Mahindra Holidays & Resorts has cut out defaulters and dormant customers to streamline operations.
The Mahindra Group entered hospitality with Mahindra Holidays & Resorts and its flagship, Club Mahindra, a timeshare vacation club, in 1996. Everybody in the industry had chased numbers then, expecting the rest of the business, such as quality of service, to fall in place by itself. The pitfalls of random additions have caught up with the players. Mahindra Holidays & Resorts has thus launched an exercise to cut out defaulters added by overzealous salesmen to make way for leaner operations with serious customers only.
“We had spread our net wide, leading to indiscriminate additions. From April 2010 onwards, we have started rationalising our customer base,” says Mahindra Holidays & Resorts Managing Director Ramesh Ramanathan. His former employer, Sterling Resorts, the first mover in the business, had run into a barrage of legal hassles and financial loss in 1997 for not being able to service its customers. It had been adding up to 5,000 customers a month at that time. Since then it has done a course correction.
Ramanathan was not about to let Club Mahindra go down the same lane. He tackled defaulters and dormant customers first to streamline operations of Club Mahindra. Mahindra Holidays & Resorts had to write off thousands of defaulters from January to September 2010 and tighten the sales process. As a result, the rate of additions saw a 20 per cent dip quarter on quarter in September 2010. Earnings and profits in April-September 2010 too went down by 11 and 49 per cent, respectively, over the same period in 2009. “The setback is only for three quarters, ending in September 2010. It will pave the way for long-term benefits,” claims Ramanathan. Still, the company has grown from 73,533 members in 2008 to 117,993 in September 2010. It has a total of 33 resorts with 1,489 apartments (one-bedroom and two-bedroom flats and studios) across two timeshare products — Club Mahindra and Zest.
The company reduced the maximum number of monthly installments Club Mahindra members were allowed to pay from 60 to 48. This increased the monthly payments, putting a greater onus on the consumer willing to continue with the membership. The down-payment at the start of membership has been increased from 10 per cent of the total cost to 15 per cent. “This will ensure we get committed customers who want to enjoy the product rather than those who drop off the radar after a token payment,” says Ramanathan.
Set it straight
Mahindra Holidays & Resorts suffered when its salesmen signed on customers just to meet their targets. Whether the customers stuck to the payment schedule or not was not their concern; that was another agency’s responsibility. As a result, Mahindra Holidays & Resorts was saddled with 4,000 defaulters who had to be struck off the list. The sales team is now responsible for collecting the first 6 installments as well; their commission is spread over a few months rather than a one-off payment. The signing-on process too has been made more upfront. Application forms highlight the 12 to 15 terms of membership right where members put in their signatures to avoid any misunderstanding. Customers are given a 10-day period during which they are taken through the membership conditions yet again, giving them a choice to pull back. The process to upgrade from a lower membership is highlighted upfront since it is prone to being misrepresented during a sale.
Rectifying the wrongs of unbridled salesmen is the right way to go, but there are other problems that need to be fixed. Variety is clearly the key in the business. Industry experts point out the Indian timeshare sector lacks the range that is on offer in other mature markets such as the US where timeshare caught on during the oil crisis in the 1970s. Cushman & Wakefield Executive Director (hospitality) Akshay Kulkarni says: “In the Indian timeshare industry, members are often forced to limit their choice of destinations because their timeshare companies are not located in a given location.”
Ramanathan and his team are thus busy with their next version of Club Mahindra. “We have realised that a standard pitch won’t work; we need to define different audience more sharply. We add about 2,000 members every month, but speak to 50,000 potential customers. We lose 48,000 because we are not offering them what they want,” says Ramanathan. “Earlier, families would just look at holidaying with relatives; now holidays are being broken up into annual trips, short weekend vacations, camping or spa holidays and so on.” The company began diversifying with Zest in southern India with a lower validity (10 years) and price tag for young couples in locations that are a few hours’ drive away from major cities.
It has also ventured into non-timeshare products with a brand called Terra that offers camping facilities, and Mahindra Homestays which offers lodging with a local family. Mahindra Homestays has a target of 2,000 rooms in the next two years, up from the current 738 rooms in 47 locations across 15 states. It brands the homes for marketing in lieu of a commission on the rent and an enrollment fee from the household. Club Mahindra members will be able to avail these at a discount. Next on the cards are resorts for jungle safaris in Sariska, Ranthambore and Gir. Club Mahindra will see four new resorts with a total of 600 apartments.
