The general purpose of a case study is to give students the opportunity to use relevant management concepts learned in class and apply them to a real-life business situation. Students should start by a summary of the case (situation analysis, key issues identification) and answer the questions. Answers to each question should be at least 400 words (4 to 5 pages) and supported by facts found in the case or in external sources (which must be cited). Graduate students will have to work on 3 cases related to the material studied. The cases are real life challenges faced by international organizations.
CS3−20 It was still raining in New York on May 31, 2014 when Claire Moreau,1 CMO (chief marketing officer) of Club Med Sales, Inc. (C.M.S.), returned to her office. She sat and went over in her mind the events of the meeting she had just attended. When the bookings for summer 2014 of C.M.S. had gone 4 percent below those of the previous summer, a meeting with C.M.S.’s advertising agency had been called to examine the situation. The advertising agency’s answer to the dip in sales was to e-mail a $200 discount coupon for September vacations to people who had been to Club Med in the recent past. Club Med’s immediate reaction had been, “Was a discount suitable for the Club Med cus- tomer?” It became clear during the meeting that no specific defini- tion of a Club Med customer existed. No formal market research had yet been done on the American consumer. Did Club Med need to do this research? If so, what kind should be done, and where? What could be done in the short term to help boost sales? Were there other more important issues that should be addressed? HISTORY From its inception as a nonprofit venture in 1950, Club Méditer- ranée, C.M.S.’s parent, was a unique enterprise. Shelter for vaca- tioners was furnished in a way never before seen in France. Gilbert Trigano, part-owner of a family tent-making business, rented the required tents to Club Med with no down payment. In 1954, Gilbert Trigano formally joined Club Méditerranée and turned it into a profit-making business. The original concept of the straw hut village was born. It was meant to create a Polynesian, “back-to-nature” atmosphere. The huts were bare of any luxury, and the showers were communal. Outdoor activities were the main focus of daily life. From this type of village came the image that Club Med and the International ConsumerCASE 3-6 Exhibit 1 Financial Statements, Club Méditerranée S.A. (Millions of Euros) Source: Club Med Annual Report, 2013. 2012 US $1 = €0.778 2013 US $1 = €0.894 Gross income 1,459 1,408 Gross margins 880 868 62.1% 62.0% Earnings 2 (9) Consolidated EPS 0.02 (0.36) Hotel days spent in zone (winter and summer) in 000s Americas 1,353 1,388 All other zones 6,623 6,367 Average bed occupancy rate Americas 67.8% 66.2% Europe/Africa 70.1% 72.2% Asia 64.8% 66.7% Total 68.7% 69.8% 1The characters and scenario are fictional. The company and market details are based on fact. Club Méditerranée had represented to the present day—sun, sea, and sport. Club Méditerranée expanded quickly, often adding one or two resorts per year. In 1956, the first ski resort opened in Switzerland. Club Méditerranée moved into what would become known as the American zone in 1968. However, Europe continued to be its main target. By 2013, Club Med was represented in 40 countries by 66 villages. Financially, Club Méditerranée had been profitable through 2012, but profits took a dip in 2013. (See Exhibit 1.) However, an indication of Club Méditerranée’s success was that it had become a household word in France, where it was known simply as “le Club.” The Club Med concept was unique. Any package vacation that Club Méditerranée offered had the same basics: a prepaid, fixed- price holiday including airfare, meals (with unlimited wine and beer), sports, sports instruction, and other activities such as a dis- cothéque, arts and crafts, classical concerts, and cabaret shows at night. Sports were varied and included pastimes such as archery, snorkeling, deep-sea diving, horseback riding, and yoga, as well as standard favorites like swimming, tennis, sailing, golf, and many others. Vacationers could choose either to take part or not in these activities. The villages also contained other facilities such as a shop, car rental, and an excursions office, which were all within walking distance. Club Med was famous for selecting the best avail- able beach area in every country where it had summer villages. A no-hassle, relaxed atmosphere was created because Club Méditerranée arranged meals and leisure time. Each village staff member (called Gentil Organisateur or GO) had responsibilities in an area such as applied arts, sports, excursions, food, bar, or receptions. There were about 80–100 of these organizers per vil- lage. They would move to a different village every six months. The GOs were encouraged to mix with the vacationers (called GMs cat12354_case3_CS3-1-CS3-39.indd 20 4/3/19 5:13 PM Cases 3 Assessing Global Market Opportunities CS3−21 for Gentils Membres) and performed the various roles of hosts, friends, teachers, and entertainers rather than staff. Another aspect of the Club Med concept was the absence of the real world in the form of clocks, phones, radios, money, tips, and rigid dress code; people could dress casually or more formally as they wished. Extra drinks were purchased using prepaid bead necklaces. Club Méditerranée had ensured that it was fundamentally dif- ferent from other packaged tours. First, the homogeneity of the vil- lages provided a predictable fantasy within a Club Méditerranée world anywhere, so that Club Méditerranée was not really selling a destination like other tour groups. Second, the way of life in the village, with its lack of money and formality, broke down the estab- lished barriers of class and wealth among vacationers. Furthermore, Club Méditerranée had overcome the seasonality problem by opening some resorts all year round and by providing both winter and summer vacation locations. Also, Club Méditer- ranée had been operating for a long time and had built up much goodwill—70 percent of their European vacationers had been to Club Méditerranée before. Bloomberg Businessweek had called Club Méditerranée “the innovative French vacation specialist.” The company earned this reputation by refusing to sit back and let its proven formula work. It was continually adjusting and adding to its offerings. Its success was so great that it received the compliment of having the “capacity to anticipate