Thinking, Part 2
“The fatal tendency of mankind to leave off thinking
about a thing when it is no longer doubtful, is the cause of half their errors.”
- John
Stuart Mill -
I thought that the logical continuation of With regard
to Thinking was a look at what the thinking was about USA Timesharing. Who we are or
where we are coming from has a lot to do with our perception and those perceptions are what we think and they become
our reality. For purposes of this exercise, I will employ the more traditional form of analysis thinking
and focuses on separating or isolating the thinking about timesharing into stakeholder groups. Additionally, I
will assume that the term timesharing encompasses all the various forms of vacation ownership including club membership
that may hold out only right to select/use.
I have to start somewhere and I suppose that the list of stakeholders should start with
those who create the actual product and that would be the Developers. In future articles we can take a look at other stakeholder entities such as Financial
Institutions or Lenders,
Advisors, Exchange Firms, Lead Generation/ Marketing/Sales Firms, Owners
and Owner Associations, Management, Regulators, the Media, and finally the Consumers.
It would indeed be foolish for me to think that I could present in this article, the thinking
of an individual (other than myself). The best we can do is see if we can piece together the collective thinking
of the stakeholder group Developers. In reality Developers in our industry are extremely interdependent and it
may be an impossible task to separate them fully. For those out there that know me, they know that
I delight in attempting the impossible. That said; let’s see if we can do ……
The Developers.
Even though there are several kinds of developers, The Corporate developers such as Cendant (Fairfield - Trendwest) and Starwood
(Sheraton - Westin), Hospitality brands such as Hyatt,
Marriott, Disney and Hilton,
Timeshare Brands such as Shell Vacations, Grand Pacific Resorts, Sunterra, ILX, Westgate and Bluegreen, and Independents such
as Island One Resorts, the Welk Resort Group, the Berkley Group
and Orange Lake CC to name just a few, all of them
have similar thoughts about:
Profits, Return on Investments and/or Dividends. They
are thinking about how to increase these and they all think the same things: Increase Revenues through Growth,
Volume and Ancillary Services – Decrease Costs through selective Growth, higher VPG and Volume Purchasing.
They all understand that our industry (at best) has only penetrated the known consumer market by less than 10%
consequently; they think that the upside potential is almost unlimited. Most of them think that by increasing the
number of resorts they have under their blanket they will be able to grow their share of the 90%+ untapped market.
They think that increasing the number of resorts provides two primary benefits. The first
of those benefits is the number of intervals or interval equivalents they have to sell or assign and the second
is the number of internal program destinations they tout in their marketing efforts, during their sales presentations
and to their existing clients/members. Some of them (such as Orange Lake CC) achieve this growth by continuing
to build out their existing resorts and others (such as Disney) build new resorts within existing attractions.
Recently, Developers have expressed the thought that they must begin to develop new markets,
as many of the most popular ones are becoming overdeveloped or overcrowded. That list would include: Orlando/Kissimmee,
Branson, Greater Myrtle Beach, Sedona, Hilton Head, Gatlinburg/Pigeon Forge, Greater Daytona Beach, the South Florida
Beaches, Southern California including the I-5 corridor from San Diego through San Clemente and the I-10 corridor
from Indio through Palm Springs, Park City/Snowbird, Vail/Avon/Beaver Creek and Las Vegas. Overdeveloped because
locations are becoming scarce and development costs are soaring. Overcrowded because we may be crowding out some
of our traditional resort/hotel friends and that may bring our tax status with respect to TOT to the attention
of the regulators.
WorldMark/Trendwest has been the leader in introducing
well-known destinations such as Bison Ranch, Rancho Vistoso and
Pinetop (Arizona), Angles Camp, Marina Dunes and
Pismo Beach (California), Running Y and Gleneden Beach (Oregon), Wolf Creek and St.
