A division of German-based publishing giant Bertelsmann, the French book club France Loisirs had managed to combine high margins and high levels of customer commitment in terms of long-term purchase agreements for over 30 years. But between 1993 and 2001, its member base and overall sales had both fallen by nearly 18%. Moreover, there was limited scope for activities that might boost customer satisfaction.
INSEAD Visiting Scholar and Professor of Media Management at the University of Cologne Claudia Loebbecke presents the case of a company that had applied a very traditional business strategy to great effect for decades. While still enjoying healthy profits, however, long-term trends did not paint as rosy a likely future for FL, mainly due to population demographics and new sources of heavy competition.
Most business processes for book clubs are fixed-cost operations, (e.g., logistics, printing, member services). The author explains how France Loisirs could achieve the targeted number of new members. Despite selling books with discounts typically as high as 25%, FL enjoyed a gross profit margin of 70-80%, compared to an industry average of only roughly 30%. Rates of return on sales were also five to ten times higher than that of standard mail-order operators.
Loebbecke details how FL's inventive use of multiple sales channels and sophisticated knowledge of its member-base's profile served it well for the company's entire history. It adopted a five-pronged approach to recruiting new members, involving over 500 sales agents and employing a more than 25-year-old marketing system. By 2001, results in this area were impressive. But FL, along with its competitors, was worried about a long-term decline in French market growth for books in general. Younger people were increasingly not buying, although per capita sales continued to grow slightly.
By 2002, FL executives were thinking seriously about dramatically overhauling what was looking more and more like a restrictively old-fashioned business model. But would any other method provide such healthy profit margins? Would the firm have to launch extra non-commitment activities for clients that might create beneficial synergies, such as internet services, or non-commitment mail ordering and book retailing? Should growth strategies focus on offering a bigger choice of merchandise, more aggressive member recruitment drives, or more sophisticated uses of mass media?
The (A) case also considers the expanding French leisure market industry at the time - perhaps surprising in light of a slowing economy. The author then breaks down the increasingly diffuse distribution channels for the national book market, emphasising the large growth in competition from supermarket/hypermarket outlets and specialised chain shops.
The (B) case describes 12 key strategic options that had been discussed by each generation of club managers, without any final conclusion having ever been reached:
1) Outsource industrial processes, (i.e., logistics, customer services, marketing stocks, etc.
2) Focus promotions on the most profitable members
3) Give up all FL outlets
4) Introduce and add more special interest clubs
5) Stress price as FL's most important competitive advantage
6) Replace the direct marketing approach with comprehensive overall branding
7) Offer non-commitment sales channels/business system
8) Place stronger emphasis on music, games and new media
9) Widen the product range with complimentary, non-media products
10) Invest in an image campaign to improve commitment-related, mediocre reputation
11) Customise product offerings and advertising strategies toward "one-to-one", vs. "one size fits all".
12) Give up on commitment-based, mass-oriented business model, and admit end of traditional FL business model life cycle.
Loebbecke details the considerations behind each strategic option as FL's CEO prepares for the next board meeting in 2002, where he is to present his grand strategy for the corporation over the next three years.
INSEAD-University of Cologne, 2002