


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In a recent blog, I suggested that you look for ways to become more efficient in five categories. In this blog, I include my thoughts on“Changing your business model.”

 

For years, I’ve joined the rest of you in following the role of rent-by-owner. RBOs are simply one facet of changes arising from the Internet that are responsible for many new expense categories and more pervasive discounting.  Among my conclusions is this:

 

The legacy of the Internet (and Rent-By-Owner) evolution will not cause the eradication of mainstream rental managers but will result in the fundamental changes in what managers do and how they do it.

 

Taking a Lesson from the Real Estate Industry

We have seen a trend similar to rent-by-owner in real estate sales, when FSBO’s (“For Sale By Owner”) came into prominence on the back of new consumer-friendly Internet technology.

 

In the early years, real estate agents worried that FSBO would put them out of business.  They saw FSBO as the enemy, and worked actively to oppose it.  In extreme examples, the government took action to prevent the industry from relegating FSBOs in the context of multiple listing services. 

 

Before long, the National Association of Realtors was advising sales agents to find ways to work with FSBOs.  Their polls concluded that the vast majority of homeowners were reluctant to price their home on their own, market it properly, and do the related paperwork.  The FSBO trend peaked, and trailed off to occupy a fraction of the industry’s annual sales.

 

The FSBO trend changed the industry.  Many real estate agents began to offer services a la carte. They let FSBOs pay them to do almost any aspect of the sale:  provision of signs, marketing, MLS listings, and the like.  The industry also departed from its commission structures to become much more competitive.

 

Changes in Our Industry

 

Today, there are many new rental managers who began by renting their own homes.  They started out as rent-by-owners and evolved into a new breed of rental managers.  Such companies have leveraged the Internet to redefine the way they do business.  Many do not have central offices and don’t require renters to check in and check out.  Many are able to service far larger geographical areas.  Some rely primarily on the Internet for bookings and/or allow their reservations staff to work from home.

 

The net effect is a category of vacation rental companies that have lower costs than mainstream competitors (and provide less service).  They are able to charge lower commissions, or spend more money on Internet marketing.  This new breed is growing, proving that mainstream rental managers have many homeowners and renters who would accept less service in order to get lower prices.  This new breed is steadily stealing inventory and market share from mainstream managers.

 

There will be many markets in which there is no discernable change from the Internet.  But you cannot afford to take this for granted.  Change can occur if one of your mainstream competitors is sold to a new-breed rental manager. Rental managers must always have a contingency plan.

 

  1. Think about ways your company can profit by providing services to RBOs;
  2. While you are at it, consider services to vacation home owners who do not rent;

 

Also consider whether it can be in your company’s interest:

 

  • To specialize in a type of vacation rentals that is efficient (high-end luxury homes; or more basic “Motel-6” type properties, etc.);
  • If you are large and secure in your market, split your operations into two or more distinct businesses;
  • To offer a la carte services so the renter and homeowner need only pay for services they really want.

 

As farfetched as some of these ideas sound, we are seeing similar trends in industries where the business models were so perfected that such changes would have been considered unthinkable ten years ago.

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In a recent blog, I suggested ways to become more efficient in 5 categories.  In this blog, I include my thoughts about the second of these.

Using Technology to Free Staff and Reduce Expenses
Below, I list some ways technology is being used for these purposes. I discuss some of these in more detail.  Leave a comment if you want my thoughts on others.

 

Some of you may not use any of these. Others may have considered them all. Either way, use this checklist to ensure you have investigated each area’s potential savings.

 

  1. Downsizing or elimination of printed brochures;
  2. Use of Voice Over Internet Protocol (VOIP) to employ reservations staff who work part time from home (saving 11% or more in benefit costs);
  3. Electronic document signing;
  4. Keyless entry;
  5. Elimination of check-in offices;
  6. Automated travel insurance processing (via your reservation software);
  7. Web site sections that allow homeowners to get information and make bookings;
  8. Third-party booking agents;
  9. Call centers that answer phones after hours or when you are busy;
  10. Automated email blasts;
  11. Learn to use reports that free staff from doing manual calculations or lists;
  12. Housekeeping tracking systems;
  13. User-friendly web sites that automatically mirror changes in your reservation software and allow staff to modify content without paying third parties.

 

A few deserve further comment.

 

Downsizing or Elimination of Printed Brochures.  Web sites are not a complete substitute for paper brochures.  Some renters like to read in bed or just prefer paper; consumers often keep brochures so they can contact you, and many homeowners feel brochures are important.

 

The more important question is whether brochures remain cost effective.  I believe your profit and loss statement will improve if you print fewer copies, or replace them with mini-brochures, or eliminate them altogether, unless there are conditions unique to your market that prevent you from doing so.

 

We know brochures are not an essential ingredient to vacation home rentals, because there are many internet-based companies that have never used brochures and compete very well against traditional managers who use print media.  But many of your existing customers are used to brochures and need to be hand-held if you make a change.