George (Utah), Grand Lake (Oklahoma), McCall (Idaho) and Galena
(Illinois). Others are thinking about following the Trendwest example and are looking for niches. Sometimes those are to be found just across town. Everyone
knows about the small city just east of Phoenix (Scottsdale)
however, very few know about a similar city just northwest (Peoria) where Neil Cumsky and his Princeton Resort Group thought they would develop the newest Arizona product Cibola Vista Resort and spa.
They all think that growth in number of resorts is not the only answer and that their
volume could be increased at each of their individual resort sales centers (both on and off-site) and by growing
the number of off-site centers. Likewise, they all think that a higher VPG (volume per guest) can be achieved by
their in-house or contracted Marketing, Lead Generation and Sales entities. The Brand and Hospitality entities
think they can hedge their VPG by maximizing brand loyalty while other Developers are attempting to establish their
own identity. Howard Glassroth VP of Communications with ARDA recently expressed this thought: “because of the phenomenal satisfaction rate of timeshare owners
(85%+) almost 40% of current sales come from existing owners.” This makes one think that in addition to brand loyalty
we have some product (timeshare) loyalty.
Almost all Developers think that they can enhance their bottom lines by/through maintaining
ancillary services such as property management rather executing third party contracts. Most Hospitality entities
have always done so and many timeshare brands & independents such as Shell, Bluegreen, ILX and Island One have
their own in-house property management entities. The most recent copy of HSMAI
Marketing Review (Fall 2004) contained an article titled Hoteliers
Find it’s Prime Time For Timesharing by Beth Rodgers. In that article Bob Minnigan
Regional VP of RCI was quoted as follows: “Minnigan
admits that the major money is made in development and sales of timeshares. There is not as much money to be made
in managing them but management fees provide an ongoing, reliable income. Cendant’s timeshare brand, Fairfield,
actively solicits management contracts above and beyond what it develops and sells.” Those who have developed clubs
also manage those clubs for a fee. Golf and Spa operations have also proven to provide added profits and bottom
line enhancements.
Currently most Developers think similar thoughts about three additional concepts. The
first of those consistent concepts is that they (for the most part) think that it is to their advantage to market
their timeshare plans with an interest in real estate attached to a program that uses some kind of currency (or
points) owners must use to obtain the benefits of said ownership. Most of them think that the major sales thrust
should be that this kind of plan offers the maximum flexibility. Typically those benefits are accessible through
the entity's Club. Some Developers think that creating their own Club has some downsides and may look to such programs
as RCI Points or by becoming a franchisee of another
Club Developer such as Shell Vacations, LLC. The
second of those consistent concepts is that they (for the most part) think that this points/club concept relieves
the development entity of much of the responsibility of satisfying the customer. They feel that a great deal of
that satisfaction is now shared with the customers and depends on the amount of points they purchased. The consistent
thinking is that if their (the customers) budget in points does not match up with the published cost/value of the
destination, accomidations or dates they desire, it is not the Club or the Developers fault. The third consistent
concept is that they (for the most part) think that the secondary market will eventually go away if they persist
in pursuing the alternate currency (or points) theory and simply ignoring the resale issue. The thinking is that
recycled points show no wear or tear and no depreciation in value from previous use and have no seasonality.
FINAL THOUGHT
Up to this point I have attempted to provide my understanding of what the stakeholder group
we have identified as Developers are or may be thinking. My understanding comes from reading most every one of
our industry's trade journals, all the research studies pertaining to the industry, news releases that appear in
The Beat and other such sources and attending Regional, and National meetings, conferences and exhibitions put
on by ARDA, RCI, Interval International and others.
The most recent such outing was the ARDA Leadership
Meeting in D.C. just last week which featured a presentation titled State of the Industry with the speakers being;
John Burlingame Executive VP, Hyatt Vacation Ownership, Inc., George Donovan President
& CEO, Bluegreen Corporation, Jon Fredricks, President, the Welk Resort Group and
Rip Gellein, Chairman and CEO, Starwood Vacation Ownership, Inc.
I only mention these individuals to indicate that I do attempt to keep up with the pulse of our industry. If I
have quoted the specific thinking of any individual they have been so identified.
