An American online site, Skift published an interview with their journalist, Sean O’Neill and CEO of HGV, Sam Gurnik. HGV are rapidly becoming one of the largest players in the timeshare industry especially when taking into account their recent acquisition of Diamond Resorts. In many respects Sam Gurnik is just confirming the way the timeshare industry has been operating ever since the introduction of points based ownership, so nothing new there, however there are some interesting points that on the surface seem to make sense but when drilling deeper important facts have been missed.
Timeshare sales
We often point out that very few people actually have an intention to buy a timeshare; we would think that there are virtually no individuals have buying a timeshare on their bucket list, timeshare has to be sold. To boost the percentage of tour takers who become buyers, HGV has turned to data analysis. The company said it’s getting better at understanding who is a probable buyer and who has the wherewithal and interest to buy. It’s also improving at predicting what incentives will help close a sale, Gurnik said.
“We’ve done some really good things with modelling to target the right type of people, which improves our systemic efficiency,” Gurnik said. “What do we offer someone to come in and take a tour with us, and how might we potentially incentivise that person a little more than someone else?”
So from this it echo’s the fact that potential buyers have to be given some sort of freebie to sit through the high pressure presentation expected where any form of timeshare is involved.
Unfortunately in the world we live in a vast amount of personal data is in the public domain. The comment regards “data analysis” is now obviously being used to profile those most likely to buy. Companies such as Experian and Equifax hold vast information about how much money we borrow, be it for a car or a mortgage on our house, we then get credit profiled, a good profile means you can borrow more, a bad profile the reverse.
Realistically when entry level timeshare is costing around $20,000, most don’t have that amount of spare cash so loans are necessary. Data analysis is logical, why would you “incentivise” people who at the end of the day fail a credit check. With a pair of tickets to a theme park running at about $300, that’s a lot of money and time wasted to find the “prospect” fails a credit check and consequently fails to buy.
$20,000 forgotten
The interview makes comment that the cost of hotel rooms is rising to cover profits required, to a certain extent that’s true, but the statement falls short of pointing out that you don’t have to stump up a considerable initial sum to stay in a hotel. Stay one night or 14 nights, pay up and walk away, end of.
If you pay $20,000 or more to buy in, and take a 20 year view, straight away your holiday cost over the period extrapolates to $1,000 per annum, with inflation, naturally the real cost comes down over the 20 years but this is diminished by rising maintenance fees.
Maintenance fees
If TCA were to single out one prolific consumer complaint it would be that of rising maintenance fees. Many timeshare owners equate this with the payment of their holiday, this of course is technically wrong. Maintenance fees, are as it says on the tin, are there to pay for resort maintenance, however the owner logic of adding this to the holiday cost is perfectly understandable.
Financially you cannot argue, taking the above mentioned $1,000 and then add another $1,000 for maintenance, it could be sensibly argued that the cost of the holiday overall is $2,000.
“In our product, fees for maintaining a property really are set at the resort level by the resort homeowners association, and they’re just looking to cover their expenses. There is some inflation in that, for sure. But you don’t have the profit factor.” Sam Gurnik stated.
Maybe the comment relating to “some inflation” is understated, in letters TCA has seen relating to Diamond Resorts Europe; now part of HGV, rises this year are averaging 20% that is certainly more than “some inflation” in our opinion. We won’t bore you with anymore figures but it becomes increasingly hard to believe that the telephone numbers collected by the large developers all goes on resort maintenance. In our experience, it’s hard to get sight of a balance sheet confirming the resort maintenance figure collected against expenditure, these figures simply disappear into the main corporate accounts.
The price of points and the up sell
The interview makes reference to the fact that in the past year HGV hasn’t boosted the cost per point in its program, this in contrast with sharply rising hotel rates. This is of no surprise because the points value required to visit a resort can be adjusted meaning that the same resort next year may require a greater number of points for the same holiday, enter the up sell.
