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Refuge  at  Carmel  Valley  Athletic  Club  

Strategic  Analysis  

California State University, Monterey Bay Fall 2015

 

Brooke Hodges, Madeline Petes, Olivia Reed, Philip Rohlik, Sara Wiese  

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Table of Contents EXECUTIVE  SUMMARY  ...............................................................................................................  4  

HISTORY  AND  OVERVIEW  ..........................................................................................................................  4  EXTERNAL  ANALYSIS  ...................................................................................................................................  4  INTERNAL  ANALYSIS  ....................................................................................................................................  4  POSSIBILITIES  AND  RECOMMENDATIONS  .........................................................................................  4  

HISTORY  AND  OVERVIEW  ..........................................................................................................  6  INTRODUCTION  ...............................................................................................................................  6  HISTORY  .............................................................................................................................................  6  Founding  .............................................................................................................................................................  6  Milestones  ..........................................................................................................................................................  6  

OVERVIEW  .........................................................................................................................................  6  Vision  ....................................................................................................................................................................  6  Mission  .................................................................................................................................................................  7  Goals  ......................................................................................................................................................................  7  Guiding  Principles  ...........................................................................................................................................  7  Organizational  Structure  ..............................................................................................................................  7  Services  ................................................................................................................................................................  8  Markets  ................................................................................................................................................................  9  Industry  Introduction  ....................................................................................................................................  9  Summary  of  Findings  ..................................................................................................................................  10  

CONCLUSION  .................................................................................................................................  12  

EXTERNAL  ANALYSIS  ................................................................................................................  14  INTRODUCTION  ............................................................................................................................  14  GENERAL ENVIRONMENT  ......................................................................................................  14  STEEPG  Analysis  ...........................................................................................................................................  14  External  Stakeholders  ................................................................................................................................  15  Summary  of  Findings  ..................................................................................................................................  16  

COMPETITIVE ENVIRONMENT  .............................................................................................  18  Competitor  Classification  ..........................................................................................................................  18  Direct  Competitors  ......................................................................................................................................  18  Indirect  Competition  ...................................................................................................................................  18  Substitutes  .......................................................................................................................................................  19  Competitive  Positioning  ............................................................................................................................  19  Key  Success  Factors  ....................................................................................................................................  19  Strategic  Groups  Analysis  .........................................................................................................................  20  Supply  Chain  Positioning  ..........................................................................................................................  21  Competitive  Forces  ......................................................................................................................................  21  Summary  of  Findings  ..................................................................................................................................  22  

CONCLUSION  .................................................................................................................................  23  Significant  Opportunities  ..........................................................................................................................  23  Significant  Threats  .......................................................................................................................................  23  

INTERNAL  ANALYSIS  ..............................................................................................................  24  INTRODUCTION  ............................................................................................................................  24  RESOURCES AND CAPABILITIES  .........................................................................................  24  Resources  .........................................................................................................................................................  24  Capabilities  ......................................................................................................................................................  25  

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Internal  Stakeholders  .................................................................................................................................  25  Summary  of  Findings  ..................................................................................................................................  26  Value-­‐Adding  Activities  .............................................................................................................................  27  Summary  of  Findings  ..................................................................................................................................  27  

PERFORMANCE MEASURES  ...................................................................................................  27  Non-­‐financial  Performance  Analyses  ..................................................................................................  27  Summary  of  Findings  ..................................................................................................................................  28  

STRATEGIES  ...................................................................................................................................  29  Corporate  Strategy  ......................................................................................................................................  29  Business-­‐Level  Strategy  ............................................................................................................................  29  Alignment  Analysis  ......................................................................................................................................  30  Summary  of  Findings  ..................................................................................................................................  33  

CONCLUSION  .................................................................................................................................  35  Significant  Strengths  ...................................................................................................................................  35  Significant  Weaknesses  .............................................................................................................................  35  

POSSIBILITIES  AND  RECOMMENDATIONS  ...........................................................................  36  INTRODUCTION  ............................................................................................................................  36  POSSIBILITY 1: ENTER NEW MARKET SEGMENTS  .....................................................  37  Recommendation  A.  Increase  Amenities  ...........................................................................................  37  Recommendation  B.  Pursue  Business  and  Traveler  Market  Segments  ................................  37  Recommendation  C.  Increase  Branding  .............................................................................................  38  Recommendation  D.  Promote  Hydrothermal  Cycle  Credibility  ...............................................  38  Recommendation  E.  Utilize  CRM  Database  .......................................................................................  38  

Possibility 2: EVALUATE RELATIONSHIP BETWEEN CVAC AND REFUGE  .........  39  Alternative  A.  Draw  Clearer  Lines  Between  CVAC  and  Refuge  ................................................  39  Alternative  B:  Promote  Synergy  Between  CVAC  and  Refuge  ....................................................  41  

CONCLUSION  .................................................................................................................................  41  Enter  New  Market  Segments  ...................................................................................................................  42  Evaluate  Relationship  between  CVAC  and  Refuge  .........................................................................  42  

Pre-­‐Appendix  ............................................................................................................................  44  

APPENDIX  1  ...............................................................................................................................  46  Exhibit  A:  Milestones  ..................................................................................................................................  46  Exhibit  B:  CVAC’s  Mission  .........................................................................................................................  46  Exhibit  C:  CVAC  Services  ...........................................................................................................................  46  Exhibit  D:  Fitness  and  Recreational  Sports  Centers  Industry  Information  ........................  48  Exhibit  E:  Fitness  Industry  Trends  .......................................................................................................  48  Exhibit  F:  STEEPG  Analysis  ......................................................................................................................  49  Exhibit  G:  Supply  Chain  Positioning  .....................................................................................................  52  Exhibit  H:  CVAC  and  Refuge’s  Value-­‐Adding  Activities  ...............................................................  53  Value-­‐Adding  Activities  .............................................................................................................................  53  Primary  Activities  ........................................................................................................................................  53  Supporting  Activities  ..................................................................................................................................  54  Exhibit  I:  Summary  of  Findings  ..............................................................................................................  55  

APPENDIX  2  ...............................................................................................................................  58      

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EXECUTIVE  SUMMARY  

Refuge is a hydrothermal spa located at Carmel Valley Athletic Club (CVAC) in Carmel Valley, California. Analysis of Refuge’s history, overview, external environment and internal environment was performed in order to provide possibilities and recommendations for developing a sustained competitive advantage.

HISTORY AND OVERVIEW Refuge was founded in 2011 and has become a popular destination for the community and travelers. It is privately owned by the McKay family trust. Refuge’s vision is to provide pristine customer service. In addition to the hydrothermal cycle, aromatherapy infused Swedish, sports, and deep tissue massages are also available for purchase. Refuge is part of the health spa services industry, which is in a stage of steady growth. A major growing segment of the industry is integrated health spas, which, like Refuge, are facilities with a focus on wellness. Other major trends include increases in spa visits by men and couples.

EXTERNAL ANALYSIS The external analysis examines Refuge’s general and competitive environments. Analysis yields several opportunities and threats. Significant opportunities include expanding amenities to meet the needs of consumers, offering online scheduling for convenience and efficiency of staff. Significant threats are the increasing water concerns in California, the option of alternate spas, and the lack of amenities Refuge offers.

INTERNAL ANALYSIS The internal analysis explores Refuge’s business operations. Analysis of the internal environment results in several strengths and weaknesses. Significant opportunities include location, the ability to increase amenities, and the uniqueness of the Refuge concept. Significant threats are Refuge’s dependence on CVAC, marketing and sales, lack of separation of financial statements, lack of key performance indicators (KPIs), lack of measurement of return customers, lack of alignment of vision, and lack of mission statement alignment.

POSSIBILITIES AND RECOMMENDATIONS After complete analysis, two possibilities are identified. Possibility One entails entering new market segments by increasing amenities, focusing marketing efforts on the business and traveler market segments, increasing branding, establishing hydrothermal cycle credibility, and utilizing the CRM database. Possibility Two entails evaluating the relationship between CVAC and Refuge, and either draw clearer lines between the companies, or increasing synergy. Drawing lines between the companies could be accomplished by developing a new vision for Refuge, establishing operational protocols, separating financial performance measures, implementing KPIs, and ultimately expanding the Refuge concept. Improving synergy between the companies could be accomplished through implementing KPIs and integrating CVAC and Refuge’s CRM databases.

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HISTORY  AND  OVERVIEW      

INTRODUCTION Carmel Valley Athletic Club (CVAC) and Refuge are located at 27300 Rancho San Carlos Road, in Carmel Valley, California. CVAC is a luxury athletic club and Refuge is a hydrothermal relaxation spa. CVAC members receive 12 guest passes annually as well as discounted admission rates at Refuge.

HISTORY This section examines the history of CVAC and Refuge, including their development and significant milestones.

Founding Peter Paxton, an athletic club owner from Traverse, California, was convinced by friends to open an athletic club near Carmel, California in 1968. The perfect location for the club was found while Paxton relaxed at the current spot of CVAC: close to the ocean but just beyond the fog line—the ideal temperature for sports. Paxton built the club during the height of the tennis boom and named it Carmel Valley Racquet Club. In 1976, Dennis Shephard purchased Carmel Valley Racquet Club (R. Haas, personal communication, September 15, 2015).