 

Some key companies in competitive markets have eliminated brochures.  Most were anxious, but ended the year with no discernable loss of bookings or homeowners—just lower expenses.  Their competitors are starting to follow suit.  Brochures consume enormous chunks of staff time and money.

 

Some companies are easing into it by printing fewer copies and mailing brochures to fewer customers (but keeping brochures around for visitors).  Some now just mail out postcards or mini-brochures.  These do not include all homes in a rental program, but they try to:

 

  • Drive renters to the company’s websites;
  • Sell the area or vacation experience;
  • Promote the managers brand; and
  • Include pictures for each type of home or area.

 

Mini-brochures can have a “featured home” section for homeowners who feel that they can get more rentals by paying to be in the brochure.  But you’d have to make sure your best homes are shown even if the homeowner does not pay.  You’d also need to carefully present this change to homeowners:  “Renters rely primarily on the Internet to book homes, so our strategy is to use a mini-brochure to drive renters to our website—but if you feel strongly that your home might attract extra bookings by being featured in the brochure, we have a few slots that can be purchased for a fee on a first-come, first served basis.”

 

Electronic Document Signing.  I know innovative companies that say, “Hands-down, electronic documents allow reservations to be booked faster and eliminate tons of staff time and expense.”  If you are skeptical about doing away with paper copies or are worried about legalities, you are not alone.  But please don’t let those fears stop you from looking seriously at electronic document signing.  The vendors who offer them have addressed virtually all natural concerns.

 

Keyless Entry and/or Elimination of Offices.  I realize the development of strong client relationships can form during the check-in process.  But it is very expensive to touch every renter on check-in.  Unless you are small or base your brand on personal relationships, consider eliminating check-in offices, at least in new remote offices (use them as a test bed).  Renters like the idea of “express check-in.”  Use lock boxes or mail the keys (the maid can bring them back).  Worried about early arrivals?  One company got buy-in from housekeepers who realized they increased their tips when they introduced themselves to the guests.  Or use keyless entry to activate the locks at a specific time.

 

I will address the rest in my next blogs. Stay tuned!

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In a recent blog, I suggested that you look for ways to become more efficient in 5 categories. In this blog, I include my thoughts about the third of these.

 

Elimination of Unwanted Services. Would even one of your renters or homeowners volunteer to accept fewer services in return for a price discount? 

 

If so, you are “over-serving” that customer.

 

This generally happens when rental managers build up their services over the years to attract and keep their best (most profitable) customers. 

 

If you only serve luxury homes or economy homes, you may be okay. 

 

But we can take a lesson from hotel executives, who have learned that you can’t be all things to all people.  Hotels create multiple “brands” that allow customers to pay for the services and level of luxury they want.   If your competitive position is secure, consider splitting your program into two branded operations, one focusing on your high-end properties.  This will allow both groups to be more profitable.

 

Or we can take a lesson from the airlines, which are lowering the base price of air travel by asking customers to pay extra for each accommodation they want.  I’ll cover this in a future blog titled, “This is a Good Time to Take a New Approach to Add-On Fees in Vacation Rentals.”

If your rental program includes homes that run the full range of price and quality, you probably “over-serve” a good number of guests and homeowners who feel they are forced to pay for services they don’t need. 

 

Your risk is that over-served renters and homeowners will leave your program to try a competitor who offers lower prices for less service.  So your best chance of protecting your existing customer base is to look for ways to appease renters or homeowners who will take less service in return for lower prices. 

 

Don’t overlook opportunities just because they weren’t viable in the past.  For example, revisit questions like the following after doing some research on the Internet to see how new or innovative competitors are reshaping their business models.

 

  • Do you provide linens for all renters?  Or can they pay less money to rent a home that doesn’t have linens (or made beds)? 
  • What about designating homes that offer lower rents because they are “cleaned but not inspected” (“call for immediate response if you are dissatisfied”).  I know very good companies who have found ways to eliminate the cost of inspections.
  • Do you provide a welcome basket or special products (coffee, cookies, wine) to renters who might be willing to go without?
  • If you print a brochure, are all the homes paying their fair share of the costs?  What about revising your processes to include only those that do?
  • Do you require all guests to check in at your office?  “Express” check-in can free up staff time.

 

You get the idea.  During a time of change, you have to be flexible and innovative to protect your customer base.  Get the staff together and revisit old assumptions

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In a recent blog, I suggested that you look for ways to become more efficient in 5 categories.

 

In this blog, I include my thoughts about the fourth of these: revisiting each of your company’s major promotional expenses with a view to identifying/downsizing programs whose benefit can no longer be justified.

 

I recently accompanied a visiting rental manager who visited three of the four largest rental companies in a particular vacation destination.  The visits left me with questions of simple but stunning implications.

 

I’ll share my impressions and leave you with my questions.

