Vacation Rentals Challenge Lodging for the Leisure Traveler

Although vacation rentals and hotel rooms are not always in direct competition for leisure travelers, the hotel leisure guest certainly represents a potentially vast target market for the vacation rental industry, says PhoCusWright’s new study of the vacation rental marketplace. The study addresses the challenges that must be overcome if the vacation rental industry is going to compete for the leisure traveler, PhoCusWright says. The vacation rental marketplace equals approximately 22% of hotel room revenue.

“Several factors have long inhibited conventional lodging customers from considering vacation rentals. A lack of strong national brands and product consistency, rigid minimum-night stay and check-in/check-out policies, hefty upfront deposits, and the assumption that vacation rentals are only suited for long trips and large groups have only served to limit the potential target market of vacation rentals. Clearly, the greatest factor that has limited the vacation rental sector’s ability to compete with hotels is an overwhelming lack of category awareness—only ten percent of U.S. adults have booked a vacation rental in the past two years, PhoCusWright says.

PhoCusWright’s Vacation Rental Marketplace: Poised for Change unveils how the vacation rental industry is addressing these challenges and misconceptions. “Vacation rental management companies, for example, are easing minimum-night stay requirements, offering more hotel-like services (e.g. daily maid service, on-site food and beverage, etc.), and investing heavily in technology to engage more competitively in the online travel arena. Online rental-by-owner entities are introducing a bevy of features and services—from online availability calendars to rental guarantees—to enhance the online shopping process and give uncertain renters more confidence in renting directly from a homeowner.”

These new initiatives will better position vacation rentals for the broader leisure marketplace. “However, such change will not come easily. As PhoCusWright’s Vacation Rental Marketplace study makes clear, the obstacles are formidable and demand fundamental shifts in approach to technology, distribution, operations and marketing. Vacation rental providers are also faced with the challenge of competing in a hotel-centric distribution landscape, a landscape that covets commodity and comparability. Vacation rentals, on the other hand, are heterogeneous. Each unit can be unique, with different amenities, furnishings and, of course, owners. The challenge will be to find a way to compete in a commodity world without diluting their core values and message of uniqueness and differentiation.”

PhoCusWright says the challenges are daunting, but the potential return is significant. “Vacation rentals have an extremely high satisfaction and repeat rate, if they can entice the leisure traveler to try vacation rental they may find new life-long customers. The developments underway in the vacation rental industry leave the sector well positioned for growth. In fact, PhoCusWright’s Vacation Rental Marketplace study projects that the growth in the online vacation rental sales will accelerate through 2010, when the online vacation rental market in the U.S. will reach nearly $4.7 billion, up from $2.8 billion in 2007.”

As the vacation rental industry strives to reinvent itself, it is already making waves through the online travel market, waves that could send ripples through the broader lodging industry, PhoCusWright says. The study uncovers the challenges facing the vacation rental sector and details the growth and opportunities that stand in the balance.


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