Milestones CVAC has weathered two major natural disasters as well as undergone numerous changes over the years. In 2004, Scot McKay purchased CVAC and immediately began renovations (Hale, 2012). Scott McKay always dreamed of opening a hydrothermal relaxation spa. After an early morning fire destroyed the original two-story clubhouse in July of 2007, this dream came true and the McKay Family trust began to build Refuge at CVAC. In November of 2011, CVAC introduced Refuge, a multimillion-dollar hydrothermal relaxation spa. For more information on CVAC and Refuge Milestones see Appendix 1 - Exhibit A: Milestones describes the milestones of CVAC and Refuge.

OVERVIEW This section provides an overview of the vision, mission, goals, and guiding principles of CVAC and Refuge.

Vision According to Mastering Strategic Management, “a vision is one key tool available to executives to inspire the people in an organization” (Ketchen & Short, 2015, 2.1). CVAC and Refuge share the same vision, which is to satisfy the customer through pristine customer service (R. Haas, personal communication, September 20, 2015).

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Mission A mission statement “should explain to stakeholders why they should support the organization by making clear what important role or purpose the organization plays in society” (Ketchen & Short, 2015, 2.1). The core of CVAC and Refuge’s missions is to provide customers with a resort environment at an affordable price. Appendix 1 - Exhibit B: CVAC’s Mission contains CVAC’s mission statement. Refuge’s mission statement is as follows:

At Refuge we aim to provide affordable relaxation through use of our Refuge Thermal Cycle. Our silence policy, our exceptional massages, and our beautiful natural setting contribute to our unrivaled relaxation experience. Enhancing our guest’s lives with excellent customer service and exposing them to the life changing effects of true relaxation is our daily mission. In a world where technology has allowed stress to become a constant companion, we hope to offer a moment's rest. (Refuge, 2015)

Both businesses strive to be number one on the Monterey Peninsula. It is expected that when customers walk through their doors, they feel like the most important person in the room. This creates value and differentiates CVAC and Refuge from their competitors. The resort-like atmosphere not only relaxes members, but also encourages them to reach their own personal health goals (R. Haas, personal communication, September 15, 2015).

Goals Goals are narrow aims that should provide guidance to employees—“the most effective goals… are specific, measurable, aggressive, realistic, and time-bound” (Ketchen & Short, 1.1). CVAC’s goals are to fine-tune operations and to create relationships amongst its guests, which is accomplished through community events. Refuge’s goals are to treat employees fairly and provide customers with exceptional service (R. Haas, personal communication, September 15, 2015).

Guiding Principles Guiding principles are defined as “any principles or precepts that guide an organization throughout its life in all circumstances” (Business Dictionary, 2015). As stated by Ron Haas, CVAC operates under the following guiding principles: integrity, commitment, respect, teamwork, and innovation (R. Haas, personal communication, September 15, 2015). The guiding principles enable CVAC and Refuge to maintain a standard of excellence throughout the facilities and ensure that customers always feel like they are the priority.

Organizational Structure In 2014, the McKay family hired General Manager, Ron Haas, to oversee the operations at both CVAC and Refuge. Most day-to-day decisions are answered by Haas; however, any major projects, policy, or membership changes are reviewed by Adam Tight, the Chief Executive Officer (CEO), and Heidi McKay, owner of the McKay Group (R. Haas, personal communication, September 20, 2015). The current structure of the company is represented in Appendix 2 - Exhibit A: Organizational Structure.

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In 2015, CVAC formed an advisory board that consists of Heidi McKay, Adam Tight, Ron Haas, a certified public accountant, and the founder of The Bay Club—a friend of the McKay family. The daily management operations team of CVAC and Refuge consist of: General Manager Ron Haas, Refuge Director Eleanor Reynoso, Membership, Director Kim Beene, Accounting Director Audrey Brown, Fitness Director Megan Canning, and Concierge Director Paige McKay. Haas has over 30 years of experience in the hospitality and private club industries. Director of Refuge, Eleanor Reynoso, has served in the hospitality industry for over eight years and works closely with Haas to continually develop Refuge. CVAC and Refuge employees are assessed annually for their performance, capabilities, and professionalism (R. Haas, personal communication, September 20, 2015).

Services Appendix 1 - Exhibit C: CVAC Services depicts the services CVAC offers. Refuge is located parallel to the athletic club and is owned and operated by CVAC. Refuge is elegantly designed with beautiful waterfalls, luxurious landscaping, and modern engineering. The organization enforces a strict silence policy to provide clients with a memorable experience and complete relaxation. Refuge is open 10 A.M. to 10 P.M. 365 days a year (R. Haas, personal communication, September 15, 2015). Figure 1: Refuge Revenue depicts the revenue streams generated from Refuge’s services. Refuge Hydrothermal Cycle. To achieve maximum relaxation, clients are encouraged to follow the steps of the hydrothermal cycle: warm up in the sauna for 6-10 minutes, dip in the cool or cold pool for 10-60 seconds, and lounge in a relaxation area for 10-15 minutes. This cycle should be repeated 3-5 times, while enjoying warm or hot pools in between cycles. Admission. General admission is $44 and includes access to the warm and cold pools, the sauna, and lounge area. The deluxe package is $55 and includes a robe rental and bottled water in addition to the general admission. Massages. Aromatherapy infused Swedish, sports, and deep tissue massages are available for purchase, ranging from $109 to $206.

Figure 1: Refuge Revenue Refuge Fees

General Admission $44

Deluxe Package (robe & slippers) $55

Robe Rental $12

Swedish Massage (50 min / 100 min) $109 / $174

Deep Tissue Massage (50 min / 100 min) $125 / $206

Sports Massage (50 min / 100 min) $115 / $186

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Markets Refuge aims its marketing efforts towards male and female working professionals, ages 25 to 55. The spa has been a popular location for couples, travelers, and community residents who share a common desire for relaxation. Currently, 66% of Refuge’s Facebook audience is women living in Monterey County between the ages of 25 and 54 years old while 14% are men living in Monterey County ages 25 to 54 years old (R. Haas, Personal Communication, September 18th, 2015).

Industry Introduction CVAC falls into the fitness and recreational sports centers industry, which is detailed in Appendix 1 - Exhibit D: Fitness and Recreational Sports Centers Industry Information. Refuge is part of the health spa services industry, considered an extension of the fitness and recreational sports centers industry. The spa services industry is in a stage of steady growth, as demonstrated in Appendix 2 - Exhibit B Industry Lifecycle Chart (Hoovers Inc., 2015). NAICS Code and Characteristics. According to the North American Industry Classification System (NAICS), the fitness and recreational sports centers industry consists of facilities that “feature exercise and other active physical fitness conditioning or recreational sports activities, such as swimming, skating or racquet sports” (NAICS, 2012, para. 2). The NAICS code for fitness and recreational sports centers is 713940. According to NAICS, spas without accommodations are considered an extension of the fitness clubs industry and are also classified under the code 713940. Due to growing concerns about health and fitness worldwide, the industry has experienced steady growth since 2008, and industry growth is projected through at least 2020 (Statista, 2014). In the U.S., industry revenue, total employment, and population per establishment are increasing, as depicted in Appendix 2 - Exhibit C: Fitness Clubs and Health Spas Industry Statistics. However, the number of establishments has decreased 7% from 2007 to 2012 (NAICS, 2012). Industry Trends: Fitness club industry trends are depicted in Appendix 1 - Exhibit E: Fitness Industry Trends. The U.S. day spa industry in particular has grown steadily since 2008, with 2013 revenue reaching an all-time industry high of 14.7 billion dollars, an increase of 700 million from 2012. In 2013, there were a total of 164 million spa visits in the U.S.—an increase of four million from 2012. From 2011 to 2014, the number of spas in the U.S. has increased steadily from 19,850 to 20,660, and day spas are increasingly expanding their service offerings to claim a larger share of the growing market. Integrated health spas are facilities with a focus on promoting wellness and a healthy lifestyle, such as Refuge (Fenard, 2015). They are growing steadily in number and are expected to increase in popularity in the coming years. Demand for integrated health spa facilities is driven in part by the growth of wellness tourism. Cosmetic medical spa facilities, which provide services such as microdermabrasion and chemical peels, are increasing in popularity (Anderson, 2015). Spas with accommodations and hotels with spas are also growing steadily in number, further

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increasing the already highly competitive spa services market (Fenard, 2015). Other major current trends in the spa industry include a growing demand for green certification and sustainability, treatments for men, and customizable treatments (First Research, 2015).

Summary of Findings After examining the history and overview of CVAC and Refuge, several strengths, weaknesses, opportunities, and threats were identified, as shown in Figure 2: History and Overview Summary of Findings.

Figure 2: History and Overview Summary of Findings Strengths Weaknesses Opportunities Threats

Overview - Healthy lifestyle trend - Lack of synergy

Organizational Structure - Management - Family Trust

Products / Services / Markets

- Attractive location

-Property capacity

- Loyalty program - Variety of services - Sustainability - Expansion of spa treatments for men and couples

Industry Introduction

- Industry growth

-Competition - Attractive pricing of substitutes - Environment

Strengths. Four strengths were identified after examining CVAC and Refuge’s history and overview: compatibility with the healthy lifestyle trend in the United States, management, attractive location, and the growing fitness and spa industries. Compatibility with the healthy lifestyle trend in the United States. CVAC has constantly evolved throughout its lifespan to remain on top of industry trends, including a recent remodel and the development of Refuge. CVAC promotes health through its different classes and trainers, as well as a through stress-free environment at Refuge (R. Haas, personal communication, September 15, 2015). Management. Haas’ goal is to utilize his experience and training to ensure high quality service. He excels in establishing relationships and building teams that focus on people, service, presentation and accountability (R. Haas, personal communication, September 15, 2015). Attractive location. The unique and rugged beauty of Carmel Valley plays a significant role in the facilities’ appeal, and the quiet serenity of the region reflects the carefully cultivated atmosphere within Refuge.

