Lock-off Premium Discussion (Good/Bad)? Optimal point?

[CanadaDisney05]

I was having a discussion with myself in the shower this morning (yes, we've gotten to that point.....) about the lock-off premium and whether it was good or bad for the membership as a whole.

Background

1) What is the lock-off premium?: A 2 Bedroom lock-off is a DVC booking category. This category consists of a studio and a 1 bedroom combined by a lockable door to create a 2 bedroom unit. To book the Studio and the 1 Bedroom separately costs more points than to book the 2 bedroom unit. The "premium" to get the studio and the 1 bedroom is called the Lock-off Premium.

2) Why is there a lock-off premium?: The DVC point system is built around having the exact amount of total points in the system to match every room category for every single day of the year. However, there are a variety of factors that make this impossible. Calendar shifts (premium weeks changing based on movements of the calendar, and more/less weekend days), leap years, rooms going down for maintenance/refurbishments, etc.... When the resort is originally sold, they sell just enough points to cover 365 days of the year in every room for an average year. When a room is a lock-off, they sell the points based on the 2 Bedroom unit, rather than the studio + 1 bedroom.

3) How does the lock-off premium help?: When a studio + 1 bedroom unit get booked, the extra points have now been removed from the system. This creates extra availability in the system that can be used to balance shifting calendars, and provide extra availability to members. When a room remains unbooked 60 days out, Disney has the right sell those rooms for cash to the general public. The money earned from selling those rooms to the general public is then returned to the membership through their dues up to an annual maximum. Anything over and above that maximum goes into Disney's pockets. From what I understand, they hit that maximum every year.

4) How much is the lockoff premium?: This changes resort to resort, based on season and room category but in general, I use this simple formula.

Studio = X
1 Bedroom = 2X
2 Bedroom = 2.5X
Studio + 1 Bedroom - 2 Bedroom = 0.5X = Lock-off premium


Discussion Points

1) Is the current lock-off premium too low/high?: In my personal opinion, I believe the premium is too high. The 1 bedroom unit generally has the same capacity as a studio, yet costs double the points. Sure, it is nice to have the extra room/amenities that a 1 bedroom gives, but you are essentially giving up a second annual vacation in order to book a 1 bedroom unit.

I think we can all agree that demand for studios is high, and demand for 1 bedrooms are low. This indicates that the majority of owners don't see the value of the 1 bedroom at the current premium level. If they lowered the premium, it would shift some of the demand from studios to 1 bedrooms. It would also decrease open inventory that is being sold to the public for cash. This would not have a negative effect on the membership (it would have a negative effect on Disney) until the point that the cash profits become lower than the annual cap. The drawback, is that it does keep more points in the system, so while it may shift demand of certain units, it will increase total demand, which lowers availability for the membership as a whole.

If they decided to increase the lock-off premium, I believe you would see a decrease in availability of studios, an increase in availability of 1 bedroom units, and an overall increase of availability as a whole.

2) How much should they change the lock-off premium by?: There are naturally upper and lower limits of the lock-off premium. The 1 bedroom unit cannot cost less than 1.5 times the studio, otherwise booking a 2 bedroom lock-off as a studio and a 1 bedroom would cost less than the 2 bedroom that was deeded. This would leave too many points in the system. On the other side, you cannot charge more for a 1 bedroom than a 2 bedroom. So the 1 bedroom has to be somewhere between 1.5X - 2.5X. It currently sits at 2.0X.

There are a few complicating factors to consider. Resorts like Saratoga is 100% made up of 2 bedroom lock-offs. This is one reason why there always seems to be availability here. Other resorts have combinations of dedicated units and lock-offs. FWIW, I was taking a look at the rack rates and it seems that the general premium to jump from 1 bedroom from a studio on the cash side is about 30 - 40%. This is a far cry from the 100% premium of points required.

Opinions?

Note: Let me know if I made any material errors in my understanding of the premium.

Edit: SSR is not 100% lockoffs. There are no dedicated studios and 1 BRs. All are part of a lockoff.

 

[CarolMN]

........(snip)........There are a few complicating factors to consider. Resorts like Saratoga is 100% made up of 2 bedroom lock-offs. This is one reason why there always seems to be availability here. Other resorts have combinations of dedicated units and lock-offs. FWIW, I was taking a look at the rack rates and it seems that the general premium to jump from 1 bedroom from a studio on the cash side is about 30 - 40%. This is a far cry from the 100% premium of points required.

Opinions?

Note: Let me know if I made any material errors in my understanding of the premium.