the needs of [its] clients.” Broadly speaking, a whole range of holiday makers were repre- sented among the Club Med customers. However, there was a larger representation of office workers, executives, and professional people. Club Méditerranée had not yet examined its customer base in detail. THE AMERICAN MARKET AND CLUB MED SALES, INC. The Economic Climate According to the U.S. Depart- ment of Commerce, the number of American tourists going travel- ing abroad had increased. (See Exhibit 2.) One point that favored Club Med in the travel industry was that packaged tours generally remained popular; however, perhaps because of the lingering reces- sion of 2009, many people were taking cheaper or shorter holidays or staying closer to home. Competition in the airline industry in recent years had contrib- uted to substantial changes in the packaged tour business. Price wars had slashed travelers’ costs, uncovering a new mass market 2011 (OOOs) 2012 (OOOs) 2013 (OOOs) Canada† 11,595 11,887 12,008 Mexico‡ 20,084 20,307 20,546 Europe 9,674 11,245 11,408 Caribbean and Central America 8,080 8,829 9,052 South America 1,973 1,703 1,703 Other areas 10,187 6,725 6,830 Total 61,593 60,696 61,547 *Includes business travel; excludes cruises, travel by military personnel, and other government employees stationed abroad. †Visitors staying one or more nights in Canada. ‡Visitors staying one or more nights in Mexico. Exhibit 2 Destinations of U.S. Travelers Abroad, 2011 to 2013* Source: U.S. Department of Commerce, Bureau of Economic Analysis. CLUB MED (one-week vacation) COMPETITIOR (one-week vacation) Before decrease $1,695* $1,405† After decrease $1,645 $1,100 *Includes airfare, shelter, all meals, all sports, and other activities. †Includes airfare, hotel, and breakfast. for cheap air travel. The number of travel agents had increased from 7,000 in 2001 to over 22,000 in 2013. Travel agents demanded higher commissions when group selling became a large part of their business. With the subsequent increase in commissions, it became even more attractive to set up an agency. As in Europe, travel agents were the primary channel for sales in the travel business. Club Med felt that it occupied a unique position in the market and had no directly comparable competitors. However, its closest competition did come from other packaged tour operators. As a result of deregulation, some prices for airline tickets had recently dropped dramatically. Club Med had not yet incorporated these decreases into their prices as aggressively as some competi- tors. The following table gives an example of the price structure, comparing a trip with Club Med from Los Angeles to Cancun, Mexico, to a competitive package sold by a packaged tour operator. It was estimated that some 7.5 million residents of the United States had gone on packaged tours in 2013, including about 3.5 million who had taken cruises. Many others took vacations to “sun destinations” without using packaged tours. For example, it was projected that in 2016 about 1.5 million people from the U.S. mainland would go to Puerto Rico, a destination that was within the same geographical area as seven Club Med villages. Another 4.5 million were expected to go to the Caribbean islands, and 2.2 million to Bermuda alone. Exhibit 2 gives a breakdown by des- tination of U.S. travelers abroad during 2011–2013. Club Méditerranée in North America In the mid- 1970s, Club Méditerranée started to target the North American market specifically. In 1980, Club Méditerranée was restructured so that marketing and operations were more closely linked. North and South America made up the American zone, which had its own profit responsibilities. By 2014, North Americans represented cat12354_case3_CS3-1-CS3-39.indd 21 4/3/19 5:13 PM CS3−22 Part 6 Supplementary Material 19 percent of the Gentils Membres worldwide (60 percent were from Europe/Africa and 21 percent from Asia), but less than 1 percent of the North American population were Club Med clients. Total sales in North America were almost $240 million in 2012– 2013, representing some 140,000 Gentils Membres. In 2011, Claire Moreau took charge of the American zone. She made the improve- ment of Club Med’s image in the North American market her first priority as there was a feeling in the organization that an image of sexual permissiveness was deterring many Americans from patron- izing the Club. Club Méditerranée felt that the North American market represented a sound base for growth. By the beginning of 2014, Claire felt she was well on the way to achieving the goals she had set, but challenges remained. Rev- enues and profits had been slipping, but she felt good progress had been made toward improving Club Med’s image. Club Med spent several million dollars a year on image-oriented consumer advertising, emphasizing the uniqueness of the concept. In the past, campaigns had generated considerable favorable public relations for the organization, and it had been nominated for a prestigious CLIO award in the advertising industry. The 2013 “happiness” 22-language global advertising campaign of Club Med experiences being shared with family and friends seemed to be well-received. The problem of eroding financial performance remained, however. CLUB MED SALES, INC., STRATEGY Organization In the organization in the American zone sales promotion area, there were seven regional sales managers (about 35 years old) who supervised 17 district sales managers. (In contrast, one single airline had 40 sales representatives for the New York market alone). Marketing All the regional and district sales managers were former GOs. They were to make sales calls to the travel agents, give them brochures, and talk to them about the Club Med con- cept. No formal system had been set up regarding which agents to visit at what time. As a result, each representative performed his or her job differently. Each one also operated independently in developing creative ideas to boost sales. Some representatives had consumer shows where people could hear about the Club Med concept. Others participated in professional travel shows or ran cooperative advertising with their own copy. This arrangement was consistent with the company culture, which allowed the person run- ning a Club Med village to be his or her own master in designing enjoyable vacation programs. Regional representatives were earning over $100,000 a year with an additional bonus up to 25 percent, while district representa- tives earned a straight $75,000 a year. These figures did not include