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Growing industry. The rapidly increasing demand for integrated health spa services distinctly benefits Refuge, which is differentiated from spa facilities both with and without accommodations through its unique service offerings. Weaknesses. Analysis of the history and overview revealed three key weaknesses: lack of synergy between CVAC and Refuge, operating under the family trust, and property capacity. Lack of synergy between CVAC and Refuge. CVAC members were initially unhappy about the addition because they were not able to enjoy it, despite being able to see it from CVAC. Over time, Refuge has evolved to include CVAC members; however, there is still work to be done in order to obtain complete synergy between the two facilities. Family Trust. The McKay family trust owns both CVAC and Refuge. Making decisions and changes to the property can be delayed awaiting approval from the family. Property Capacity. Refuge currently has limited space for additional services; there are only eight massage rooms available. Since Refuge shares the same parking area with CVAC, parking is a significant issue; the lot that Refuge and CVAC are built upon is surrounded by property that they cannot expand into or purchase (R. Haas, personal communication, September 15, 2015). Opportunities. After analyzing CVAC and Refuge’s history and overview, four potential opportunities were identified: offering a loyalty program, expanding the variety of services, increasing sustainability, and expanding spa treatments for men and couples. Loyalty Program. As a unique new business, Refuge has a tremendous opportunity to obtain loyal customers. One way to do this is through a loyalty program similar to frequent flyer miles—for example Refuge could waive the entrance fee once customers obtain $1,000 worth of points. Additionally, Refuge could allow CVAC members a discounted entrance fee of $40 during slow hours. Variety of services. Refuge offers massages to customers, but adding more spa services could significantly increase the number of visitors to the facility. Sustainability. In the highly competitive fitness and spa industries, sustainability is increasingly becoming a necessity (Franchise Help, 2015). Through expanding current sustainability practices, CVAC and Refuge have the opportunity to enhance long-term viability of the facilities and to create superior value for patrons who are concerned about their carbon footprints. Expansion of spa treatments for men and couples. As the number of men seeking spa treatments rises, spa facilities have the opportunity to attract men through expansion of services created for them, such as facials, hair removal, and couples massages (First Research, 2015).

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Threats. After the analysis of history and overview, three potential threats were identified: competition, attractive pricing of substitutes, and the current environment. Competition. CVAC and Refuge must compete directly with numerous athletic clubs, spas and hot springs on the Monterey Peninsula. CVAC and Refuge must also compete with substitutes, including at-home exercising and treatments. As a destination day spa, Refuge competes with spa facilities in the region, and even the nation for wellness tourists who plan trips based on spas they would like to visit. Attractive Pricing of Substitutes. Both CVAC and Refuge offer unique services and must compete with lower-priced substitute services that appeal to frugal consumers. Although CVAC and Refuge provide high value for customers, there is potential concern for the future if the economy worsens, leading consumers to seek low-price alternatives. Environment. In recent years, California has been experiencing drought, and governmental regulations have been implemented to help conserve water. Refuge would be extremely affected if the government were to put pool restrictions in place.

CONCLUSION After analyzing the history and overview of CVAC and Refuge, three significant strengths, one significant weakness, three significant opportunities, and two significant threats were defined. Each is depicted in Appendix 2 – Exhibit D: Significance of Strengths, Weaknesses, Opportunities, and Threats.

Significant Strengths Three significant strengths have been identified: compatibility with the healthy lifestyle trend, industry growth, and the attractive location. These provide Refuge with the ability to expand its market segment.

Significant Weaknesses Property capacity is a significant weakness for CVAC and Refuge. This is a significant weakness because it limits the ability of expansion.

Significant Opportunities Three significant opportunities have been identified: creating a loyalty program, expansion of Refuge, and expansion of spa services for men and couples. These are significant opportunities for Refuge to grow its market share.

Significant Threats Two significant threats have been identified: competition and environmental factors. With the growth of the spa industry, competition is on the rise, and it will be vital to stand out in the industry. Similarly, the California drought increases the threat of government restrictions on water use, which would decrease revenue for Refuge.

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EXTERNAL  ANALYSIS  

INTRODUCTION This section of the analysis explores the external environment of CVAC and Refuge. It is essential for both businesses to focus on the external factors of the general and competitive environments in order to succeed.

GENERAL ENVIRONMENT The general environment of CVAC and Refuge is comprised of “overall trends and events in society” (Ketchen & Short, 2015, p.140). These factors are examined through an analysis of CVAC and Refuge’s driving forces and external stakeholders.

STEEPG Analysis A STEEPG analysis examines an industry’s social, technological, economic, environmental, political and legal, and global forces (Ketchen & Short, 2015, p.56). A STEEPG analysis has been conducted to examine the driving forces within the fitness and spa industries. The most significant aspects of the STEEPG are listed below, and the full analysis can be found in Appendix 1 - Exhibit F: STEEPG Analysis. Significant social factors include a growing interest in health worldwide, which has resulted in an increased demand for preventative health and relaxation services (Peavey, 2015. However, substitutes for fitness and spa facilities, such as exercising at home, and do-it-yourself home spa treatments are rising in popularity. Additionally, interest in integrative health spas and wellness tourism is increasing, granting Refuge a relative competitive advantage among local spas that do not offer comparable services. Significant technological trends include new marketing opportunities, as well as innovations that improve operational efficiency (Peavey, 2015). However, a trend of reducing technology is also emerging in the spa industry, particularly in integrated health spas. Significant economic factors include increasing energy costs—particularly water rates—and the state of the U.S. economy (California Water Science Center, 2015, Koba, 2011). Significant environmental factors are the California drought and the growing demand for natural, organic, and homeopathic products and treatments (Stromgren, 2015). There are several political and legal forces that affect the fitness and spa industries, including the Occupational Safety and Health Administration, the California Department of Public Health, the Fair Labor Standards Act, the California Massage Therapy Council, the Americans with Disabilities Act, water regulations, building codes, safety regulations, tax regulations, and potential legal liabilities.

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Significant global forces include: the rising demand for integrated health spas which has led to numerous opportunities for expansion of spa brands internationally, and demand for innovative and unique treatments and spa concepts (Fenard, 2015).

External Stakeholders External stakeholders can be defined as “anyone outside a particular company who is affected by its success or failure” (Cambridge Press, 2015, para. 1). Customers, suppliers, Café, independent contractors, and the community are all external stakeholders of CVAC and Refuge. External stakeholders add value to the businesses when they offer advice and opinions on important issues. Each stakeholder has a varied range of interests and concerns; these may align in some ways but conflict in others. It is up to management to address the needs of stakeholders as it conducts its activities. Management can benefit from external stakeholders by recognizing its concerns and expectations, then adjusting business activities to align with them. Appendix 2 - Exhibit E: Influence of External Stakeholders demonstrates the significance the external stakeholders have on CVAC and Refuge. Appendix 2 - Exhibit F: Importance and Influence Matrix depicts the influence of external stakeholders. Customers. Customers are the first and most important external stakeholders because they are considered the resource upon which the success of the businesses depends. Customers have high influence to business operations because they provide a revenue stream as well as word-of-mouth marketing. Strong customer service is essential to business operations because it creates loyal customers. Loyal customers often encourage new customers to visit, which builds a strong reputation and brand recognition. Strong relationships with customers protects against the draw of competition in the industry. Management should acknowledge and actively monitor concerns of all customers and take their interests into account when making decisions due to their high level of significance (Ron Haas, personal communication, September 23, 2015). Suppliers. CVAC and Refuge’s shared suppliers are necessary for all aspects of operations. Suppliers impact business operations by offering quality, competitive pricing, and innovation. Building relationships with suppliers can be beneficial by allowing each business to develop a shared vision, set of goals and align strategies. There are many different suppliers that offer similar products and services at competitive prices. Suppliers have a low level of influence on the businesses as well as low importance to each operation. Management needs to monitor suppliers to ensure they aligned with Refuge’s business operations. Suppliers are easily replaced and have low significance to both facilities. Café. As a separate business entity located inside CVAC, the Café is dependent on CVAC’s members and Refuge’s customers. The Café has high importance to CVAC, as its priority is to give a positive experience to customers. Although the Café’s  importance is high, it has very little influence or direct power over CVAC or Refuge. The separation between the Café and business operations requires clear and consistent communication from management. The Café gives a percentage of its profits to CVAC and Refuge;

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however, another food service provider could easily replace it. This results in a medium significance for the facilities (Ron Haas, personal communication, September 23, 2015).  Independent Contractors. The massage therapists and fitness instructors operate as independent contractors. These contractors are vital to business operations as the massage therapists provide a significant portion of the Refuge experience, resulting in high importance. Although they are essential, independent contractors are easily replaced; about half of spa industry employees are part-time or contract workers (Spa Service, 2015). Since the independent contractors are replaceable, they have a low influence on business operations. The spa does not utilize full time massage therapists and instead hire independent contractors, resulting in a low significance. Community. In addition to being a place to achieve personal heath goals, CVAC is seen as a place for the community to socialize, relax and unwind. Refuge is a retreat for community members to escape to when life is hectic and overwhelming. Its silent policy allows complete relaxation, resulting in peace in the community. Community is considered of high importance to CVAC and Refuge. These factors considered create a high level of significance.

