Travel

Hotel Industry vs. Vacation Rentals - Are They a Threat Yet

12/07/2016 03:10pm ET | Updated December 8, 2017

As the millennium was coming to a close, a new type of business was born - the vacation rental business. Most people who entered this business entered it by accident. They had a few homes in exotic locations which they could rent out. The vacation rental industry was at a very nascent stage and nobody knew that it would turn the hospitality industry upside down and if you were to bet that vacation rentals would give hotels a run for their money, then everyone would have mocked you. Fast forward to today and vacation rentals are a billion dollar industry and are indeed giving hotels a run for their money.

Hotels continue to be a threat to vacation rentals

Though the hotel industry is forced to acknowledge the fact that vacation rentals are here to stay, it is the vacation rental industry that still feels threatened by the hotel industry. This is due to the fact that the hotel industry is highly organized whereas the vacation rental industry is not as organized. Another factor is that the type of accommodation that a hotel offers and the type of accommodation that a vacation rental offers - which is basically a home - is totally different. Another reason is the huge amount of advertising that the hotel industry spends to get customers while compared to the tiny bit of advertising that the vacation industry does. Just to cite an example, more than a billion hotel room nights are booked in the United States alone every year, whereas the vacation rentals that are booked would be just a few million nights. So in comparison, the behemoth has a lot of funds to advertise and improve business when compared to the small player.

Some hotel chains have found that the vacation rentals are eating into their market share and hence they have started purchasing vacation rentals. By doing so they feel that they would be able to get back the lost market share. However, the hotel business is different from a vacation rental business; the hotel business lacks the personal touch that a vacation rental offers. The homely feel that a vacation rental provides is the main reason why families opt for a vacation rental. At hotels you are charged more for taxis, the food is not usually great unless you are at one of the places known for its food etc. Whereas at a vacation rental you can be like a local and cook meals with the family and enjoy quality family time.

The way forward for vacation rentals

The onslaught from the hotel industry has begun, and it is but natural for the vacation rental industry to look at their prospects and market them better. The way forward seems to be in creating and marketing specific niches and themes. For example, vacation rental businesses that specialize in luxury vacation rentals or vacation rentals that offer themes like deep sea diving or skiing etc. I spoke to one of the industry leaders, Andy of LuxVacation™ a booking company where you can book luxury vacation homes for your stay in Europe, North America and the Caribbean. I asked him, "What do you think about the present state of affairs in the vacation rental industry?

"The present state of affairs is not as bad as some make it out to be. The industry is still in its infancy and highly fragmented. What the industry needs is standardization and once the standardization is done the industry will be more closely knit and the customer satisfaction will also become higher. To bring about standardization, we have firstly simplified the process of booking and we have come up with a consistent pricing strategy. This in itself is a huge step which we feel that others will follow," said Andy.

I concurred that standardization was important along with the need for simplification. I then asked,"What do you think the future holds for vacation rentals?"

He went on to add, "The future is bright for the industry provided everyone understands that the need of the hour is to incorporate best practices. Every vacation rental owner needs to provide the personal touch. Customers love personalization and if we provide what the hotel business cannot then we are at an advantage. Also you need to be creative and offer themes like snow and ski themes, or provide extra services like hiring a baby sitter etc. You should also provide an experience to remember and this can be done by providing luxury comfort to your customers. Another advantage that the hotel industry has is booking. There are many booking websites when it comes to hotels and a person can book easily, whereas most people find booking a problem while they try to book a vacation rental. This obvious disadvantage can be converted to an advantage if industry standard software is created which makes booking easier and which all vacation rentals can use."

I asked a final question, "Do you think the vacation rental industry is ready for the assault from the hotel industry?"

He answered, "I think all vacation rentals are ready for the advertising assault from the hotel industry. The hotel industry is trying to buy many vacation rentals and consolidating themselves but there is a market for good quality vacation rentals and if you provide what the customer wants, then more people will discover what a vastly different thing it is to go with a vacation rental instead because the experience is so unique and personal."

To sum up, it seems that a meeting of minds is necessary to come up with some sort of standardization for the vacation rental industry to survive the onslaught that the hotel industry is already unleashing.

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