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$100K Jobs >> $100K Articles >> 100K Career Feature >> Club Med Case Study: A Sharper Trident
  • 100K Career Feature

Club Med Case Study: A Sharper Trident

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How Club Med plans to take back the beaches from upstart competitors.

If you've ever needed a vacation after a tough spell at work, imagine how the people of Europe felt at the end of World War II. The French had mandated paid vacation for workers in the 1930s, but the de rigueur annual rounds of beachside R&R had been interrupted by the war. As Europe began rebuilding, a former water-polo champ and Belgian resistance fighter named Gerard Blitz visited Corsica, where he saw tourists staying in oceanfront tents. Blitz set up his own tent village in the Balearic Islands to attract fun-loving, budget-minded vacationers. The concept caught on: Fifty-two years later, the company that evolved from his tent enclave-Club Med-has more than 100 locations.

It also faces its share of challenges. Club Med created the concept of the "all-inclusive" vacation, in which tourists pay a set price for a package that includes airfare, a hotel room, meals, entertainment, and sports. But by the '80s, vacationers seeking an all-inclusive vacation had a lot of other options. Companies like SuperClubs rolled out resorts that beat Club Med's pricing and better targeted specific slices of the traveling public, like singles, couples, or families. Other firms created more upscale resorts, like the couples-only Sandals chain. By the '90s, still run by the generation of managers that helped found it, Club Med suffered from a reputation for subpar food, dowdy rooms, and a one-size-fits-all approach. By 1997, it was losing 197 million euros a year. Then came a new management team, headed by CEO Philippe Bourguignon, former chairman of Euro Disney. He attributes the company's troubles to the myopia that can result from market leadership.

"It's not that Club Med underestimated its competition-it didn't see the competition coming," says Bourguignon. "When the competition gets stronger and stops being a clone of what the founding company has done and starts innovating, it's a little late to react," he says. Though Club Med began taking steps to compete with its rivals, those plans were largely undone when travel plummeted during the Gulf War in 1991. Since Bourguignon's arrival, Club Med has been reinvigorated in its fight to regain supremacy of the all-inclusive vacation category.

Karen Thornhill of Valerie Wilson Travel in New York has been sending clients to Club Med for more than 20 years. What they want, she says, is a place where they can relax without having to schlepp far from their hotel to eat, water-ski, or scuba dive. Many travelers-especially singles, who were the primary target of all-inclusive resorts in the early years-want a built-in way to meet other people at activities and meals. And they don't want a big surprise on the final bill. "People don't want to carry money, and they want to know up front what it's going to cost them," Thornhill says.

All-inclusive vacations really caught on among singles during the '70s and helped make Club Med the world's dominant resort in the category. That's when the competition started. In Jamaica in the late '70s, executives founded the chain that would evolve into SuperClubs. They began by targeting Club Med's weaknesses, according to a 1980 case study by former Babson College professor Rudolph Winston Jr. Some guests found Club Med's rooms too spartan. The price didn't include liquor. Some found activities too regimented and the mealtimes inflexible; the combined effect made it feel a bit like summer camp. So the new resorts offered better rooms, included drinks, and gave guests more flexibility. Some of the first all-inclusives also prospered by targeting couples, who wanted to avoid the meat-market feel that some Club Meds had taken on. Soon other all-inclusives were sprouting around the Caribbean. The chain that became Sandals launched in 1981.

Since then both SuperClubs and Sandals have followed a segmentation strategy that's common in the hospitality business. Just as Starwood runs the Westin, Sheraton, and W hotel brands, each serving a different type of business guest, resort operators like SuperClubs offer different brands for different clients. SuperClub's three Grand Lido resorts are its luxury offerings; its Breezes resorts provide the most sports and target "active" vacationers; its Hedonism resorts promote nude beaches, wetÐT-shirt contests, and a sort of spring break for the out-of-college crowd. Travel agents say a basic SuperClubs vacation can start at around $1,000 a week. Further upmarket are Sandals and its family brand, Beaches. Travel pros say they offer better and bigger rooms, better food (served by waiters at tables, in contrast to Club Med's buffets), and include drinks. Sandals and Beaches charge nearly $1,600 a week. Club Med is mid-priced, at around $1,400 a week.