Summary of Findings After examination of the general environment of the fitness and spa industries, seven opportunities and three threats for CVAC and Refuge were identified. These opportunities and threats are depicted in Figure 3: General Environment Opportunities and Threats.

Figure 3: General Environment Opportunities and Threats. Opportunities Threats

Driving Forces - Expand marketing to target male demographics - Expand amenities - Incorporate medical treatments - Electronic scheduling - Expand to international markets

- Water regulations - Competing spa

External Stakeholders - Increase sustainability - Hire full-time massage therapists

- Community involvement

Opportunities. Analysis of CVAC and Refuge’s general environment revealed seven opportunities: expanding marketing efforts to target male demographics, expanding amenities, incorporating medical treatments, incorporating electronic scheduling, expanding to international markets, increasing sustainability, and hiring full time massage therapists. Expand Marketing to Target Male Demographics. Due to the increase in the number of males seeking spa services, there is an opportunity for Refuge to increase male visitors through targeted marketing (First Research, 2015).

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Expand Amenities. Refuge stands to benefit by offering a variety of services including couples massages and skin care. Incorporate Medical Treatments. Due to the rise of interest in medical spa treatments, Refuge has the opportunity to reach a wider range of consumers by introducing medical spa treatments such as chemical peels and laser therapy (First Research, 2015). Electronic Scheduling. Scheduling frequent trips to a spa can be time consuming. Refuge can benefit by offering electronic scheduling through its website that provides customers with the convenience of making appointments online. This would allow customers to save time and make employees more efficient while in the office. Increase Sustainability. Refuge has the opportunity to increase sustainability. This could improve operational efficiency and become an effective marketing tactic. The spa could better communicate to customers how it makes an active effort to leave a smaller carbon footprint. Expand Into International Markets. As demand for spa services is increasing worldwide, Refuge has the opportunity to increase market share through expansion of the Refuge brand, first nationally and eventually internationally (Statista, 2014). Hire Massage Therapists as Employees. Hiring massage therapists as employees would allow customers at Refuge to purchase a massage after they use the facility for an extended relaxation period, increasing guest satisfaction and customer-employee relationships and ensuring demand for massaged is met. Threats. After analysis of the general environment and external stakeholders, three threats were identified: water regulations, community involvement, and the option of an alternate spa. Water Regulations. If the government puts pool restrictions in place, Refuge would be significantly affected. While the drought affects local competitors similarly, regional, national, and international competitors that are not in a drought will be at a competitive advantage. Competing Spa: People are constantly looking for convenience; if someone needs to have a facial, wants a massage, and wants to dip in pools, it could be more convenient to go to a competitor who offers all of those amenities in one location. Community involvement: The community is of high relevance to the success of CVAC and Refuge. If consumers were to grow increasingly concerned with local water supply, they have the power to change the water regulations.

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COMPETITIVE ENVIRONMENT

Competitor Classification This section evaluates CVAC and Refuge’s competitors according to the services offered.

Direct Competitors Direct competitors are “two or more firms that offer essentially the same good or service” (Business Dictionary, 2015, para. 1). CVAC currently has five direct competitors: The Beach and Tennis Club, Spanish Bay Club, Carmel Valley Ranch, Pasadera Country Club, and Quail Lodge. Although Refuge is unique by offering a hydrothermal cycle and spa experience, the most direct competition faced is a local hot spring, Esalen Institute. For more information on indirect competition and substitutes of CVAC and Refuge see Appendix 2 - Exhibit G: Competitors Compared. Esalen Institute. Esalen Institute is located 12 miles south of Big Sur. The structured and personal retreats as well as the option of lodging, dining and extensive events calendar provide guests with an option for an all-inclusive experience (Visit, Esalen, n.d.). Guests who are solely looking for access to the hot springs are welcome to make a reservation seven days per week. Esalen also offers a shuttle service at various rates for those traveling from Monterey, San Jose, and even San Francisco (Getting Here, Esalen, n.d.).

Indirect Competition Indirect competition refers to “competition among businesses that sell or produce similar products, or products that fulfill similar needs” (Investor Words, n.d., para. 1). CVAC’s indirect competitors include chain gyms and fitness centers including: In-Shape Carmel, Sanctuary Rock Gym, Fitness Evolution, and Mind Valley Athletic Center. Refuge competes with many spas indirectly on the Monterey Peninsula. The most significant indirect competitors to Refuge are The Spa at Pebble Beach, The Spa at InterContinental-The Clement Monterey, Bernardus Lodge and Spa, and massage chains. The Spa at Pebble Beach. The Spa at Pebble Beach is located within The Lodge at Pebble Beach. Its luxurious facility includes a re-energizing juice bar, a café, and massages starting at $170 (The Spa at Pebble Beach, n.d.). The Spa at InterContinental - The Clement Monterey. Located Oceanside within The InterContinental Hotel on Cannery Row, The Spa at InterContinental offers a variety of massages starting at $95. Its historic location and many hotel amenities appeals to tourists and couples alike (Spa, InterContinental The Clement, n.d.). Bernardus Lodge and Spa. Bernardus Lodge and Spa is located in Carmel Valley. Guests can enjoy facials, body indulgences, wellness rituals, treatment packages and massages starting at $150 (Treatments, Bernardus, n.d.).

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Massage Spa Chains. A business chain is defined as “one of a number of retail stores operating under the same brand name and selling similar merchandise” (The Free Dictionary, n.d. para. 2). Massage spa chains include businesses like Massage Envy and Hand & Stone Massage (Massage Envy, n.d.).

Substitutes “Substitutes are offerings that differ from the goods and services provided by the competitors in an industry but that fill similar needs to what the industry offers” (Ketchen & Short, 2015, 3.3). CVAC’s substitutes include activities at home, such as exercise videos, recreation sports and walking the public trails on the Monterey Peninsula. Refuge faces many substitutes worldwide, however the most significant substitutes include: swimming pools and hot tubs, do-it-yourself alternatives and natural hot springs. Swimming Pools and Hot Tubs. According to World of Psychology (2010), swimming helps reduce depression, stress, and anxiety (para. 3-6). Pools and hot tubs are offered as an amenity to hotel guests at no extra charge and do not require guests to travel. At Home – Do It Yourself. Consumers are choosing to do at-home alternatives to achieve similar results as they would during a spa treatment (Shape, 2013). Stores like Brookstone offer at home massage products (Brookstone, 2015). In addition, websites like Whole Living provide step-by-step instructions on how to conduct hydrothermal relaxation by mimicking Turkish and Balinese techniques in the comfort of your own home (Whole Living, 2015). Sykes Hot Springs. Sykes Hot Springs is accessed via a 10-mile hike through the Ventana Wilderness of Pfeiffer Big Sur State Park. The clear-running mountain stream, redwoods, and natural hot springs create a popular destination for locals and tourists alike. (Ventana Wilderness Alliance, n.d.)

Competitive Positioning A company’s competitive positioning determines its level of success among competition in the market. How well a company differentiates its product or service offering decides the significance its influence will have in the market. Refuge’s hydrothermal cycle and massage experience, paired with its attractive price, grants the company a competitive advantage in the local region (Competitive Positioning, Marketing Mo, n.d.).

Key Success Factors Key success factors are the essential elements a company must have to compete and to be perceived by the customer as value added to the business relationship (The Process of Strategic Planning, n.d.). Refuge has three key success factors it must maintain: facility design, affordability and location. These keys to success, among spas in the industry, are compared in Appendix 2 - Exhibit H: Destination Spa Amenities, Price, and Location. Facility Design. A beautiful facility design will ensure that clients have a memorable experience that instills a desire to return (Segerberg, J., n.d.). Refuge’s business model is built around the hydrothermal cycle. The spa differentiates itself on the Monterey

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Peninsula by offering the only co-ed hydrothermal cycle. The hydrothermal cycle provides clients with a one-of-a-kind experience, and when paired with a massage it adds even greater value. This is appealing to customers who are looking for more than just a massage but a daylong experience. The hydrothermal cycle is a key factor in attracting potential Refuge clients. Affordability. Value is often perceived by customers based on price and quality of service. Refuge’s relatively low admission price is a key factor in attracting new clients. The standard price of a massage with the entrance to the hydrothermal cycle is perceived as value added to the client. Furthermore, Refuge’s affordable prices allow the company the potential to grow its market size. Admission into Refuge allows clients to enjoy the facility for hours at a time, offering significant value. Location. The location of a spa is significant in the achievement of the environment and overall setting. Refuge’s location is convenient for travelers exploring the central coast and seeking a secluded environment. Carmel Valley is near to some of California’s top destinations including Pebble Beach, Carmel-by-the-Sea, and Big Sur. The spa’s secluded location adds to its beautiful scenery in the Carmel Valley forest. Additionally, Carmel Valley attracts affluent clientele with a greater disposable income for luxurious experiences. Carmel Valley’s reputation, convenience and beauty add value to the spa.

Strategic Groups Analysis A strategic group analysis identifies competitors with similar business models and their position in the industry. Refuge is compared to local indirect competitors, its most direct competitor, and prestigious spas from all over the world can be found in Appendix 2 - Exhibit I: Prestigious Destination Spas. Figure 4: Strategic Groups Analysis Map positions each business on the map, based on amenities and price (Strategic Groups, Business Dictionary, n.d.).

