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Case Analysis

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Case Analysis
Club Med
Luya Li (999651880)
Lec 02
Professor Tarun Dewan
23rd January 23, 2015

OVERVIEW

Club Mediterranee, or Club Med, is a corporation in the hotel and travel industry. It was originally founded as a sports association by a group of French sports enthusiasts in 1950, as the customer demand and business opportunities increased, it transformed from an association into a travel company with the help of the managing director Gilbert Trigano. Club Med created the all-inclusive vacation concept and later became the market leader in the resort industry. Throughout the years, the corporation had enjoyed financial growth and geographically expanded its business throughout the world. In 1984 and 1985, both Club Med S.A and its subsidiary, Club Med. Inc. went public and offered their shares on major stock exchange. However, the company should pay close attention to its potential weakness given the pace of commerce and heated competition.

This report will list the comparative advantages of Club Med and explain the reasons for its success over the past years. It will also highlight the company’s unique corporate culture. Moreover, the report will point out Club Med’s potential problems, and provide recommendation in regards to Club Med’s future strategy.

ANALYSIS

Club Med’s success can be measured both financially and non-financially. After transforming into a travel and hotel company, Club Med further expanded its business by forming the U.S. subsidiary, Club Med. Inc. in 1972. The corporation gradually strengthened its global presence by operating large number of resorts worldwide throughout the years. By 1985, Club Med had “108 resort villages throughout the world and hosted 820,000 vacationers annually.” The firm offered 25% of its subsidiary’s shares on the New York Stock Exchange in 1984 and went public on the Paris Stock Exchange in the successive year. On the other hand, the operating data provided in the exhibit 2 suggested that the company’s sales revenue almost doubled from 1981 to 1986. Moreover, the company’s growth could also be proved by its more-than-doubled net income in the same period of time.

From the above analysis, it is evident to conclude that Club Med has been the market leader of the industry. However, the operating data from exhibit 2 also illustrated sales per guest remained almost constant in 5 years. Additionally, guests of Club Med were only able to fill roughly 2/3 of its beds. This implies that Club Med might have fatal potential weakness.

Several factors contributed to Club Med’s successful financial growth and business expansion over the years. Being the pioneer of the industry allowed Club Med to enjoy strong bargaining power in regards to its supplier, buyer, and labor. As a result, Club Med was able to maintain high operation efficiency and low cost. As the data shows, Club Med’s lower-than-average labor cost only accounts for 27% of the sales revenue while the industry average is 36%. This makes cost-effectiveness to be one of the biggest selling points of Club Med’s vacation package. Most importantly, the key to Club Med’s success should be its unprecedented concept of the “all-inclusive” vacation package service. The concept itself is developed based on the idea of isolating Club Med members from city’s hustle and allow them to fully enjoy the beauty of nature and the social interaction between people. This objective is achieved through scheduling different individual and group recreation activities during day and night.

Club Med’s comparative advantages are both tangible and intangible. The most valuable comparative advantage Club Med possesses is probably its corporate culture. The combination of passionate employees, fine traditions, and excellent locations works together to provide customers with the service they desire. Next, as mentioned above, being the market leader allowed Club Med to develop a well-established network. Word-of-mouth advertising also spread company’s name among potential customers and became the source for repeat business. Therefore, these two points should also be counted towards Club Med’s comparative advantages.

The structural analysis model in the exhibit 6 pointed out that the large economy of scale, high capital requirement, and the unique “recipe for Club Med magic” are the obstacles for potential players to enter the industry. Also, with Club Med’s brand equity (word of mouthing advertising), favored political status, and its 30 years of experience in the industry, it is relatively hard for Club Med’s would-be competitors to replicate its operating model even if they entered the market. The comparative advantages Club Med established over the years are defensible in a sense that they are especially difficult to acquire in a short period of time, far more so than to refine or improve without substantial capital investment and customer bases. For example, Club Med maintained good relationship with multiple airline companies in order to bundle the air transportation service with rest of the service in the package. This act eliminates the customer’s need to purchase the air ticket separately and greatly reduces cost.

