Case type: Problem Case Company Background and Problem IdentificationClub Mediterranee which is known as “the Club” was founded in1950. Over the years Club Med grew to become the ninth-largest hotel company inthe world in 1986, and they were offering all-inclusive vacation packages. Therapid and huge success of Club Med was because of the lack of competitionwithin the industry that they were in. In recent years Club Meds all-inclusive vacation packages hasattracted a lot companies to copy the Club Med experience, and it has reallyaffected Club Med. Inc.
monopoly market it had previously enjoyed. The biggest issuethat Club Med is facing at the moment is of its mass-marketing scheme. When newcompetition entered the market it left plenty of room for them to really marketwell and steal Club Meds consumers. Competitive Advantage and DefensibilityBeing the first ever organization in this industry, Club Medhas a 30-year advantage over its competition. This has allowed the company toenjoy a very strong position in the market with respect to its buyers,suppliers, and labor.
If consumers tried to copy the Club Med experience itwould cost buyers 50% to 100% more, so that is why most buyers will opt topurchase the all-inclusive Club Med vacation package. As for suppliers, sinceairlines and food industries are extremely competitive industries and the costof including airfare and food within the package for Club Med is low, thisallows them to make huge amount of profits through economies of scale. As for thelabor, there is a high demand to work for Club Med at minimal wages. Sincelabor is a fixed cost for Club Med, this gives them a huge advantage at beingable to negotiate wages with local workers. So, in turn this allows Club Med tokeep its fixed costs very low.
In addition, Club Med uses a veryunique systemin which it measures its occupancy in terms of number of beds rather thanrooms, enabling it to report higher occupancy rates in comparison to othercompanies. Performance Evaluation and Competitive EnvironmentWhen we are about analyze Club Meds return on sales (ROE) (asshown in Exhibit 2) which basically is a calculation of how much salesrevenue is turned into profit, with the calculation it is really clear thatClub Med only makes a $0.05 profit on every $1.00 made in sales revenue. Eventhough this may seem like a small return on sales, if we compare it to Hiltonthat makes about a $0.15 profit on every $1.00. When we take a close look atthe numbers, from 1984 to 1986 it shows even though Hilton has a higher ROS, ithas been slowly declining and Club Meds ROE has been growing.
In addition, whenwe take close look at the gross margin (GM) (as shown in Exhibit 3) forClub Med which is 34.25%, which means that for every dollar of sales made, ClubMed makes $0.34 and spends $0.66. Return on Equity (ROE) which basically meansof how much profit a company is making with each dollar of shareholders’equity. We can come to the conclusion that the numbers from 1984-1986, Club Meddid a lot better than Ramada and LaQuinta with its 11.35% ROE, even though ClubMed had a huge ROE from 1984 to 1986 it has a long road ahead if it wants tocatch up to Marriott, Hilton, and the Four Seasons that make on average a 20%ROE.
A recent advertisement from a Club Med Competitor showcased how the ownerof Club Perillo, Mario Perillo, sold 10,000 tours in only 100 days and how heintends on doing it again. Club Perillo really took advantage of the poor marketingfrom Club Med, it found consumers that Club Med ignored. If Club Med wants to remaincompetitive within the industry, it must quickly learn to gain itself and theconsumers or else the competition can seriously start to damage Club Med. Company Culture and the CustomerA really vital part of the company culture is the “familyspirit.
” Club Med really emphasizes and believes highly in building the “familyspirit” within its customer’s by showcasing social interaction. Everything thatClub Med villages offers from its buffet style meals and random seating arrangements,to assigned roommates is organized in an effort to “transform a group ofuptight, urban professionals – who started out as total strangers – into afun-loving, relaxed group of friends and acquaintances.” This concept that canbe really awkward and strange at first, worked, because according to marketresearch results (as shown in Exhibit 9) 74% of consumers picked theirlikelihood of vacationing at Club Med in the future as extremely/very. Thesenumbers also help Club Med gauge its customer lifetime value as approximately25% of all new customers become repeat customers. This in turn will result inan average of four additional Club Med vacations per repeat customer and acontribution margin of 60% which will help the growth of Club Med.
Impact of Increased Service QualityHappy and satisfied customers are a key to the success orfall of a business. For Club Med, satisfied customers are an importantmarketing tool because they promote word of mouth marketing which is reallyimportant because it helps attract more people. So consistently improving service quality is essential to Club Medsgrowth. A industry rule- of-thumb indicates that people returning from avacation will tell an average of ten other people about their experiences, if theexperiences from the vacation was negative, Club Med risks of losing potentialprofit. The net income per guest equals to $48.
00 on average, Club Med willlose $480.00 ($48.00 x 10) of potential profit per guest if they leave with anegative or horrible experience of their vacation.
As indicated by the 25%repeat purchase percentage, there is still a lot of room for improvement forClub Med. Some of the opportunities for improvement are shown in Exhibit 12,approximately 238 consumers reported rooms being uncomfortable, 41 consumersreported theft, 190 thought the food was average/poor, and 111 thought bardrinks were overpriced/weak. With the growth of the new competition, boastingabout their deluxe rooms, free drinks, and privacy, Club Med needs to really focuson upping its service quality or they can lose customers really fast. Areas of Concern and RecommendationsSome major concerns Club Med faces is of mass-market appeal Employee(GO) turnover, and Spartan room accommodations with lack of flexibility.
Eventhough there is huge demand to work for Club Med, 920 employees (2000 x 46%) donot even make it past their first season, that puts a huge amount of stress oncompany resources as they will need to spend more money training theirreplacements. To help reduce employee turnover, Club Med should offer itsemployees potential for advancement, from being a GO (gentil organisateaur) toa Village Chief. This will give employees (GOs) more incentive to work harderand look forward to new experiences. Club Med has a strong bargaining positionin negotiating wages, and although this helps the company reduce its fixedcosts, low wages provide little incentive for an employee to stay with thecompany and even less incentive to work hard. With other major competitions onthe rise, GOs will have greater choice in choosing their pay rate. As for ClubMed having a mass-marketing scheme, this marketing technique has its majorpositive and negative effects.
Even though Club Med is able to attract a hugeconsumer base because of its broad market appeal it risks losing many of itscustomers to other specialized organizations. Club Med has always had an imageof offering vacation packages that meet the eye of the budget conscious buyer,with its Spartan rooms that lack basic amenities, Jacques Giraud (CEO of ClubMed) would make it extremely difficult to attract luxury consumers. Therefore,my recommendation to Giraurd would be to diversify Club Meds product mix tooffer premium vacation packages to the luxury consumer, that will enable thecompany reap profits from all target segments. Lastly, even though Club Medfocuses on building social interaction between its consumers by only offeringsingle beds and assigning roommates. I would recommend that since (accordingto Exhibit 9) 48% of Club Meds demographic is married and 40% has children;so, my suggestion would be to have an option to upgrade rooms at an extra costto allow customers to have double beds or family suites.