Figure 4: Strategic Groups Analysis Map

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  Mii Amo Resort and Spa, Cal-La-Vie Health Spa, Lake Austin Spa Resort, Aro-Ha Wellness Retreat and West Glow Resort and Spa are all located in the upper right quadrant for their high price and high amenity offerings. Esalen and the local spas to Refuge are located towards the middle of the upper and lower right quadrants for their relatively high price and amenity offerings. Refuge is positioned towards the lower left bottom quadrant due to its lower price and fewer amenity offerings.

Supply Chain Positioning Supply chains “provide inputs that the firms in an industry need to create the goods and services that they in turn sell to their buyers” (Ketchen & Short, 2015, 3.13). Appendix 1 - Exhibit G: Supply Chain Positioning depicts the supply chains CVAC and Refuge utilize for each business operation.

Competitive Forces Porter’s five forces is a tool used to analyze external forces in an industry including: threat of new entrants, threat of substitutes, bargaining power of suppliers, bargaining power of buyers, and rivalry amongst existing competitors. It aims to determine the company’s position in the industry in order to maximize profit margin (Ketchen & Short, 2015, 3.3). Appendix 2 - Exhibit J: Competitive Forces, explains the influence of the industry on each force, as well as rates the significance in regards to Refuge. A high rating is the most significant and a low rating is the least significant. Threat of New Entrants. The threat of new entrants refers to the barriers to enter the industry. If the barriers to entry are low and the industry has a large profit margin, then the threat of new entrants will be low (Ketchen & Short, 2015, 3.3). In the spa industry, start-up costs are relatively high. Along with start-up costs, new entrants will have to compete with well-known and established wellness spas. As a result, the threat of new entrants in the industry is low; Refuge does not face a significant threat of new entrants because of the high barriers to enter into the market. Threats of Substitutes. The threat of substitutes refers to the ease of switching to an alternative company in the same industry that offers similar products or services with either more attractive pricing or better quality at low cost to the customer (Ketchen & Short, 2015, 3.3). The threat of substitutes is extremely high in the spa industry due to at-home alternatives such as Brookstone products. These products have high initial cost; however, they can be used on a daily basis, whereas massages from day spas can only be used once per purchase (Brookstone, 2015). The main offering of Refuge is hydrothermal pools; although the same pools are not readily available at home; substitutes such as bath tubs, swimming pools, hot tubs, heating pads, and ice packs can all be used to achieve similar health benefits. Power of Suppliers. The number of supply companies available directly affects the bargaining power of suppliers. The power of suppliers is high when there are few supply companies, the materials are scarce, or the cost of switching suppliers is more expensive

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than keeping the same supplier. A high power of suppliers results in a lower profit margin (Ketchen & Short, 2015, 3.3). The power of suppliers in the day spa industry is of medium significance because there are many different areas that supplies come from, and some have high power while others have low. For example, the sources of utilities for the spa results in high power because there are not many other alternatives; however, the suppliers of the spa products results in a low significance because there are many competitors and they are easy to find. Due to these differences, Refuge faces a moderate effect on costs from suppliers. Power of Buyers. The bargaining power of buyers refers to the amount of power buyers have in negotiating prices or quality from companies in an industry. Buyers have high bargaining power when there are products purchased in bulk, there are many substitutes, or there are not enough buyers (Ketchen & Short, 2015, 3.3). The prices of day spas can vary immensely, giving customers the ability to find a spa in their budget. This is rated as low level of significance because buyers do not have the ability to negotiate prices or create price wars within the industry. Refuge is one of the most affordable wellness spas on the Monterey Peninsula; there is almost no threat of a price war from competitors (Personal Communication, Ron Haas, September 23, 2015). Rivalry. Rivalry amongst existing firms evaluates the competition that already exists in the industry. Rivals are competitors in the industry who offer similar products or services and have the same target market. These competitors use different strategic moves including marketing tactics, price wars, and differentiation to gain new customers and to keep current customers (Ketchen & Short, 2015, 3.3). The spa industry faces a high level of rivalry amongst existing firms because there are more than 20,660 spas in the United States (Statista, 2014). Customers are not provided with incentives to remain loyal to spas; consequently it is easy for the customers to switch to a substitute that may offer lower pricing, closer proximity, or different amenities. Due to price wars, profit margins often shrink when there is high rivalry amongst existing firms. With several competing spas on the Monterey Peninsula, Refuge faces high rivalry.

Summary of Findings Analysis of the general and competitive environments, two opportunities and two threats were identified as shown in Figure 5: External Analysis Opportunities and Threats.

Figure 5: External Analysis Opportunities and Threats Opportunity Threat

Competitor Classifications - Lack of amenities

Competitive Positioning - Partner with a hotel to expand

Supply Chain - Leveraging supply chain

Competitive Forces - Substitutes Opportunities. After analysis of the external environment, partnering with a hotel and leveraging the supply chain are two opportunities were identified.

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Partnering with Hotel. Refuge has the potential to partner with a hotel to expand its market. In doing so, the business would allow customers to experience more services and spend more money at their establishment. This could generate more revenue for the spa. Leverage Supply Chain. Refuge has the opportunity to capitalize on its suppliers by leveraging their buying power. If Refuge were to sell products to consumers, its buyer power would increase. Threats. Analysis of the external environment revealed two threats: lack of amenities and the substitute of at home treatments. Lack of Amenities. The lack of amenities offered by Refuge poses a threat of losing to indirect competitors and substitutes as consumers search for facilities that meet their individual needs. Substitutes: At home treatments. As spa prices continue to rise, and people remain busy even on the weekends, at home spa treatments have become attractive substitutes to day spas. With the trendiness of do-it-yourself activities on the rise, Refuge needs to come up with a way to offset this threat.

CONCLUSION After analyzing the external analysis of CVAC and Refuge two significant opportunities and three significant threats were defined. The significance of each is depicted in Appendix 2 - Exhibit K: Significance of Opportunities and Threats.

Significant Opportunities Expanding  amenities  to  meet  the  needs  of  consumers,  as  well  as  offering  online  scheduling  for  convenience  and  to  increase  efficiency  of  staff  have  been  identified  as  significant  opportunities  for  Refuge.  These  opportunities  are  rated  as  significant  due  to  the  influence  on  both  the  industry  and  Refuge  directly.      

Significant Threats The  increasing  water  concerns  in  California,  the  option  of  an  competing  spas,  and  the  lack  of  amenities  Refuge  offers  have  been  identified  as  significant  threats.  These  threats  were  identified  as  significant  due  to  competing  spa  standards  and  increase  governmental  regulations.  

     

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INTERNAL ANALYSIS

INTRODUCTION This section of the analysis explores the internal environment of CVAC and Refuge. It is essential for both businesses to focus on the internal operations in order to maintain a competitive advantage in the market.

RESOURCES AND CAPABILITIES

Resources Business resources are the tangible and intangible assets that help a company function efficiently. It is imperative for management to continuously evaluate and alter its resources in order to determine and execute strategy and sustain a competitive advantage. A VRIN framework is a tool used to analyze whether the recourses of a company are valuable, rare, inimitable and non-substitutable. A VRIN of Refuge has been conducted to assess the recourses’ characteristics and quality as shown in Appendix 2 – Exhibit L: Resources VRIN (Woodcock, C., & Beamish, P., 2003, pg.54). Tangible resources. A tangible resource refers to any physical asset that aids in adding value to a company including property, machinery, supplies, and transportation (Woodcock, C., & Beamish, P., 2003, pg.52). Refuge's most significant tangible resources are its facilities, location, natural resources, and human capital. Facilities. Refuge’s facility is comprised of its pools, saunas, massage rooms, locker rooms, lounge areas, reception, and parking lots. The pools and massage rooms are what yield the most attractive amenities: massages and the hydrothermal cycle. The hydrothermal cycle is rare and valuable to a customer’s experience. However, it can be imitated if a competitor chooses to market its pools, hot tubs, and saunas as a hydrothermal cycle. Refuge’s facilities are easily substituted because most spas on the peninsula offer massages and pool facilities. Location. The seclusion and serenity of the Carmel Valley forest adds significant value for clients. Refuge’s forest location, including its waterfalls and hydrothermal cycle, is a rarity on the Monterey Peninsula. Clients can chose to substitute this location with a competitor’s because many spas offer a tranquil environment. However, the physical location of Refuge is inimitable to competitors because it would be difficult to replicate the exact environment of Refuge. Natural Resources. CVAC’s water rights have provided Refuge with a competitive advantage in the local area. Water is considered rare in California due to the drought. Water is a non-substitutable and inimitable resource because the value of Refuge lies in the health benefits of the hydrothermal cycle.

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Human Capital. Each Refuge employee is hired based on his or her professional skill-set and personality. Acquiring a skilled and knowledgeable team is valuable to the company and its customers; however, is not rare in the spa industry because spas differentiate through quality of service (R. Haas, personal communication, October 20, 2015). Human capital is easily substituted and imitable because existing employees can be replaced. Intangible resources. An intangible resource refers to any nonphysical resources that add value to the company, including assets such as social capital, brand image, technology, reputation, and patents (Woodcock & Beamish, 2003, pg.52). Refuge’s intangible resources are its reputation and social capital. Reputation. Refuge has earned outstanding reviews on TripAdvisor and Yelp—online resources that allow customers to rate a company and provide feedback. Refuge’s current success in upholding a clean, well-managed, and relaxing spa is a valuable element; however, it is not rare, and is easily substituted and imitated in the Monterey Peninsula. Social Capital. Refuge aims to provide its customers with exceptional service. To achieve this goal, Refuge’s general manager oversees most customer reviews to build relationships (R. Haas, personal communication, October 20, 2015). The spa currently has a four-star rating on Yelp with few complaints about customer service. This is valuable to customers, but it can be substituted and imitated by competitors with similar or better customer service reviews. Excellent customer service is not rare amongst spas as exceptional quality service is expected.