Per the DVC Resource Center SSR has:

SSR - 0 Dedicated Studios - 0 Dedicated 1Bdrm - 360 Dedicated 2Bdrm - 432 Lockoffs - 60 THV - 36 Grand Villas = 888 Villas / 1320 Max. Available

FWIW, I do not think the lock off premium is even close to a significant reason that "there always seems to be availability here". I think the effect is minimal if there is any at all.

(Nice to see a subject other than something relating to COVID-19. Thanks).

 

[drusba]

Only VGF and SSR lack dedicated studios and 1BRs (other than Poly which has no 2BR lock-off premium issue because it has only studios and bungalows). Any attempt to lower the lock-off premium for 1BRs or studios, other than at VFG and SSR, would necessarily require a shifting of points from dedicated 1BRs, or studios, or both, to 2BRs (and possibly GVs) to maintain the equalization of total points. In other words, asserting the lock-off premium should be lowered overall, or for 1BRs, would be an admission that members agree points can be shifted from one room size to another room size, and thus agree that DVC can do exactly what it tried to do in Dec 2018 when it issued 2020 point charts that significantly raised the points needed year round for studios and 1BRs while lowering them for 2BRs and GVs. Members fought hard against that possibility, and DVC withdrew the charts without admission of wrongdoing. We should not now be doing anything that agrees that point shifting among different size rooms is something DVC can do to solve a demand problem for any particular sized room.

Varying demand in seasons and among room types are factors that were considered in determining applicable points to be sold in relation to the vacation homes and points needed to reserve them. However, one thing many may not be aware of is that a major factor that was considered in determining point differences between vacation homes at a resort, including for dedicated studios an 1BRs, was the square footage of the room, see the "Real Estate Interest and Point Formulation" exhibit to the Master Cotenancy Agreement in the resort POS. It is thus no accident that one typically finds the 1BRs to require a lot more points, often double or more, than the studios. Those provisions were among those I asserted were being violated by DVC in my communications with DVC in early 2020 when it attempted to greatly increase the points needed year round for studios and 1BRs while lowering those needed for 2BRs. Other arguments included that DVC was violating the DVC Membership Agreement, including the terms relating to maximum reallocation and potentlal weekly points needed for trading out to non-Disney resorts if there were a maximum reallocation, and was violating express written representations made over the years, particularly to purchasers of earlier resorts, that point reallocations were allowed to address changes in seasonal demand for the rooms not changes in demand for room sizes.

In essence, the thing that members should hope to be done to the lock-off premium is nothing. We should not be making any suggestion that gives the modern DVC, which has repeatedly shown it has no qualms in taking away the rights and privileges of members, the excuse to do what it tried to do in December 2018, while being able to assert that the members now agree point-shifting among room sizes is something that is proper to do.

 

[mustinjourney]

The cash market clearly shows what the premium should be. I've always thought the 1 BR should be in the 50% premium range to match what is the likely demand.

The way the current point pricing is more or less the "decoy effect" pricing strategy. Think movie theater popcorn...

Then there is the actual pricing for popcorn options, and the use of decoy items – you’ve probably noted popcorn most often comes in three sizes/prices. National Geographic’s Brain Games recently ran an experiment on this. Here’s what they did:

• The first group in the experiment was offered only small or large serves, priced at $3 or $7. The majority chose to buy the small popcorn. Their rationale? Either the $7 popcorn was too expensive or that the small was a better size for their appetite.
• A second group was then offered three sizes, small for $3, medium for $6.50, and large at $7. Faced with this broader choice, a much higher number went for large. Their rationale? It only cost an extra 50c to get the large size. In effect they saw value in “more” popcorn for only $0.50.

This is a classic decoy item play – the perception of value is pegged to the middle price (which is the decoy), creating the illusion of a smaller upgrade to large. And before you think “I’m too sharp for that old chestnut…!”, just ask yourself, how many times have you super sized your BigMac Combo just because it’s only another 50c???

So how are 1BRs a decoy play?

By making the 1BRs such a terrible "relative" value, more people are going to be upsold to the 2BR than would have otherwise. I know I have considered just upgrading all the way since the point differential between the 1BR and 2BR is not that bad for all the extra space you get. And at that point, I go -- hell, let's invite the grandparents to come too. Win win for disney. More park tickets...more food sales...and then DW and I can have a couple nice dinners while GPs watch the kiddos. Even more $$$ for Disney...plus people are probably happier as well with the upgraded experience.

PLUS -- disney gets those leftover 1BRs to sell for cash -- and at a relative discount (only 30-40% premium over studio) -- and then those CRO purchasers become new marks to sell DVC to.

 

[Mickey of the Villages]

CanadaDisney05, you have done a terrific job laying this all out. It can be confusing.