As far back as the late '80s, Club Med began trying to compete in these various niches by giving customers options under the Club Med umbrella. For instance, of its 100-odd clubs, more than a dozen are designated for adults only in an attempt to compete with the no-kids, romantic ambience of Sandals. Its family-friendly resorts, which offer structured day camps and child care for kids ranging in age from four months to 17 years, attempted to combat its image as a haven for singles. To compete on cost, Club Med advertises and prices its various resorts as two, three, or four "tridents"-its version of a star system. Activities have changed with the times, too. Decades ago golf and tennis were considered big draws for vacationers, but as these became available near the home turf of every middle-class suburbanite, Club Med had to adapt. "You do not go to Club Med to learn to play tennis-it's not the main reason to go anymore," Bourguignon says. "So we had to invent new things that were not readily available near home." One example is circus school, where people learn to swing on trapezes. Scuba diving, inline skating, and wakeboarding became other important attractions.

Though Club Med has fiddled with its product, it hasn't done a good job of communicating those changes to potential customers. Bourguignon and his team say the brand remains clouded by misperceptions. During the '80s, for instance, Club Med advertised itself as a destination for "Sea, Sand and Sex," and its image as a spot for swinging singles remains, though 60 percent of current travelers bring their children. In the old days Club Med rooms had no locks on the doors, no phones, and no TV; they've had these features for years now, but some people don't know that. The company's research indicates that 92 percent of Americans are aware of the Club Med brand, but executives say misconceptions mean that far fewer will consider a Club Med vacation. To attack that problem, the company is shifting its advertising to focus less on the brand and more on the product. Expect to see fewer images of couples frolicking on the beach and more shots of nice rooms and good food.

Kevin L. Keller, a marketing professor at Dartmouth's Tuck School of Business, says getting the brand and product mix right has been tricky for many companies. In the late '80s, Keller notes, Nike's marketing emphasized performance over style. By 1987, Reebok had overtaken Nike as the top sneaker seller. Then Reebok followed Nike's lead with a misguided campaign touting how Reeboks "Let UBU," and consumers decided they'd rather be themselves without Reebok; Nike quickly regained the lead. Keller points to Anheuser-Busch as a company that consistently finds the right blend of product and brand advertising. Its Budweiser ads show company president August Busch IV extolling the quality of the product intermixed with shots of amber beer flowing into glasses. Recent branding campaigns have featured the talking frogs and the "Whassup?!" guys. The branding campaigns don't focus directly on the product but instead try to position Bud as a cool brand for consumers to choose.

For a company in Club Med's position, says Keller, fixing the advertising strategy is only part of the challenge: "They've struggled with the image [that Club Med is for swingers] for a long time, but now it's gotten even more complicated because it's not just the image but the actual product that needs improvement. They've got their work cut out for them."

To improve quality, Club Med has spent $350 million renovating 70 of its resorts. It's adjusting its pricing scheme, offering a one-price option that includes unlimited drinks. Travel agents cite a large number of Club Med loyalists who remain wild about the brand. When Liz Vollan of Aim Higher Travel last visited a Club Med resort, she says, "I met quite a few people who told me that it's the only type of vacation they take, and they're making a lifelong effort to visit as many different Club Med villages as they can." For the brand to grow, it has to get a new generation to adopt that mentality.

But this turnaround effort doesn't take place in a vacuum. Bourguignon says Club Med's rebound was well under way before the September 11 attacks. Now they're working to regain lost ground. Overseas, where Club Med's business is stronger, Bourguignon is making some dramatic moves to extend the brand's reach beyond the resort industry. In France, Club Med runs 42 hip new fitness centers, styled after the Crunch chain. It also has opened Club Med World centers in cities like Paris and Montreal; they offer many of the same social and physical activities found at a Club Med (like circus school) but are designed for day visits instead of vacationing. And as new advertising kicks in, Club Med should be well positioned. "Unless there's a new big international event that creates problems, we consider we'll be back on track in North America in 2004," Bourguignon says. Only then will his management team have time for a vacation.

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