Club Med’s targeted customers are generally middle-aged educated urbanites with median income. When Club Med’s members, also known as the GMs, purchase the vacation package, they are expected to enjoy a satisfying vacation with well-defined, predictable activities in a chosen village site with beautiful natural scenery. Upon their arrival, GMs will be greeted by passionate GOs, which are congenial hosts. During their stay at the village, the members could enjoy well-prepared meals, drinks, comfortable accommodations, and participate in a wide array of social and sports activities. Club Med implements the concept of all-inclusive vacation by promoting social interaction and minimizing demand for civilization and financial transactions.

COMPETITION

Even though Club Med was often referred to as the monopolist of the industry since the outset, the number of Club Med’s competitor had been growing increasingly nevertheless. Not only so, the competitors also tried to gain market share by offering specializing their services to niche markets that Club Med neglected over the years. For example, the couple-only resorts operated by SuperClubs organization. Club Med should realize it is hard to secure its leading position with the existing pricing strategy and market segmentation. The competition should be treated seriously since Club Med’s product offering and distribution network are significantly different from its competitors. Club Med should always put customer’s need as its top priority.

POTENTIAL PROBLEM AND TARGETED AREAS

First of all, Club Med has a higher-than-average turnover rate and a “policy of nomadism”, which rotates the employees from one village to another ever six months in order to keep “flexibility, variety, and an international flavor.” The idea behind this policy may be good, but it means the numbers of employees are highly fluctuated. This might potentially lower employee’s performance level and service quality. It might even cause anxiety among employees.

Furthermore, the growth and expansion Club Med had achieved over the years are largely contributed by the fact that it was the pioneer of the market. The company has offered similar service to wide range of customer globally and stayed true to its core concept throughout the years. While loyal customers might appreciate this, competitors might take advantage of Club Med by targeting potential customers in the niche markets. Also, the corporate culture might not be as inclusive as customers hope it to be.

Next, having the predictable activities and traditional style is one of Club Med’s potential problems as well. As customer’s demand and tastes changes, the company should alter its strategy accordingly and act promptly. In the ever-changing business world, companies can rarely remain stagnated by relying on its existing operation strategy and distribution network for long.

The targeted area should be quality-improvement. This is arguably the most important ingredient to “Club Med’s ‘magic’”. As the chart in Exhibit shows, there are lots of opportunities for guest satisfaction improvement for in many aspects. No doubt, improved service would attract more customers and bring more revenue.

RECOMMENDATION

The quality of the service GOs provide to the customers plays a crucial role in determining client’s satisfaction. In the president Jacques Giraud’s opinion, “Club Med’s ‘magic’” is the reason for village chief Sylvio’s high performance and ability to boost customer’s satisfaction. Needless to say, employees with high morale and job satisfaction are more able to deliver superior service. Therefore, in order to increase consumer satisfaction, Club Med could increase GO’s compensation to motivate them. Moreover, the company could decrease the frequency of the rotation so the employees could be more familiar with the workplace and their colleagues.

As the competition heats up and market changes, it is of great importance for Club Med to understand customer’s need and provide the service they truly desire. Since Club Med relies greatly on the word-of-mouth advertising and repeated customers, the company should keep an eye on the market trend and always maximize customer’s satisfaction because satisfied customers would be more willing to promote products and spread the names. Specially, Club Med could upgrade its physical infrastructures build more comfortable resorts. As an alternative, Club Med could diversifying its offering by operating at more exotic locations such as running a ski resort in colder areas. By doing so, the company could penetrate markets of less Club Med influence. Moreover, the company could recruit more foreign GOs in order to reduce the strong French orientation.

More importantly, the strategic changes must be accompanied with the appropriate management changes, as well as changes in its operation strategies. As the strategies changes, Club Med should also alter its market position and target customers at the same time.

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