One thing I would like to add . . . the rules of supply and demand seem to have no bearing on the manner in which points are allocated for DVC rooms. To me, and I may be wrong, the rules of accommodating certain age and travel-profile demographics drive the allocation of points necessary to get a room. For example, why aren't points during major events (like marathon weekend, or F&W) much much higher.

It may be beyond the scope of this post but I believe if there were to be a reallocation of points that the laws of supply and demand should be included. This may tend to raise studio point costs and lower other room categories.

You definitely know more than I do here, be curious to know what folks thought.

 

[mustinjourney]

CanadaDisney05, you have done a terrific job laying this all out. It can be confusing.

One thing I would like to add . . . the rules of supply and demand seem to have no bearing on the manner in which points are allocated for DVC rooms. To me, and I may be wrong, the rules of accommodating certain age and travel-profile demographics drive the allocation of points necessary to get a room. For example, why aren't points during major events (like marathon weekend, or F&W) much much higher.

It may be beyond the scope of this post but I believe if there were to be a reallocation of points that the laws of supply and demand should be included. This may tend to raise studio point costs and lower other room categories.

You definitely know more than I do here, be curious to know what folks thought.

the points are supposed to be inline with demand...that's the whole point of the um...point....system.

But as @drusba also pointed out -- the points required for each room type relative to other room types is also tied into the square footage of the rooms. While this might make sense during the buildout from the supply side -- it certainly does not make a lot of sense for the demand side.

 

[Sandisw]

CanadaDisney05, you have done a terrific job laying this all out. It can be confusing.

One thing I would like to add . . . the rules of supply and demand seem to have no bearing on the manner in which points are allocated for DVC rooms. To me, and I may be wrong, the rules of accommodating certain age and travel-profile demographics drive the allocation of points necessary to get a room. For example, why aren't points during major events (like marathon weekend, or F&W) much much higher.

It may be beyond the scope of this post but I believe if there were to be a reallocation of points that the laws of supply and demand should be included. This may tend to raise studio point costs and lower other room categories.

You definitely know more than I do here, be curious to know what folks thought.

When the charts were first done, it was mirrored after the average cash crowd,

Now, with all the inclusion of festivals and stuff, demand has shifted and I think the 2021 charts is the start of doing what you suggest, and the 2022 chart, I believe, will have another shift. They can’t shift anything more than 20%.

I also think we may see some level of increase in lock off premium too to help with what happened this year.

 

[dismedvc]

Only VGF and SSR lack dedicated studios and 1BRs

I do not think BLT has any dedicated1BRs or Studios. It does have both dedicated and lock off 2 BRs.

 

[CarolMN]

I do not think BLT has any dedicated1BRs or Studios. It does have both dedicated and lock off 2 BRs.

BLT - 0 Dedicated Studios - 0 Dedicated 1BR villas - 148 Dedicated 2BR villas - 133 Lockoffs - 14 Grand Villas = 295 Villas / 428 Max. Available

For more resort room counts see post#6 of DVC Resource Center.

 

[taaren]

It may be beyond the scope of this post but I believe if there were to be a reallocation of points that the laws of supply and demand should be included. This may tend to raise studio point costs and lower other room categories.

This was my thought, too. If the primary problem with the current allocation of points is that the 1 bedroom costs too much in comparison to studios, as borne out by the fact that studios are booked faster/more consistently than 1 bedrooms, as anyone who has tried to book a non-home resort at 7 months knows, why not suggest that the amount of points required for a studio be raised, and 1 bedrooms be lowered until there is a better sweet spot between the supply and demand?

What would be the advantage to changing the lock-off premium vs shifting points required?
I remember they adjusted the points for Treehouse Villas within a few years of SSR opening. I'll be curious if the Riviera charts move from what they are given what I presume will be a high demand for the Tower Studios.

Fascinating topic to post on OP! (And yes, I'm doubly grateful for it being a non-COVID topic.)

 

[CarolMN]

....(snip).........
What would be the advantage to changing the lock-off premium vs shifting points required?
I remember they adjusted the points for Treehouse Villas within a few years of SSR opening. I'll be curious if the Riviera charts move from what they are given what I presume will be a high demand for the Tower Studios.

Fascinating topic to post on OP! (And yes, I'm doubly grateful for it being a non-COVID topic.)

The main objection to increasing the lock-off premium is that doing so "creates" additional breakage income. Breakage income over the cap goes to DVCMC.

For lock offs, the sum of points required for the one bedroom and studio components if booked separately, does NOT have to add up to the same number of points that are required to book them as a 2 bedroom.