Higher inventory of rooms will have to accompany the variety. Mahindra Holidays & Resorts had to stop issuing its highest Purple memberships (for 3 weeks) which were for the times of heaviest traffic at a location because its existing resorts can service only so many. Investments of up to Rs 350 crore are lined up to raise capacity in the next year. An investment analyst points out: “Timeshare resorts can sell one unit to 52 families (with as many weeks in a year), while their resort locations ensure that development costs are low.” Compared to Rs 1.5 to 2 crore required to develop a room in metros and Tier I cities, resorts in hills could cost Rs 35 to 50 lakh, he adds. Seventy-five per cent of the resorts are owned by Mahindra Holidays & Resorts, while the rest are rented apartments serviced and maintained by its crew.
Luxury and budget
Its first fractional-ownership villa in Coorg, Karnataka, will bring in customers at the luxury end. Spread over 40 acres, furnished 3,000 square feet bungalows will be sold to about 12 customers. An existing Club Mahindra property next door will be leveraged to supply this gated community with the staff and the maintenance infrastructure. Kulkarni of Cushman & Wakefield says: “Fractional ownership is a high-end product, with a greater involvement for the customer, more cash flows for the company and a fillip to the brand image.”
With a land bank of 400 acres for its many products, Mahindra Holidays & Resorts also has the budget traveller in mind. A budget timeshare brand is being worked out, which will be ready in the next two or three years. Resorts Condominiums International (RCI) Managing Director (India) Radhika Shastry says: “The budget traveller is now willing to try timeshare. When Sterling Resorts had entered the market, it had targetted the budget traveller but at that time only the affluent were willing to adopt the product. There was a mismatch, aggravated by Sterling’s mistake of not charging a maintenance fee.” Mahindra Holidays & Resorts too would have to get its pricing and product experience right to woo the budget traveller. The current average maintenance fee of over Rs 8,000 apart from the lakhs in total subscription fee would have to be pared down.
What has generated a great deal of negativity amongst the consumers is the non-availability of accommodation in the holiday season. This includes members of Club Mahindra as well. The resort inventory which opens for reservations six months before the date of travel results in early birds walking away with the choicest of locations available to members. Ramanathan says: “There were members who would not plan so well in advance. They suffered as a result with limited choice. We will now release resort apartments in a staggered manner. Some of them can be booked six months ahead, others three months and still some 45 days before travel.” The ones who did not get their choice of resort earlier or have not holidayed for sometime are called up to remind them of availability. Renting to non-members during peak seasons has been stopped as well.
Members can also migrate from a lower band to a higher band or vice versa for which bookings open 15 days before the season with adjusted number of days. RCI, the international association of vacation ownership resorts, of which Club Mahindra is a member, allows holidaymakers to trade their vacations in India with those in international locations.
Ramanathan points out that member occupancy rates have shot up 20 per cent, and Club Mahindra clocked 80 per cent occupancy on an average even during the off-peak monsoon season. Timeshare resorts have been known to beat conventional hospitality players during downturns which wallow at 30 to 50 per cent occupancy rates. Mahindra Holidays & Resorts also rents out its Club Mahindra resorts to non-members during off-season to beef up occupancy.
However, it has to brace for competition in the Rs 550-crore industry, growing at 18 per cent. While 250,000 families are members, 100,000 holidayed in 2008 according to RCI. Other players include the rejuvenated Sterling Resorts, Royal Resorts’ Royal Goan Beach Club, Cambay Hotels & Resorts and Country Club. Shastry says there would be more players as the industry flourishes, such as large hotel brands who could put their properties to mixed use. Internationally, brands such as Disney, Hilton and Starwood already operate in the sector. Not only standalone timeshare players, players such as Country Club which is primarily a chain of clubs across India and abroad with 250,000 members have increased their focus on the segment. Country Club’s owner and managing director, Rajeev Reddy, says: “We are one of the very few timeshare players who have properties right in the heart of major cities such as Hyderabad. We will look at reaching 1,000 rooms for our 75,000 timeshare members in Sri Lanka, Bandipur and Chennai. In cities, we will adopt a mixed model of part timeshare and part hotel as we have done in Hyderabad.”
After the downturn, Mahindra Holidays & Resorts has checked the urge to grow indiscriminately, stemming plans to go abroad. With a few resorts in Thailand and Sri Lanka, it is maintaining “a calculated pace”, according to Shastry. On its wishlist is entry into the lives of its members beyond holidays. “Our spa brand Swastha could be extended into cities as well to tap our membership base,” says Ramanathan. But for now it will have to ensure the tweaks in the system reflect in its performance in the months to come.
