« Back to Home Page

Reinventing Hawaii’s Visitor Industry – Locally

Presidio Marketing | Friday October 21st, 2011 | 7 Comments


3p is proud to partner with the Presidio Graduate School’s Managerial Marketing course on a blogging series about “sustainable marketing.” This post is part of that series. To follow along, please click here.


By Tia Ferguson

Social marketing uses the application of marketing principles and techniques to influence a target demographic to voluntarily accept, reject, modify, or abandon a given behavior. Social marketing efforts are designed to ultimately benefit the targeted individuals as well as society as a whole.

This post uses the four cardinal P’s of marketing – Product, Price, Place and Promotion, to encourage public officials and the resident population to pursue investment in (and thus ownership of) the accommodations sector of Hawaii’s visitor industry, and to convince visitors to support the effort by patronizing locally owned visitor accommodations establishments.

The Product being marketed is often is a desirable belief or behavior.  Before introducing the product the social marketer must first convincingly articulate a legitimate need and/or issue that the product resolves.

That Hawaii’s visitor industry represents the state’s economic backbone is a common, if not pervasive, assumption amongst island residents and visitors alike. As it turns out, it is also untrue. Revenues generated by Hawaii’s visitor industry only constitute 21 percent of the state’s GDP. As a function of its nonresident ownership structure of the accommodations segment of the visitor accommodations industry in Hawaii, less than 10 percent of the revenue generated by this segment of the visitor industry remains within the state.

My research findings suggest that vacation rentals and other such offerings are the most realistic and promising mechanism for stopping this economic leakage. The reason for this is simple; rather than the revenue stream being sucked up by a multinational hotel corporation or largely drying up after the sale of a unit, cash flows from locally owned vacation rental units are sustained and remain within the local economy, allowing for the accumulation of wealth within the state.

Price measures product cost in units of time required, effort and behaviors that have to be given up in exchange for the product in addition to its dollar value. A generally accepted rule of thumb is that if the price is greater than the product’s value (whether perceived or actual), it is unlikely that the product will be accepted.

The economic impact of such ownership is measured by a mathematical formula known as the local money multiplier (LMM). Application of the LMM shows that, despite identical pricing structures, a locally owned vacation rental unit that rents for $150 a night contributes fully $236 dollars more to the local economy than does a hotel unit that also rents for the same rate but is owned by a corporation based outside of Hawaii.

The Promotion can be executed through public campaigns, billboards, mailings, events and community outreach.

Further, the demand for alternatives to hotel and resort visitor accommodations in Hawaii has exhibited remarkable growth. In the six years preceding their closure, transient vacation rentals in Maui County exhibited a 79.3% increase in share, compared to a 10.3% growth in visitor arrivals during the same period. Additionally, online platforms, such as San Francisco-based startup Airbnb, have revolutionized the ease with which vacation rental seekers connect transact with vacation rental owners.

My outward campaigning effort to do something about this exploitative economic structure officially launched when I took my research to the Maui County Council and members of the State Legislature.  The purpose of meeting with these public officials was to discuss if and what policy frameworks might be developed that would enable local residents to capture their fair share of the visitor industry wealth.

Place involves identifying the most effective technique for delivering a particular product to the target consumer.

A key take-away from one of these conversations was that my best chance for generating a political response to my findings would be achieved by creating a community-based ‘groundswell’ – both at home and abroad.  In practical terms, it was suggested that I write a letter to the editor or viewpoint article about the subject. So I did. Thank you for reading it.

Tia Ferguson is a lifetime Maui resident. She holds a BA in Public Policy from Duke University, and is currently an MBA candidate at Presidio Graduate School in San Francisco.


▼▼▼      7 Comments     ▼▼▼

Newsletter Signup
  • DGleed

    Quite an interesting analysis. I tweeted this post as well. I am wondering how wages factors into the equation. Is GDP after wages? And if so, then should the wages paid be added to equation?

    • Tia Ferguson

      Hi,

      Below is an excerpt from an earlier draft of my post that might help to answer your question about how wages factor into the LMM. I ultimately decided to take it out because it was too long and mathematical – but hopefully you find it useful!

      “Here is an example to illustrate the concept. Let’s take two scenarios: Scenario 1, which will measure the economic impact of a one-night hotel stay at a non-domestically owned resort; and Scenario 2, which will measure the economic impact of a one-night stay at a locally owned and operated vacation rental unit. The pricing structure for the two units is identical; both establishments are priced at $150 per night, and the cost of goods sold is $50 for each. State taxes levied against both units is 13.962%, so taxes paid to the state amount to $20.95 for each unit, and the after-cost-of-goods-sold, after-tax profit for each is $79.06, or approximately $80.

      Despite their similar pricing structure of the two units, their economic impact, as measured by contribution to the state’s GDP, could not be more divergent. The units’ contribution to the state’s GDP is calculated by multiplying retained profits by the state’s local money multiplier. The Hawaii resident owned vacation rental unit contributes $129 (gross profit plus tax revenue). Let’s approximate that the local money multiplier for the state is 4 (a 75 percent marginal propensity to consume). Application of the local money multiplier reveals that the vacation rental revenues real contribution to the state’s GDP is $320 (economic impact = retained profit * LMM = $80*4 = $320). Conversely, since the hotel’s profits go to an offshore corporation, the hotel room’s contribution to the state’s GDP amounts to its multiplier affected tax revenues of $21*4, or $84. Despite identical pricing structures, a locally owned vacation rental unit contributes fully $236 dollars more than does a hotel unit owned by a corporation that is public and/or based outside of Hawaii.