 

Each of the three companies told the visitor they spend a lot of money on a specific program they knew none of their competitors had.  I won’t identify the programs, but each are designed and promoted to help managers generate more bookings. 

 

Each company told the visitor, in effect, “I guarantee you the cost is worth it.”   Each could produce at least one statistic to back up their guarantees.  I suppose each program could be worth the price. 

 

But here’s the rub:  over several years, none of the three has won significant new ground over the other two--and all three have lost market share to a fourth competitor that doesn’t use any of the programs. 

 

The fourth has won its newly gained market share by offering lower prices to generate more bookings.  It touted its superior bookings to successfully attract more high-end rental homes.  It’s showing no signs that its strategy is losing strength.

 

This has to make us ask, “What did each rental manager have in mind when they told the visitor their unique program was expensive but well worth it? “

 

If each lost market share to the fourth competitor and none increased their market share relative to each other, how could their expensive programs really generate any unique economic benefit?

 

  • Are all three paying a lot of money just to maintain parity among them while the fourth continues to steal their market share?
  • How much of their confidence is rooted in past benefits?
  • How much is rooted in the natural need to believe that a past decision to spend money was a good one?  Or in statistics that—examined closely by a business consultant--are cancelled by stats they didn’t think to measure?

 

 

I was drawn to these questions by my observation that the web site specials page and innovative Internet marketing are allowing both managers and rent-by-owners to steal bookings from conservative mainstream managers by merely lowering prices as needed.

 

I have seen too many examples to support the unfortunate conclusion that homeowners pay more attention to the number of bookings than to the net amount of their rental revenue. 

 

So we have to ask:

 

  • Has the Internet made pricing so important that it trumps almost every other activity in the mainstream manager’s promotional budget?
  • Are managers’ most expensive workhorse programs—and the assumptions underlying them—still viable in today’s Internet world?
  • Going back to the visitor, was his “take-away” that the benefit of each company’s expensive program was lost over time to a competitor who has lower costs (doesn’t pay for similar services?)  I can tell you that the visitor’s program generates more bookings through aggressive pricing, and he hasn’t changed his marketing since his visit.)

 

I have reluctantly come to believe the Internet has turned competition into a jungle where the overconfident, slow and meek fall prey to the quick, lean and mean.

 

The point:  re-examine each big-dollar program in your budget.  Play devil’s advocate and force yourself to re-prove each program is cost-justified today.

 

Don’t get side tracked just because:

 

  • Your percentage of on-line bookings may have increased;
  • Your revenue has increased; or
  • Your best renters and homeowners are happy.

 

The only important measure of your competitive health, beside your profit and loss statement, is whether your share of bookings and desirable rental homes is (a) increasing, (b) holding steady, or (c) decreasing and—whichever of these is true—whether any competitor is doing better!

 

If you are paying for expensive programs (as opposed to the homeowner paying), consider the fact that our industry’s most aggressive managers are passing the full cost of discounting on to homeowners and still managing to increase or maintain their inventory.

 

Force yourself to prove that your company’s most expensive programs are today increasing your “share” of renters and homeowners.  Consider whether that same money could be better spent (or given back to homeowners to help them tolerate the dynamic pricing that is often the most pivotal generator of more bookings).

 

The streets are getting mean!

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In my first blog, I suggested that you look for ways to become more efficient in five categories. Today’s blog expands on the last of these:  trimming fat to become more lean and fit.

 

During prosperity, companies, like people, tend to buy things they don’t absolutely need. 

 

Sometimes, the purchase looked like it could produce great benefits, and the buyer gave it a chance because he could afford to experiment.  Sometimes, the purchase generates tools the manager loves but fails--when the numbers are examined—to generate enough new bookings, homeowners or savings to justify the program’s cost.

 

When prosperity disappears, it can be difficult to re-evaluate the cost-effectiveness of expensive systems we formerly celebrated as a generator of competitive advantage.  All programs benefit someone, and any effort to eliminate them generates pushback, especially if they have been integrated into the company culture.

 

No one can help you find the fat.  But I can offer this encouragement to do so:

 

As much as you might hate to reduce services, amenities, or staff, you have a duty to your company’s employees, renters, and homeowners to generate enough profit during slow times to meet your company’s cash flow needs and pay for new initiatives that may be needed to retain and attract homeowners and renters.  By becoming lean, you free up money that can be redirected to buy more service than your competitors (allowing you to offer customers a better value).  Conversely, you will lose renters and homeowners if you allow a competitor to become leaner (more efficient) than you are.

 

Failure to trim fat jeopardizes the major stakeholders in your business, all of whom depend on you.

 

  • Unneeded “fat” translates to lower productivity for each dollar of expense;
  • When customers think they can get better value elsewhere and start to leave, others start thinking about doing so;
  • Once homeowners and renters feel that another company offers a better value, it takes years to turn that perception around.

 

Being a manager means making the hard decisions.  This is a time of change in our industry, which makes it the time to revisit all the assumptions behind major expenses.