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Club Meds Success

Return on Sales= Net Income (Before Interest and Tax)/ Sales*100


Club Med ROS= 19804/336950*100= 5.88% or 5.3% from Exhibit 2.
As we see that this Return on sales indicates how much profit is
being produced per dollar of sales. Club Meds ROS has consistently
increased from 1981 to 1985 indicating that it was growing
efficiently. In the year 1986 however this ROS has fallen. This is just
a fluctuation in this year. The long term trend indicates growth.
The sales for Club Med have grown from 1985 to 86 by 20% and
however net income rose only by 15%. This has lead to a decline in
the ROS profitability ratio where the numerator has increased less
than proportionately to the denominator. A reason is rise in
expenses, decline in net income per guest, the occupancy in North
America had declined and fixed cost in a service were high and
remained constant. The capacity had been increased in Mexico/
Caribbean and Asia where although the occupancy in Mexico
remained constant, that in Asia declined. The occupancy overall
thus declined. And the growth in customers took place in the
Mexico/Caribbean region.
In comparison with the results of other lodging firms, Club Med is
better than Ramada (1.5%) however much worse than Hilton
(13.2%). Hiltons numbers also indicate a steady decline in ROS as
against Club Meds steady upswing. This comparison however is not
fully appropriate as these lodging firms are pay as you go firms as
against Club Meds all inclusive club style resorts.
ROE= Net Income/ Shareholders Equity
Club Med ROE= 18055/159012*100= 11.35%
In case of ROE, Club Med fares better than Ramada and LaQuinta
but worse than Marriott, Hilton and Four Seasons.
Some other profitability Ratios and their implication:
Gross Margin: It tells us how much it costs to produce the service.
GM= Gross profit/ Net sales*100
GM= 115337/ 336950*100= 34.23%
This means that for every dollar of sales of Club Med, it made 34
cents and spent 66 cents. This indicates that for ClubMed, its SG&A
expenses are driving down profits drastically from 34.23% to about
5.3%.
Return on Assets

It measures how effectively the company produces income from its


assets
ROA= Net income/Assets*100
ROA= 18055/313823*100= 5.75%
In case of competitiveness, its prices are 50-100% cheaper than
other competitors, and has an occupancy of 60% which was lower
than SuperClubs overall occupancy however higher than other
lodging firms (pay as you go).
Comparison with industry averages
Club Meds profit before tax is 4% as against 3% of industry
average. Their labour expenses was one avenue where they saved,
because more people wanted to work with club med allowing the
company to charge relatively lower rates. Their costs were higher as
compared to the industry as they had to maintain large properties.
Club Med had enjoyed a profitable situation, because of its unique
model, now with increased competitors and growing market
potential however, its growth was stunting and net income growth
rate being affected.
Q3.
First time customers accounted for 60% of all customers. Suppose
the total number of customers was 100, 40 were old customers, 60
were new customers in year 1. In the next year, 25% of new
customers would be repeat customers. Hence there would be 15
repeat customers from 60 along with 40 old customers. The number
of old customers thus would be 55 which is 40% of all customers.
Thus the new 60% customers which are added would be 82.5 or 83.
This would make the total customers 138 in number.
New customers
Expected customers
Number of vacations
Cost
Revenue
Revenue
(cumulative)
Average revenue
from each of the 60
new customers

Year 1
60
60
$1200
$72000

Year 2
15
60
$1200
$72000
$144000
$2400

Hence a new customer in the span of two years would give average
revenue of $2400 so as long as the company spent lower than this
amount on marketing and advertising spend or improvement of
service amenities, they would still be making a profit.

Q
Service quality can be measure for Outcomes, Process and
Physical Evidence.
Reliability: Club Med customers relied on the service to a large
extent. This was indicated by the 25% repeat purchase. They also
know that the prices are better and more competitive than other
companies. During the process however, the customers to feel
safer have to have more safety of their belonging.
Responsiveness: The degree of responsiveness was high. Even
when external environmental forces would act on the service
delivery process, like rains, the customers still had high satisfaction
or delight. Increased advertising spend would help Club Med attract
new customers. Increasing loyalty of distribution networks and
finding new channels of sales, like wholesale packages, could be
looked at. This would increase costs, but impact sales and increase
sales for the company manifold.
Empathy: The GOs and chief of every resort were the biggest
element of Club Meds service delivery. They empathized with the
customers, treated them like they were a part of a big family and
regularly interacted with them. They even facilitated inter-customer
interactions. The customers thus had a delightful experience. The
sales increased each year because of this. An opportunity for Club
Med was to have training of GOs and chiefs by other successful
ones so the level of satisfaction was high at all their resorts. They
could also develop new interaction programs especially for the
nighttime, ones which customers felt comfortable in taking up
(unlike the hand movement dance which was hard for customers to
pick up)
Assurance: When availing Club Meds service the vacationers had
a delightful experience, which is why they recommended it to their
friends and family. Installing locks and keys would increase the
assurance.
Tangible: With new competitors coming up in the market and
offering better facilities like large pools, more sports facilities, an
opportunity for improvement existed where Club Med could improve
their existing facilities to attract new customers.
The Spartan rooms allowed the vacationers to get out the rut of
their busy lives. That model was unique to Club Med therefore it
must not be changed.
One way in which physical evidence tangibles can be looked at is
their capacity increases and management. They have increased
occupancy in locations like Asia where occupancy is declining even
though potential new customers are available in the market. This

capacity increase can be reduced or checked to reduce fixed cost


and increase margins.