Club Med Goes Upscale

Who is Club Med?

Club Mediterranee, or Club Med, is a corporation in the travel and tourism industry. It is a public organization in the all-inclusive resort market, and manage over 100 resort “villages” all over the world; including Mediterranean, snow, inland and tropical locations in 40 countries. The firm operates under a few different brand names, including Club Med, Valtur, Club Med Affaires (for business travelers), and Club Aquarius. It operates 2 cruise liners and also has specialized sports facilities.

Customer Demographics: 1/3 French, North American and Japanese

Background & History

The company was founded in 1950 by a group of French travelers, headed by Gerald Blitz. Originally an association, growing membership numbers turned the club into an actual business in 1954 with the help of Gilber Trigano. By 1985, the firm went public on the Paris Stock Exchange and Club Med, Inc. became the U.S.-based subsidiary of Club Mediterranee, headed by Trigano’s son Serge.

Description of service:

  • Managers and employees at all levels  represent around a hundred nationalities and speak over 30 languages.
  • All managers are promoted from within the company and are knowledgeable of day-t0-day operations
  • Employees are encouraged to be friendly and form relationships with each guest in order to make their experience more memorable
  • Living area and rooms are sparsely decorated (e.i. – no phones, TV’s, etc.)*
  • Capacity is measured more simply by number of beds, not number of rooms, since singles at resorts have roommates
  • Image is known as somewhere to go when you really want to escape reality
  • All Club Med villages are set up similarly regardless of location*
  • The company encourages social interaction between guests and facilities are designed to promote a community-style experience
*As of 2004, the company began changing its strategy to give customers a more differentiated service that was more upscale and luxurious
Previous Successes:
  • Until 1986, Club Med had a strong position in the all-inclusive resort industry. It had a high level of bargaining power with buyers and suppliers, where a customer who wanted to duplicate the “Club Med Experience” would have to pay an additional 50 to 100 percent more. Suppliers would also give Club Med discounts due to their large number of bookings.
  • Club Med launched its website at the end of 2003, http://www.clubmed.com. Around 20% of its sales now come from its website.
  • In 2004 the company created a specialist certification program that enabled 12,000 travel agents to increase their bookings with the company
  • Staffing and labor were never an issue, because thousands of people were partial to working at such a fun and exciting location
  • Original mission statement includes the goal of taking a group of strangers away from every day life and bringing them together in a relaxing and fun atmosphere in different parts of the world. This was seen as a competitive advantage for the company because vacationers knew that they would be getting the same preferential treatment at any of the Club Med villages.
  • Company strategy assured guests would return for future vacations by having customers join a club as members that paid an initiation fee and annual dues. The newsletters, catalogs and discounts on vacations increased brand loyalty.

Challenges:

Growing threat from competition: As of 1986, the all-inclusive resort industry began forming a higher degree of rivalry. Many firms were able to imitate Club Med’s style of success, where recreational activities were led and organized by staff members. The major difference at that point was that Club Med did not include alcoholic beverages in any of their prices.

Jack Tar Village: A Jamaica-based company that operates resorts mostly in the Caribbean. Jack Tar positions itself as more glamorous and modern than Club Med. It also launched advertising campaigns against Club Med and is famous for its open-bar policy.

Super-Clubs Organization: Another Jamaican-based resort firm that is known as being the most uninhibited and sexually oriented resort option. It includes drinks in pricing but also differs in how vacation packaging and distribution is carried out.

Vacation Activities at Club Med are also offered differently than competitors. All three firms offer essentially the same activities, but Jack Tar and Super-Clubs are able to make some optional and do not include them in the total price of the vacation. This has allowed Club Med competitors to offer lower prices and take away potential clients, since many do not want to pay an all-inclusive price for services they may not want. Because of the other financial challenges Club Med has faced in the past, the company has not been able to convert to a more individual pricing method.

It’s all-inclusive price is not as widely accepted as it has been in the past: Many customers were hesitant and booking with Club Med because of their exclusive prices. In 2005, the company launched a “Total” All-Inclusive package in most resorts where drinks were included into pricing to balance out this challenge.

Inability to manage a global footprint: Until 1996, the firm was predicted to have strong sales growth due to successful expansion efforts in other countries. Unfortunately, Club Med has been severely and negative impacted by political, economic and ecological factors in the past 15 years. Due to these unanticipated disasters and complications, Club Med faced much difficulty in maintaining their resorts.

The Bottom Line:  Club Med could not increase sales or market share to secure its place as the top all-inclusive resort corporation competing on a global scale.

Relation to Global Marketing Topics:

Political and Legal Factors: In order to have successful international expansions, Club Med and the governments of the countries it operates in usually form contracts. These agreements state that if Club Med is allowed to enter the country the firm will in turn increase tourism in the area. In return for the increase in business brought into the country, the government will provide financial aid to help pay for the costs of maintaining resort facilities.

In the past these Joint Ventures with host governments have not proven to be as profitable as expected. For example, the company’s success in Mexico was drastically reduced when the value of the Mexican Peso diminished. The issue limited the amount of capital the Mexican government could allocate to Club Med’s facilities, which resulted in run-down resorts. As a result of limited funding, Club Med could not further reduce its prices or offer the customized packages that were in demand.