I believe that the industry and the great majority of its developers have been caught up
in an evolutionary cycle somewhat similar to a tornado. There are several factors to this cycle including but not
limited to the following:
• Independent
developers need to compete with the major brands and the hospitality entities: • Major corporations acquiring both RCI and Interval
International: • Lenders
favoring major brands and the hospitality entities and their vacation ownership concept: • Independent developers changing their
product to something similar to the vacation ownership: •
Going Public: •
Consolidation: •
Bankruptcies: •
The evolution of Clubs and Alternative Currency (points): • GPN then RCI Points: • State and Federal DNC legislation:
• The secondary
market (resales): • The
Internet: • Franchising:
• Exchange
firms changing their priority from serving their members to servicing the industry.
Because of these factors, the Development players in the industry are becoming more and
more alike, to the point that if you turned out the light you would not be able to identify one from the other.
This condition is becoming more and more complicated because each of them is going after the same consumers in
the same marketplaces with the exception of the very high-end Fractionals offerings. By and large these consumers
have attended upward to 6 different sales presentations where the story is the same except for the Brand differentiation.
In 1998 RCI released a Ragatz study "Timeshare Owners: Who They Are, Why They Buy."
In that study Dick Ragatz stated: “While society has changed over the past 20 years, the timeshare industry
has changed even more, our industry has left its humble beginnings as a way to dispose of excess condominium inventory
to become a mainstream consumer product.” And he went on to state: “With the entry of large, public companies into
the industry, timesharing has gained credibility. The product has improved, new concepts have been introduced,
and timesharing appeals to a more sophisticated consumer. We used to sell just bricks and mortar, now we're offering
a product with all the bells and whistles. Savvy consumers realize today's timeshare product offers great flexibility
and spacious units with all the amenities they could want.'' Ron Jackson, then the President and
COO-North America for Resort Condominiums International LLC stated: “Consumer acceptance of timesharing
has never been higher, timesharing offers consumers what they are looking for in their vacations today: flexibility,
convenience and value.'' Development entities have been telling that same story over and over again and 6 years
later it’s still the same story.
In With Regard to Self I indicated
that one of my favorite songs was Neil Diamond’s
I am. In that
song Neil used these poignant words: "Did you ever read about a frog who dreamed of being a King
and them became one? Except for the names and a few other things, you could be talking about me, my story is the
same one." A minor adjustment to these words may make my point. Did you ever go to a timeshare/vacation
ownership sales presentation? Except for the name and a few other things, you could be talking about any development
entity's product, because the story is the same one.
The Bandwagon Fallacy is committed whenever one argues for an idea based upon an irrelevant appeal to its popularity.
Other words for that fallacy are Appeal to Popularity, Argument by Consensus, Argumentum ad Populism and Authority
of the Many. The leading development entities and one of the exchange firms indicate that a specific timeshare/vacation
ownership plan/product is in high demand by consumers because of its flexibility and they point to the current
sales results to certify that claim. The fallacy of this claim is that the only thing those developers are selling
is that specific timeshare/vacation ownership plan/product. Many are buying that plan/product, so it must be popular
and a consensus must have been reached.
Make the assumption that Coke has gone out of business and the only cola on the market is Pepsi.
It could be said by the producers of Pepsi that it is the overwhelming choice of the people. If we ran out
ice to cool the Pepsi’s and we drank them hot the next thing would be that the choice of the people was
warm Pepsi. And so goes the Bandwagon Fallacy.
If over 40% of the current sales are being made to existing timeshare/vacation ownership owners how many times
to you think that the sales pitch was something like: ‘Your old deeded timeshare interest is out dated, all the
major developers have quit producing that type of plan and it has little value in today’s marketplace. With your
old plan you had to go back to the same resort at the same time every year and with this new plan you have maximum
flexibility.’ And so goes the timeshare/vacation ownership Fallacy.
Next week we will explore farther the bandwagon effect, why the bandwagon
fallacy is so successful and why it has come to dominate the timeshare industry.
JS 11/04