      Thank you for reading my post!

      Aloha,
      Tia

      • Tia Ferguson

        So to answer your question – this LMM calculation exclusively looks at retained profit.

        Therefore, the 21% GDP contribution does, in fact, include wages.

        Thanks again!

  • Chad Kamakanionalani Kahunahana

    Very interesting analysis. Intuitively it makes a lot of sense. I’d like to learn more and follow along with your progress in getting this data in front of our local leadership. “Buy Local!” should be the motto of all those that care about growing our local economy in a sustainable way.

    • Tia Ferguson

      Chad,

      Thank you so much for your kind words.

      I find it unacceptable that we, as a resident community, are allowing such exploitation to go on and agree wholeheartedly that something needs to be done about it.

      I am less than convinced, however, that action is going to come from the top. My communication efforts with state senators and representatives has been largely one-sided. And my conversations with those that took the time to respond at all could be characterized as ‘passively supportive’ at best.

      According to one real estate agent I spoke with who sells Kukuiula Resort properties on Kauai, there is currently a law on the books that prohibits real estate agents that are selling vacation-rental zoned properties to communicate the economic benefits of vacation rental investment to prospective buyers (local residents included). How crazy is that?!

      Couple this with the fact that in 2005, the mayor of Maui County went ahead and shut down all of the locally owned and independently operated vacation rental and b&b establishments in the tri-isle area, and the picture becomes pretty grim.

      For all of these reasons, I do agree with the opinion of one council member I spoke with – that creating a groundswell is critical to gaining traction for reform of the vacation accommodations industry.

      I absolutely agree that at minimum, we could begin by reinvigorating a labeling campaign for support of local enterprises. I also believe that BALLE – the Business Alliance for Local Living Economies – could infuse the movement with some new energy.

      Thanks again for reading my post and for your support. Researching this material was a profoundly infuriating and emotional experience. It’s comforting to have this sentiment reflected back from others in the local community.

      Aloha,
      Tia

  • Shaula Massena

    Hi Tia,

    Thank you for sharing this practical proposal for moving forward local economy. I find it particularly interesting, as I contribute our dollars this moment to the hotel industry in Kapalua. It seems to me that the trick is finding “locally owned” rentals- our friends are in a vrbo and we were in a condo last night, but I doubt either of those owners live here when not in their condos.  So the hotel as an employer might be a better contributor than the VRBO with non-local owners? I do believe a small local owner would have the best local multiplier.  Thinking more, I support a goal is for the profits to be recirculated locally, and I see two ways that happens: 1) the ownership enjoys the fruits of their profits locally, usually by living locally; 2) the business is low profit margin (so less important where their owners are) but creates lots of living wage or better local  jobs, and so the revenues recirculate via the payroll.  Ideal would be both!
    That probably applies to any business I might patronize, not just lodging, but you’re smart to start with a manageable scope.. Is there a BALLE chapter or other I can use as a visitor to prioritize say, Foodland (with an HQ in Honolulu) over Safeway?
    I hope to encounter fruits of your labors on out next Hawaiian visit!
    Shaula

    • Tia Ferguson

      Shaula,

      Thank you for reading my post and for your response. You bring up a number of excellent points. Clearly, you have a pretty good grasp on mechanisms for local economic development and the intricacies of their application with respect to Hawaii.

      To begin – yes, the best case scenario would be that local residents were also investors or owners in the independently operated VRBO/Airbnb enterprises AND that the investment dollars that go to financing the purchase, construction and operation of the large hotels and resorts were also coming from local pockets, so as to keep the profits recirculating in the local economy.

      I actually first became interested in exploring local ownership models when I worked for a real estate developer that had plans to build out an 800-unit ultra luxury resort in Makena that was designed to be sold for an offshore, third and fourth home buyer market. I wrote a blog post about it that you can read here if you’d like: http://mauimmobilier.blogspot.com/2010/03/on-heartbreaking-value-of-dollar.html). Anyway, while working at Dowling Company, I became very interested in the prospect of local investors buying into units of a comprehensively planned resort like Makena Resort in a sort of cooperative ownership model, something like that which is operated at Sunriver Resort in Bend, OR. (http://www.sunriver-resort.com/). Doing so would achieve exactly what you are reference as the best of both worlds – a vibrant, living resort community that is locally owned. Outrigger Hotels is the closest that comes to this that I am aware of.

      Finally, I am not familiar with any BALLE alliance on Maui or even in Hawaii, but I recently had the good fortune of hearing Michelle Long, BALLE ED, speak at the Slow Money conference at Fort Mason and found her message deeply inspiring. The idea of establishing some kind of BALLE presence in the islands, if there isn’t one already, was certainly not lost on me and would go far toward advancing sustainable economic development in the state.

      Again, thank you for your kind words and support. Aloha.