Theoretically, for the resorts that have no dedicated (stand-alone) studios or one bedrooms, the cost of both the studios and one bedrooms have no limit. For example, you could book a studio for 20 points a night and a one bedroom for 40. 2 bedroom lock-off costs the same 60. (I made up the numbers). Now DVCMC raises the lock off premium such that studios cost 25 points a night and the one bedrooms cost 45. The 2 bedroom cost is still the same at 60. This is technically "legal" because to calculate the total points that could be sold for a resort, all the lock off units are counted as 2 bedrooms. Now it costs members more for studios & one bedrooms, so their points can book less. The unbooked nights are now rented to the general public for cash. Proceeds come back to DVC up to the cap and is used as an offset to annual dues.. Excess over the cap goes to DVCMC. Each year the resorts receive the max and we have no idea how much ends up going to the management company .

 

[CanadaDisney05]

Theoretically, for the resorts that have no dedicated (stand-alone) studios or one bedrooms, the cost of both the studios and one bedrooms have no limit.

There is a limit though. They cannot price either a studio or a 1 bedroom higher than the price point of a 2 bedroom lock-off (which has a declared value). If they tried this, I'd imagine they'd be opening themselves up to a class action lawsuit as it wouldn't be hard to prove that they were doing this for their own benefit (breakage income) rather than in the best interest of the membership (which is their primary responsibility).

 

[CarolMN]

There is a limit though. They cannot price either a studio or a 1 bedroom higher than the price point of a 2 bedroom lock-off (which has a declared value). If they tried this, I'd imagine they'd be opening themselves up to a class action lawsuit as it wouldn't be hard to prove that they were doing this for their own benefit (breakage income) rather than in the best interest of the membership (which is their primary responsibility).

I did say Theoretically. There are some practical considerations.

 

[ParrotBill]

So I don't see the 1BR as a bad value, and I think DVC created the 1BR targetted at travelers like us. But they may have overestimated the demand, or undercut themselves making the studios too much of a good value.

We book 1BR almost exclusively. We are a small family, traveling with 2-4 people. We value the comfort of having a couch and chairs, space to walk around, a place to sit down to eat, and a real kitchen, rather than a mini-sink, mini-fridge, and paper plates. We bought our points by thinking about what time of year we want to travel and how many nights our points would get us in a 1BR. We knew we could shift to Studios or 2BR if we wanted to bring another family with us to increase bathrooms and privacy (it was before any 1BR had 2 baths).

 

[CarolMN]

So I don't see the 1BR as a bad value, and I think DVC created the 1BR targetted at travelers like us. But they may have overestimated the demand, or undercut themselves making the studios too much of a good value.

We book 1BR almost exclusively. We are a small family, traveling with 2-4 people. We value the comfort of having a couch and chairs, space to walk around, a place to sit down to eat, and a real kitchen, rather than a mini-sink, mini-fridge, and paper plates. We bought our points by thinking about what time of year we want to travel and how many nights our points would get us in a 1BR. We knew we could shift to Studios or 2BR if we wanted to bring another family with us to increase bathrooms and privacy (it was before any 1BR had 2 baths).

This is us, too. I also place lot of value on the washer & dryer in the unit, a living room/kitchen area that doesn't double as someone's bedroom , and the two TVs and remotes.

I like that availability for them is good beyond the first few minutes of the windows opening.

 

[Brian Noble]

I don't really understand the rationale behind how DVC assigned points to lockoffs to begin with. The other system I know best, Wyndham, takes a very different approach, and one I think is much more sensible. In it:

• Studios are rare. More commonly, there are small 1BRs (with partial kitchens), larger 1BRs (with full kitchens), dedicated 2BRs, and lockoff 2BRs.
• The 1BRs typically have the same sleeping capacity, but different amenities.
• The large 1BR is typically 1.5x-2x the size of the small one.
• The large 1BR is typically 25% more expensive in points than the small one.
• The dedicated 2BR has a layout similar to the dedicated 2BRs in DVC, with a modest increase in sq. ft. over the large 1BR.
• Dedicated 2BRs have a point cost about 50% more than the large 1BR.
• Lockoff point costs are always equal to the sum of their parts.

This means that lockoff units are usually more expensive in points than dedicated ones, but they also are larger with a second living room/(partial) kitchen combo.

We book 1BR almost exclusively.

I almost never book a studio in any timeshare, ever. Like ParrotBill, we very much appreciate the extra amenities, and view studios as dressed-up hotel rooms. I will sometimes make an exception in densely populated areas, where space is at a premium, but there the city is an extension of the resort.

 

[keishashadow]

I was having a discussion with myself in the shower this morning (yes, we've gotten to that point.....) about the lock-off premium and whether it was good or bad for the membership as a whole.

Those are some deep thots pre coffee