It’s a well known fact that the sellers of timeshares can make up net income over the long term by first boosting the percentage of customers who agree to buy after listening to sales pitches. Then the companies can cross-sell or up sell those owners over the years. This latter tactic boosts “volume per guest,” a key industry metric.
Timeshare owners in points based contracts will have already experienced the difficulty in booking their holidays. We mentioned earlier that maintenance fees were one of the largest complaints levelled by consumers, availability is also right up there on the list of complaints. Greater choice and theoretically greater booking power comes from buying more points.
A timeshare resort has two sales lines, one is called the cold line, the representatives selling on this line sell to completely new prospects so the sales process is more difficult. The other line is the “in house” line; here the reps are trying to up sell existing owners. Supposedly, the in house is where everyone wants to be working on the basis that existing owners are easier to sell to when compared with cold prospects.
From a developer point of view, one of the greatest ways to make additional money is to not increase the base cost of each point but to devalue their buying power. One year you got a holiday for let’s say 100 points, the next year the same holiday costs 110 points, the value of your points hasn’t changed but the buying power has. What do you do? Easy buy another 10 points.
Your current points will get you a holiday in Florida but not Hawaii, how do you get to Hawaii, easy buy more points. The up sell is alive, well and thriving.
Longevity
This is an area that‘s glossed over in the interview. In the USA it’s quite normal to sell timeshare with a perpetual contract, meaning a contract with no end. This type of contract is sold as a positive, because you pay once and the family can benefit forever. However the downside of the perpetual contract often outweighs the upside, we reported on this recently.
Much like other developers, HGV are sort of addressing this by the introduction of “packages” the interview states:
“In the package model, consumers can buy traditional vacation stays, such as three nights in a Malibu hotel, at deeply discounted prices. The stays can be at hotels, resorts, or cruise lines, not just condos. Consumers pay upfront for a chance to travel over a set time span, typically a year. Guests agree to listen to a timeshare sales pitch during their trip, and they typically earn a pile of loyalty reward points redeemable for travel at Hilton properties as part of the deal.”
This kind of pack has been around for some time. We used the phrase “sort of” above because these packages are not a charitable gift from the developer; they are just another tool to cajole the prospect to sign up for the big one, that long term high cost full blown timeshare, this may be evidenced by the catch in the package deal:
“Guests agree to listen to a timeshare sales pitch during their trip”
TCA comment
The mantra by the CEO of HGV is absolutely no different from what CEOs of all developers are spouting. The product is so flawed that there is no real way to fix it, so simply putting tape over the cracks won’t solve the problems. High cost of entry coupled with high and rising maintenance fees, availability problems, difficulty in exiting and loss of exclusivity won’t be fixed by digital profiling or not increasing points costs. All the tweaks covered in the interview are purely more tools added to the sales team inventory to naturally allow them to sell to more prospects.
Wouldn’t it have been nice if developers such as HGV actually worked on genuine improvements to the product? It needs to be emphasised that the resorts are not timeshare, they are merely accommodation. Timeshares are the rules, regulations and terms written into the sales contract, two entirely different things. The “holiday head” is all powerful, the resort is fantastic, the beach is great, the food and entertainment first class, but this isn’t timeshare, it’s just the resort, timeshare is the contract, the rules of which must be followed to the letter and woe betides you if you don’t.
The internet is crammed full of complaints about timeshare, a simple search using “timeshare developer complaints” reveals slightly over 1,000,000 pages. It’s fair to say that the total number will not be representative of the search wording, but an awful lot will.
In marketing, a well known fact is as follows:
“The first step to changing the public’s perception of your product is to acknowledge what the public’s perception of your product is.”
The current timeshare owners perception is increasingly moving to “not good” then understanding this and acting upon it would seem logical. Unfortunately, at the end of the day, this is unlikely to happen. Happy owners are good for marketing but unhappy owners are far more dangerous but if you can sell volumes to newbie’s, who cares about the rest. Developers obviously don’t.
For more information regarding this article or assistance in any other timeshare related issues please contact the TCA on 01908 881058 or email: info@TimeshareConsumerAssociation.org.uk