Capabilities Capabilities are considered the “sets of competitive advantages that management integrates and coordinates to produce a multifaceted value-producing advantage over competitors” (Woodcock & Beamish, 2003, pg. 53). Capabilities represent the tasks firms implement to capture value by using resources. Refuge has one capability: increase amenities. Increase Amenities. Refuge has the ability to use its attractive location and facilities to offer more amenities. According to data supplied by Refuge, the occupancy rate of the massage rooms is currently at 43%. The business could better utilize its massage rooms to offer amenities such as facials and couples massages (R. Haas, personal communication, October 20,2015).

Internal Stakeholders Internal stakeholders are defined as “those within an organization with an interest in its success and failure, since they may be rewarded or punished accordingly” (Boundless, 2015). Five internal stakeholders have been identified within Refuge: the McKay Family Trust, the advisory board, CVAC, management, and Refuge employees. The level of influence each stakeholder possesses is identified in the chart in Appendix 2 – Exhibit M: Influence of Internal Stakeholders.

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McKay Family Trust. The McKay family has executive power through its trust and is able to make any desired changes to both businesses. However, an advisory board has been appointed to closely monitor and assist the McKay family in the decision making process. The McKay Family Trust has a high level of influence on the companies. Advisory Board. The Advisory Board has a high level of influence on both CVAC and Refuge because it is responsible for reviewing financial statements and implementing decisions such as construction and capital projects (R. Haas, Personal Communication, October 20, 2015). CVAC. Sharing a location, employees, expenses, and water rights can greatly impact Refuge through any positive or negative changes that occur at CVAC. However, since there is no separation of management or finances there is a lack of synergy between the two businesses. It is difficult to know if Refuge would be able to operate solely on its own. For this reason, CVAC has a high level of influence on Refuge. Management. The management staff of CVAC and Refuge is influential in the decision making process. Department directors are responsible for making decisions for their departments, and Haas is responsible for implementing any necessary changes, resulting in a high level of influence. Employees. Although employees are essential to a company’s success, they do not influence Refuge’s day-to-day operations because they cannot implement any changes without approval from management. This results in employees having a low level of influence on Refuge because they are typically replaceable.

Summary of Findings After analyzing Refuge’s resources and capabilities three strengths and two weaknesses are identified as depicted in Figure 6: Strengths and Weaknesses of Resources and Capabilities.

Figure 6: Strengths and Weaknesses of Resources and Capabilities.

Strengths Weaknesses

Tangible Resources - Location - Facilities

Intangible Resources - Reputation Capabilities - Managerial Abilities Internal Stakeholders - Shared with CVAC

Strengths. Three strengths are identified in Refuge’s resources and capabilities: location, reputation, and the capability to increase amenities.

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Location. Refuge is located in a highly visited travel region in Carmel, California. The landscape around the facility also adds value to customers by creating a relaxing environment (R. Haas, Personal Communication, 2015). Reputation. The hundreds of reviews Refuge has earned encourages tourists to visit Refuge. Increase Amenities. Refuge would benefit from better utilizing its massage rooms to offer more amenities. Weaknesses. Two weaknesses were identified in Refuge’s resources and capabilities: facilities and dependence on CVAC. Amenities. The pools and massage rooms are simple and do not offer a variety of amenities to customers. Dependence on CVAC. Refuge’s dependence on CVAC will make it difficult for management to know how to operate when expanding into different locations.

Value-Adding Activities Value-adding activities are any business activities that increase the value of a product or service (Farlex Financial Dictionary, 2009). See CVAC and Refuge’s value-adding activities in Appendix 1 - Exhibit H: CVAC and Refuge’s Value-Adding Activities.

Summary of Findings After analyzing Refuge’s value-adding activities, strengths and weaknesses were revealed, as demonstrated in Appendix 1 - Exhibit I: Summary of Findings

PERFORMANCE MEASURES A performance measure is “a metric along which a business can be gauged” (Ketchen & Short, 2015, pg. 92). Appendix 1 - Exhibit J: Financial Performance Analysis contains financial information for the health spas without accommodations industry.

Non-financial Performance Analyses Non-financial performance is defined as “any quantitative measure of either an individual’s or an entity’s performance that is not expressed in monetary units” (Non-financial performance measures, n.d, para. 5). A Key Performance Indicator (KPI) is a way of measuring factors that are critical to a company’s success (Rouse, n.d). Refuge does not utilize any KPIs, but occasionally management will send a survey to guests with the goal of evaluating customer satisfaction (R. Haas, personal communication, October 20, 2015). Currently, the best way for Refuge to determine customer satisfaction is by reading reviews written on Yelp and TripAdvisor. Some performance measures recorded by Refuge include: total number of Refuge customers, total number of customers who purchase a massage, and total number of

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Refuge visitors who are CVAC members. During the analysis of this information, some inconsistencies were identified; specifically the number of CVAC members with all-inclusive memberships was not recorded in 2012, 2013, or 2014. The number of Refuge visitors decreased between 2013 and 2014 from 17,300 visitors to 16,700 visitors, but increased between 2014 and 2015 from 16,700 to 18,400 as seen in Appendix 2 – Exhibit N: Refuge Visits Per Year. The number of Refuge visitors who purchased a massage grew from 52% to 55% between 2012 and 2013; it increased an additional 9% in 2014 to 64% and decreased in 2015 to 57%. Between 2012 and 2014, an average of 4% of Refuge visitors were CVAC members; however in 2015, this increased to 8% as seen in Appendix 2 – Exhibit O: Refuge Visitor Data. This could be due to the fact that Refuge is now giving free entrance certificates once per month to CVAC members. Although there have been dips in the number of visitors to Refuge, the overall average is on an upward climb.

Summary of Findings Analysis of Refuge’s performance measures revealed one strength and three weaknesses as depicted in Figure 7: Strengths and Weaknesses of Performance Measures.

Figure 7: Strengths and Weaknesses of Performance Measures. Strengths Weakness

Financial - Lack of statement separation

Non-Financial - Growth in Customers - No KPIs

- No measurement of return customers

Strengths. After analyzing Refuge’s performance measures, growth in Refuge customers was identified as a strength. Growth in Refuge Customers. Over the past four years, there have been fluctuations in the total number of customers at Refuge; however, although 2015 has not reached its year-end, it is currently the busiest year. Therefore, growth is occurring. Weaknesses. Three weaknesses were identified after analyzing Refuge’s performance measures: the lack of financial statement separation, no KPIs, and no measurement of return customers. Lack of Financial Statement Separation. CVAC and Refuge’s intermingled financial statements hinder management’s ability to monitor the performance of each company. No KPIs. Refuge is unable to create a balanced scorecard and as a result cannot evaluate every aspect of the business. No Measurement of Return Customers. There is currently no way of measuring if customers are return customers or to know how they heard about Refuge. If this data were recorded, it would be easier to determine where to aim its marketing strategies.

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STRATEGIES As defined by Ketchen and Short (2015), a strategic plan is a carefully thought out set of steps that a firm intends to follow to be successful (1.1). This section examines the corporate- and business-level strategies of CVAC and Refuge, and how these strategies affect the success of the businesses.

Corporate Strategy Corporate strategy refers to “the overall scope and direction of a corporation and the way in which its various business operations work together to achieve a particular goal” (Business Dictionary, n.d., para. 1). The three main types of corporate-level strategy are growth, stability, and retrenchment (Bradley & Demand Media, n.d. para. 1). CVAC Corporate Strategy. CVAC operates under the stability corporate strategy, as management predicts to reach capacity in 2017. A company can implement a stability strategy when it is less focused on allocating resources and labor than on securing its current place in a market. Reducing risk, securing a steady cash flow and creating synergy between departments are stability approaches (Bradley & Demand Media, n.d.). CVAC strives to provide value to its members by updating facilities and evolving amenities to continuously meet consumer needs. In addition, CVAC aims to create a synergy between its members and Refuge guests (R. Haas, personal communication, October 15, 2015). Refuge Corporate Strategy. Refuge operates under the growth corporate strategy to expand internally and into new markets. A growth strategy is when a firm increases the number of products offered or markets served. This is achieved either through its current business or through new business(es) (My Management, 2012). To pursue a growth strategy, Refuge has expanded its amenities by offering massages and streamlining customer experience. In addition, Refuge has plans for adding amenities that complement the hydrothermal cycle. Through streamlining customer experience and adding amenities, Refuge aims to attract a broader market segment to increase revenue. (R. Haas, personal communication, October 15, 2015)

Business-Level Strategy Business-level strategy focuses on “how a business will compete in a particular industry” (Ketchen & Short, 2015, pg. 303). There are two dimensions that define a business-level strategy: source of competitive advantage and scope of operations. The main business-level strategies are cost-leadership, focused cost-leadership, differentiation, focused-differentiation, and best-cost. CVAC Business-Level Strategy. CVAC follows a focused cost-leadership strategy. A cost-leadership strategy is defined as competing “based on price to target a narrow market” (Ketchen & Short, 2015, pg. 340). Through narrowing its target market to a six-mile radius, CVAC has been able to differentiate itself through low prices relative to its direct competitors in the region (R. Haas, personal communication, October 20, 2015).