Additionally, Club Med lost its ability to serve its French customers after in 1996 is became known that France had been conducting nuclear tests in the South Pacific. Because of the political conditions between France and destinations like Tahiti, tourists wanted to avoid going to locations where there were riots among concerned residents and negative publicity.

Lastly, after the September 11th attacks in the United States, there was a considerable reduction of travel all over the world, especially for purposes of leisure. For Club Med, this caused it to close 15 of its resorts worldwide.

Ecological and Natural Disasters: There have also been many natural disasters in recent years that have destroyed the land that Club Med’s resorts are located on. For instance, the hurricanes in the Caribbean in 2004 caused serious damage to resorts in those regions. The company’s Punta Cana village had to be rebuilt and guests also had to get reimbursed for missing their vacation. Even worse was the tragic Tsunami disaster in Southeast Asia that destroyed Club Med Properties in Malaysia, Phuket and the Maldives.

Global Pricing Strategy: Because of the global external influences on the company, all Club Med areas are indirectly affected. Lower clientele at locations where there is political unrest bring in lower revenues for the company. The inability to operate resorts in areas where natural disasters occur and the compensation for these losses also drastically reduces profits. In cases like these, Club Med must use funds from other resorts to help or maintain suffering locations. In summary, these problems have prevented Club Med from reducing prices, implementing a customized travel package and maintaining resort facilities. The global pricing strategy at Club Med is very complex and is no longer competitive enough to facilitate growth.

Global Promotional Strategy: Club Med’s message was inconsistent as a result of using eight advertising agencies located all over the world. As previously discussed, creating a truly global marketing plan is very difficult. Global Corporations such as Club Med lose a sense of brand identity and promotional efforts are lost in translation when not uniformly executed. Because of weak advertising campaigns, many came to associate the Club Med name with rundown properties, mediocre food and amenities and some came to regard the friendly atmosphere as a “swinger’s paradise.”

Changes made:

New Growth Strategy: In 1998, a new CEO Philippe Bourguignon took over and initiated a $500 million, three-year rescue program. He closed all unprofitable villages, some sales offices and refurbished older resorts. The company continued this strategy, and despite many of the natural and political adversities, reported a net profit of 3 million euros after the first 6 months of 2005. The company also entered many strategic alliances with global firms such as match.com to promote the sale of its vacation packages.

Branding and Positioning: Club Med also made huge changes to its positioning in the marketplace and its brand. The company took on a more upscale position with substantial remodeling and design efforts, and current management is well aware of the strong brand recognition that Club Med holds. In order to compete more effectively, the company put in effort to eliminate the “swinger’s paradise” reputation of its resorts through improved marketing and ad campaigns.It invested over $350 million from 1998 to 2004 in advertising to re-brand itself as more family-oriented and luxurious. All resorts are now ranked as two, three or four star locations, and each operate under a different brand name. The company no longer has a standardized approach to their villages, and this has helped attract customers on varied budgets. Lastly, the activities offered by Club Med are more innovative and customized according to program and resort, further promoting its upscale image.

Changing Market Segments: Sales and marketing efforts have taken a change in focus. The company decided that its target market needed to be more concentrated in order to increase effectiveness. Club Med now spends most of its budget attracting customers from the U.S., Canada, Belgium, Japan, Italy, Germany and Switzerland. It is also opening three new resorts around the U.S., in hopes to get American visitors, who are it’s number one target.

Expansion: After several failed attempts at entering the Chinese market, the company is now attempting to develop a strong brand presence in China by opening sales offices. After the Chinese become familiar with the company, it will open its first resort. This strategy was adopted from it’s entrance into South Korea, which was largely successful. Club Med also opened its first resort in Albania in 2005, and hopes to follow with new, profitable locations in Italy and Brazil.

Summary

Club Med is a perfect example of a firm that faces new global marketing challenges every year. They are fully invested and involved in a global marketing strategy that has been forced to learn from challenges involving external factors and internal capabilities. By re-inventing its brand and competitive positioning, leaving and entering new markets, and changing their target market segments, a new and more appropriate pricing strategy can be used. Club Med provides the opportunity for a global marketing student to understand first hand how making marketing decisions that affect many countries can and become very difficult. I believe the biggest mistake the company made was not being able to support marketing efforts in so many countries. The risk (both expected and unexpected) associated with international expansion may not always be manageable. It is also important not to underestimate the complexities of meeting the needs of customers from many different countries and cultures.

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3 thoughts on “Club Med Goes Upscale

  1. Janaee Neill says:

    Dear Kristen, we would like to use this article in one of our University text books titled ‘Principles of Marketing: Global and Southern African Perspectives’. Please can you let us know how we may contact you in order to send you the formal Copyright Permission Request?
    Thank you,
    Janaee Neill
    Intellectual Property & Text Permissions Coordinator
    Pearson Holdings Southern Africa (Pty) Ltd

    • kjastar says:

      Would you still like to use the article? Apologies for the delay as I never check this site anymore! -Kristen

      • alice says:

        Dear Kristen,

        I would like to your article for an academic work. Can you provide me your full name and the date of the article for the referencing?

        Thanks
        Alice Wiet

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