I. INTRODUCTION
Founded in 2001, Exclusive Resorts created a totally new concept in high-end luxury travel segment. The following years were extremely successful and by 2004, the Denver based company, was considered the leader in the luxury residence club industry .However, over the years, competition in the industry increased and many established brands e.g. hotel sector, started to enter the market. Facing these changes and the customers’ demands for more exotic destinations abroad, resulted in the need to expand internationally. The case reflects the company’s recent development and discusses several options and strategic alternatives.
This paper will analyze Exclusive Resorts situation in terms of industry, environment, and as well as internal factors. We will present a number of possible strategic alternatives with its advantages and disadvantages. Finally we will conclude the analysis with our recommendations.
II. INDUSTRY AND ENVIRONMENT ANALYSIS
Over the last few decades the luxury vacation industry has been characterized by the increased demand for the perfect vacation and increases in income in top percentages of the American population. Around the time of the early 2000's only 3 to 5 million Americans could afford the type of membership fee required to join a business similar to Exclusive resorts. The residence club industry is high fragmented and made up of timeshares, private resident clubs, whole ownership second homes, luxury villa rental, branded private residence clubs and destination clubs. The only one of the above mentioned that competes directly with Exclusive Resorts are destination clubs. Exclusive Resorts follows a differentiation strategy distinguishing themselves from the others by product offerings, market presence and growth strategies.
As mentioned there are several key segments in the industry. Timeshares traditionally have had a negative connotation due to heavy focus on sales. They have also been seen as inflexible but have changed over time. In a timeshare time is purchased, about two weeks, where a customer has certain places they can stay in the United States and in some cases international locations. The buyers of timeshares are usually married, upper middle class homeowners. The growth rate of timeshares averaged 12% from 1990 t0 2003. It is important to note that the timeshare industry is doing very well. It has seen net sales grow to surpass the other competitors in the hospitality industry. While the concept of the timeshare is useful for those who take between 1 and 14 days of vacation per year, the hotels are usually not luxurious, and getting your location can be difficult as holidays and summers are peak times to travel. Also, since there is usually the use it or loose it mentality when it comes to a timeshare, the buyer feels forced to find someone to buy their unused time if they are not able to vacation that year.
Private residence clubs or PRC's, are usually purchased by people similar to those who purchase timeshares with the exception of income. PRC buyers tend to have higher incomes as upscale customers are targets and primary interest in a PRC is as a real estate investment. They are less of a hassle than timeshares because the buyers each have and equal amount of time during peak times and they own only as much time as they need for their vacation needs for the year. They do not need to worry about getting someone else to use unused time. PRC's are known for their top notch service, and provide luxury amenities in spacious 5 star hotels throughout the world. This lead to the 38% growth increase between 2002 and 2003 and PRC's are predicted to be the fastest growing real estate market in the hospitality industry in the next two decades. Branded PRC's are hotel chains who sell fractional ownership. Their locations are nationwide and include hotels such as The Ritz-Carlton and The Four Seasons. Both are 5 start hotels offering exceptional service, opulent rooms and amenities. 100 million dollars in residence club sales is typical for a high-end hotel in less than five locations.
Going forward, other forms of competition for Exclusive Resorts are owned second homes, or vacation homes, villa rentals, and finally the closest competitor for Exclusive Resorts, destination clubs. Second homes offer drawbacks and positives. However, their popularity and the reasons people buy then are often emulated the business models of PRC's. Vacation homes are private and usually spacious enough for entire family. Their best part about owning a vacation home is that it generally appreciated in value and is seen as an investment. Vacation homes also have kitchens, very useful for families. Unfortunately, homes require upkeep and maintenance and security is always a concern. Monthly mortgage payments with interest, taxes, insurance and other costs add up to be more than the cost of the yearly fee at a PRC. Typical buyers of second homes are usually over the age of 50 nearing or already in retirement. Second homes are not typically luxurious but their owners love the area they buy them in and look forward to being a part of the vacationing community.
The villa vacation is known for luxury, attractive locations and exclusivity. Unlike timeshares luxury villa rental is flexible and may offer some locations PRC's do not. The typical renter does not vacation much and the pay-as-you go financial outlay. Villas are very convenient because travelers do not have to worry about security, maintenance and upkeep. A drawback is that a renter may have limited choices if certain villas have already been rented.
As a direct competitor to Exclusive Resorts has a similar product offering and a similar tiered membership structure. A major competitor is Abercrombie & Kent. A & K has a branding relationship with Private Retreats further enabling them to provide travel and tour services. Distinctive Retreats is most similar because their properties are also in the $2 million price range. Also, similarly to Exclusive Resorts their target market is affluent middle aged to older people. Unlike Exclusive Resorts, A&K give their customers the option of using yachts.
Exclusive Resorts is able to differentiate themselves in the hospitality industry for several reasons. There is a one time membership fee and a yearly fee which costs less than maintaining second homes. Buyers can travel nationally or internationally on a flexible plan. Owners have greater accessibility than others in the market to more luxurious vacations spots because the properties are worth much more than timeshares or second homes and include hotels, villas, and estates. An advantage for Exclusive Resorts is the large budget which is enough requiring no outside financing and is therefore able to develop properties more quickly.
In general, competition is strong in this industry because several of the competitors target the same customer base. Differentiation is best seen in the quality of properties usually based on dollar value, and flexibility.
THE STRATEGIC GROUP MAP
As outlined by the map, companies in the hospitality industry are competing based on luxury and flexibility. Destination Clubs and Exclusive Resorts are in direct competition with each other because they belong to the same strategy group. Private Residence Clubs and Branded Residence Clubs are also in direct competition. There are empty space at middle to low flexibility and mid-range luxury.