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Refuge Business-Level Strategy. Refuge follows a best-cost strategy, as demonstrated in Appendix 2 – Exhibit P: Refuge Business Level Strategy. A best-cost strategy is characterized by offering “both low prices and unique features that customers find desirable” (Ketchen & Short, 2015, pg. 303). Companies that pursue this strategy appeal to customers who are sensitive to both price and quality. Through combining the unique hydrothermal experience with a low admission price, Refuge is able to attract customers of all demographics from all over the world. However, a best-cost strategy opens a company up to a wide range of competitors, and Refuge is faced with significant competition at all price and amenity levels. The competitive advantage of Refuge is differentiation: the business concept is distinctly unique from its competitors. Refuge has utilized a blue ocean strategy, which consists of pursuing a “new, untapped market rather than competing with rivals in an existing market” (Ketchen & Short, 2015, pg. 405). Although Refuge must compete in the health spa market, by creating the first hydrothermal cycle in the Monterey Peninsula it has secured a first mover advantage in the hydrothermal cycle marketplace. Refuge has created a new market rather than attempting to outmaneuver its competitors and offering similar products and services (R. Haas, personal communication, October 20, 2015). According to Ketchen and Short (2015), a first mover advantage exists when “making the initial move into a market allows a firm to establish a dominant position that other firms struggle to overcome” (pg. 400). However, there is the potential for competitors or new firms to learn from Refuge’s success or failures, and copy the Refuge concept.

Alignment Analysis An alignment analysis is used to enhance the progression, communication and execution of strategies. A business should make sure that its supporting components are in alignment with its corporate- and business-level strategies to maximize efficiency and revenue. Components that are not aligned with corporate- and business-level strategies may result in underperformance and failure to move forward strategically (Myler, 2012). The degree of alignment of Refuge’s business components has been rated as either no alignment, moderate alignment, or high alignment. Corporate Strategy Analysis. To expand internally and into new markets, Refuge operates under the growth corporate strategy. By focusing on streamlining customer experience and adding cohesive amenities to the hydrothermal cycle, Refuge strives to compete in the travel industry by attracting tourists. Figure 8: Refuge Corporate Level Alignment Analysis depicts the degree that Refuge applies its strategy to its operations. Vision. Refuge does not have an independent vision from CVAC. Currently, the shared vision drives the businesses to provide pristine customer service. Through the current model of a shared vision, it would be difficult for Refuge to detach from CVAC and expand outside of Carmel Valley. Therefore, the current vision of Refuge is not in alignment with its corporate strategy. Mission. Refuge’s mission is to provide affordable relaxation through the use of its hydrothermal cycle by enforcing a silence policy, performing exceptional massages, and

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providing excellent customer service. Currently, Refuge’s business model provides guests with a unique hydrothermal cycle, but its simple amenity offerings can leave travel guests looking for more. For this reason, Refuge’s mission is moderately aligned. Organization Structure. The organizational structure includes a management team that supports CVAC and Refuge as well as a Refuge director. To pursue a growth strategy, Refuge requires the support of an experienced management team to support decision-making and expansion decisions. Although CVAC and Refuge share a management team, their team possesses exceptional experience, resulting in a high level of alignment. Refuge Services. The simple service offerings available to complement the hydrothermal cycle experience emphasize value and deep relaxation. This provides Refuge with an easy model to recreate outside Carmel Valley; however, its lack of amenities does not support the strategy of attracting a broader customer market. Therefore, this results in a moderate level of alignment. External Driving Forces. Refuge’s lack of response to the evolving demands of the industry has hindered its ability to capitalize on emerging trends. This results in a low level of alignment of Refuge’s corporate strategy. Competitive Environment. Refuge has a unique position in the local market as the only spa offering a hydrothermal cycle, however, the lack of amenities can be a disadvantage when a potential customer is looking for a variety of services. The unique differentiation paired with the lack of amenities results in moderate alignment with its corporate strategy. Supply Chain. There are many different suppliers within the industry offering similar products at competitive prices, therefore Refuge would be able to use these suppliers upon expanding. This results in high alignment with Refuge’s corporate strategy. Competitive Forces: Refuge has two competitive forces that result in high rating: threat of substitutes and rivalry amongst existing firms. There are over 20,000 spas in the U.S. that customers can choose from, and the product offerings are seemingly undifferentiated. Competitors compete through uniqueness of products and price; Refuge’s response to the competitive forces results in high alignment with the corporate strategy. Performance Measures. Refuge is unable to create a balanced scorecard to evaluate every aspect of operations. Furthermore, Refuge is not able to monitor financial performance. Therefore Refuge cannot measure its performance effectively, resulting in a low level of alignment.

 

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Figure 8: Refuge’s Corporate Level Alignment Analysis Corporate Level

Strategy Not

Aligned Moderate Alignment

High Alignment

Vision X

Mission X

Organizational Structure X

Services X

External Driving Forces X

Competitive Environment

X

Supply Chain X

Competitive Forces X

Performance Measures X

Business-Level Strategy Alignment Analysis. Refuge follows a best-cost strategy through combining the unique hydrothermal experience with a low admission price. Refuge has created a new market rather than attempting to outmaneuver its competitors, and has secured a first mover advantage over potential facilities. Figure 9: Refuge’s Business Level Alignment Analysis depicts the degree that Refuge applies its strategy to its operations. Vision. CVAC and Refuge strive to provide their guests with pristine customer service. This pledge to high quality service can provide a competitive advantage through differentiation. Fulfilling this commitment results in a high level of alignment with Refuge’s business-level strategy. Mission. Refuge’s mission is to provide affordable relaxation through the use of its hydrothermal cycle. Although Refuge lacks amenities when compared to local competitors, its business model provides guests with a unique hydrothermal cycle at affordable prices. For this reason, Refuge’s business-level strategy is in high alignment. Organization Structure. The organizational structure includes an advisory board and management team that support CVAC and Refuge as well as a Refuge director. The extensive experience that the management team brings to the decision making process is in high alignment with Refuge’s business-level strategy. Refuge Services. Refuge’s  business-­‐level  strategy  is  highly  aligned  with  its  first-­‐mover  hydrothermal  service  and  attractive  pricing  model.  However, the lack of amenities could result in missing out on servicing tourists who may be looking for a variety of services. As a result Refuge’s services result in moderate alignment.  

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External Driving Forces. The increase in demand of males seeking spa services and the rise of interest in medical spa treatments leaves Refuge at a competitive disadvantage when compared to local spas. However, Refuge’s simple business model allows it to compete via price and differentiation through its hydrothermal cycle. This results in the business-level strategy being moderately aligned. Competitive Environment. Refuge’s unique service offerings along with its low price points provide Refuge with a competitive advantage in the local market. However, the lack of amenities when compared to local competitors puts Refuge at a competitive disadvantage. For this reason, Refuge’s corporate strategy is moderately aligned. Supply Chain. The many suppliers available in the industry that offer similar products at competitive prices allow Refuge to leverage cost. The low cost of suppliers contributes to the ability to keep prices competitive, resulting in a highly aligned business-level strategy. Competitive Forces. Refuge has two competitive forces that result in high rating: threat of substitutes and rivalry amongst existing firms. Refuge’s business-level response of offering low prices paired with its unique service offerings result in high alignment. Performance Measures. Refuge is unable to create a balanced scorecard to effectively measure performance. Furthermore, Refuge is not able to monitor financial performance. Therefore, Refuge is unable to ensure efficiency of business components, resulting in no alignment of its business-level strategy.

Figure 9: Refuge’s Business Level Alignment Analysis Business Level Strategy Not

Aligned Moderate Alignment

High Alignment

Vision X

Mission X

Organizational Structure X

Services X

External Driving Forces X

Competitive Environment X

Supply Chain X

Competitive Forces X

Performance Measures X

Summary of Findings After analyzing the corporate- and business-level strategies, two strengths and five weaknesses were identified, as depicted in Figure 10: CVAC and Refuge Strategy Strengths and Weaknesses.

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Figure 10: CVAC and Refuge Strategy Strengths and Weaknesses.

Strengths Weaknesses

Corporate-Level Strategies - Ability to adapt to industry trends - Lack of capacity

Business-Level Strategies - Uniqueness of concept - Potential of copying

Alignment Analysis

- Lack of alignment of vision - Lack of response to evolving industry demands - Lack of measuring performance

Strengths. Analysis of the business- and corporate-level strategies identified two strengths: the ability to adapt to industry trends, and the uniqueness of the Refuge concept. Ability to Adapt to Industry Trends. Refuge’s strategy to grow by adding amenities and streamlining customer experience is a strength in an industry that is currently growing. Uniqueness of Refuge Concept. Refuge’s unique facility differentiates it from competition and creates a unique value for visitors. Furthermore, as one of the first hydrothermal facilities in the United States, Refuge has secured a first-mover advantage in the marketplace. Weaknesses. After analyzing the business- and corporate-level strategies, lack of capacity, potential for competitors to copy the Refuge concept, lack of alignment of Refuge vision, lack of response to evolving industry demands, and lack of measuring performance were identified as weaknesses. Lack of Capacity: The property Refuge is located on is at its capacity. Although there is potential of expanding amenities within Refuge, it would be difficult for Refuge to grow to match the offerings of its competition. Potential for Competitors to Copy Refuge Concept. As a first-mover in the marketplace, there is the possibility for competitors to copy the Refuge concept cheaply by learning from Refuge’s successes and failures. Lack of Alignment of Refuge Vision: It would be difficult for Refuge to expand outside Carmel Valley with its current model of a shared vision with CVAC. Lack of Response to Evolving Industry Demands: Although Refuge has plans to grow its business model, the current lack of response to growing industry trends hinders the ability to capitalize on emerging markets. Lack of Measuring Performance: Refuge is unable to evaluate its businesses to regularly alter its strategies to grow its business and maintain a competitive advantage.

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CONCLUSION After analyzing the internal analysis of CVAC and Refuge two significant strengths and five significant weaknesses were identified. The significance of each is depicted in Appendix 2 – Exhibit Q: Significance of Strengths and Weaknesses

Significant Strengths Two significant strengths have been identified: the ability to adapt to industry trends and the uniqueness of the Refuge concept. The ability to adapt to industry trends is a significant strength because Refuge can use this to increase its competitive positioning in the market. Having a unique concept sets Refuge apart from its competitors.

Significant Weaknesses Five significant weaknesses have been identified: Refuge’s dependence on CVAC, the lack of separation of financial statements, lack of KPI’s, lack of alignment of vision, and lack of performance measures. These weaknesses are significant because they hinder Refuge’s ability of future expansion.

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POSSIBILITIES  AND  RECOMMENDATIONS  

INTRODUCTION To aid Refuge’s development of a sustained competitive advantage, possibilities and recommendations have been developed as depicted in Figure 11: Possibilities and Recommendations. Possibility One is to enter new market segments, this can be done by increasing amenities, pursuing the business and traveler markets, increasing branding, establishing hydrothermal cycle credibility, and utilizing the CRM database. Each recommendation can be implemented either independently or simultaneously. Possibility Two is to evaluate the relationship between CVAC and Refuge with alternative options to either draw clearer lines between CVAC and Refuge or improve synergy between the businesses. Having clear lines between the businesses could be accomplished through developing a new vision for Refuge, establishing operational protocols, separate financial performance measures, implementing KPIs, and ultimately, expanding the Refuge concept. Improving synergy between the businesses could be accomplished through implementing KPIs and integrating CVAC and Refuge’s CRM databases.

Figure 11: Possibilities and Recommendations

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POSSIBILITY 1: ENTER NEW MARKET SEGMENTS This section examines recommendations Refuge could implement to increase its competitive advantage in the market place. The current business model is to grow; however, the lack of response to industry trends hinders its ability to capitalize on emerging markets. In order to enter new market segments, it is recommended that Refuge increase amenities, pursue business and traveler market segments, increase branding, establish credibility for the hydrothermal cycle and utilize its CRM database.

Recommendation A. Increase Amenities Introducing a variety of amenities such as complimentary amenities, a wider selection of massages, and skincare services has the potential to improve Refuge’s competitive advantage. Offer Complimentary Amenities. Refuge has the ability to introduce free amenities to provide clients additional satisfaction. Providing all clients with a Refuge robe would ensure their warmth and comfort, as well as maintain the clean and consistent image management strives for. Refuge could additionally offer infused water in the outside lounge areas to ensure clients remain hydrated. Refuge could raise its admission price to cover the extra costs of robes and water and offer all clients one admission rate. These complimentary amenities would add value to the client’s overall Refuge experience. Offer Variety of Massage. Refuge’s massage room occupancy rate is currently 43%. Expanding its massage offerings to attract more clients and increase room occupancy rates could increase revenue. Initially, it is recommended that Refuge incorporate couple’s massages to grow Refuge’s male client share and encourage more men to visit Refuge with their partners. Couples massages are a significantly attractive amenity in the industry and would add value to customers. Refuge could then incorporate additional massages, such as hot stone massages, shiatsu, Thai massages, and reflexology. These massage options could complement and add value to the hydrothermal cycle by providing clients with additional relaxation. Offer Skincare Services. Refuge could increase revenue and room occupancy rates by offering skincare services. Incorporating skincare could add value to the Refuge experience, as some customers might prefer to invest in skincare rather than massage therapy. Additionally, adapting to industry trends by expanding services could add a competitive advantage to Refuge as a destination spa. Refuge could offer facial services that are popular among other spas in the industry.

Recommendation B. Pursue Business and Traveler Market Segments Refuge aims its marketing efforts towards working professionals aged 25 to 55. To attract potential customers, Refuge utilizes email marketing, print advertising, and social media. It is recommended that Refuge expand its target markets through focusing its marketing efforts towards business establishments and travelers. It would be beneficial to build Refuge’s reputation among these segments in order to become the destination of choice on the Monterey Peninsula.

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Capture Business Market. Refuge is conveniently located near many businesses on the Monterey Peninsula as well as a short drive from Silicon Valley. The high concentration of large and profitable businesses in the region creates the opportunity for Refuge to target businesses and promote the Refuge experience as a business retreat. Refuge could target executives and market the retreat as a way to show appreciation to their employees. This could be accomplished through developing a marketing team, using radius-oriented marketing campaigns, and focusing on networking. A conference area could be provided for businesses to hold a meeting or enjoy a meal before experiencing the hydrothermal cycle. Additionally, a discounted rate could be offered to large groups. Capture Traveler Market. As an integrated health spa that is unique in the region, Refuge could increase its target market by pursuing wellness tourists. Refuge could increase awareness through targeting travelers, including business and pleasure travelers. In addition to being an attractive location, the Monterey Peninsula hosts many events including professional sporting events, seminars and shows. The marketing team could utilize different strategies for each target demographic, such as informational brochures, television, Internet, and radio advertising. Increasing use of marketing statistics and analytics to communicate the value of the hydrothermal cycle will help increase Refuge’s visibility to wellness tourists and travelers. Implementing these marketing tactics will help position Refuge as an integrated health spa destination.

Recommendation C. Increase Branding By incorporating more branded retail merchandise, Refuge can improve its competitive advantage through increasing brand awareness. Retail merchandise could include disposable and reusable water bottles, disposable plastic cups, personal care items, apparel, towels, and robes. Retail products can be sold both online and in Refuge locations. Incorporating additional retail merchandise will modify the existing value chain by increasing the significance of inbound logistics and the secondary activity of procurement.

Recommendation D. Promote Hydrothermal Cycle Credibility Establishing and marketing the credibility of the hydrothermal cycle is an opportunity Refuge can leverage to grow its market share and attract new clients. Refuge stands to benefit from promoting client testimonials and expert opinions on the benefits of the hydrothermal cycle through its various marketing channels. Refuge could also increase its credibility through paid third-party endorsements. Obtaining third-party credibility could be used as a marketing and public relations tactic, which could allow Refuge to expand into new markets and attract potential clients.

Recommendation E. Utilize CRM Database Fully utilizing Refuge’s CRM database to track customer data would provide meaningful insights into buying patterns as well as return customer information and demographics. The CRM database could also be used for massage therapist quality control through customer surveys linked to a therapist review program. Utilizing the CRM database

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would allow Refuge to better pursue its corporate-level strategy of expansion and promote operational efficiency within the company.

Possibility 2: EVALUATE RELATIONSHIP BETWEEN CVAC AND REFUGE CVAC and Refuge are closely intertwined, but there is a lack of synergy between the businesses. The businesses also have conflicting corporate- and business-level strategies. In order for Refuge to develop a sustained competitive advantage, it is recommended that management evaluate the relationship. Given Refuge’s long-term goal to expand the Refuge concept, it could be beneficial to separate aspects the businesses. However, improving synergy between CVAC and Refuge would benefit both companies. Improving synergy would allow the companies to operate more efficiently given their shared resources, but it will come at the expense of inhibiting future growth at Refuge. Two alternatives have been proposed: separate CVAC and Refuge, or improve synergy between CVAC and Refuge.

Alternative A. Draw Clearer Lines Between CVAC and Refuge It will be necessary to draw clearer lines between CVAC and Refuge before considering future expansion of Refuge to new locations. Currently the businesses share all resources and do not have separate performance measures. This makes it difficult for management to get a clear picture of company performance or evaluate the cost of operating Refuge. Drawing clearer lines between CVAC and Refuge will give management the information it needs to make better decisions regarding expansion and develop protocol that can aid in scaling up and adapting Refuge to new locations. Recommendation A: Develop New Vision.  Developing a new vision could better support the future direction of Refuge and what it intends to become. Through the current model of a shared vision, it would be difficult for Refuge to detach from CVAC and expand outside of Carmel Valley. In order for Refuge to be aligned with its long-term goals, developing a new vision is recommended. The vision could express the importance of customer service and differentiation, as well as growing the business to capture broader markets. By developing a specific vision, Refuge would be better aligned with its desired direction and intended goals.    Recommendation B: Establish Operational Protocols.  It is necessary for management to create operational protocols before considering expansion of Refuge to new locations. Aside from capital requirements, expansion requires the ability to re-create Refuge consistently. Creating detailed protocol will allow management to codify the subtle aspects of operations that make Refuge successful, and ensure that new iterations have the same look and feel of the existing Refuge facility that make it successful.    Recommendation C: Separate Financial Performance Measures.  It is recommended that Refuge separate its financial performance measures from CVAC. With financial data intertwined with CVAC, it is unclear as to whether or not Refuge has the financial capability to operate solely on its own. Due to the fact that startup costs to expand the Refuge concept are extremely high, it is a necessity that Refuge has the financial means

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to support itself. Once the financial data is separated from CVAC, Refuge can accurately evaluate if it is capable of expansion.    Recommendation D: Implement Key Performance Indicators.  Supporting its corporate- and business-level strategies and improving efficiency will be difficult as long as CVAC and Refuge do not have separate performance measures. Developing KPIs is recommended in order for Refuge to reach its full potential and possibly expand in the future. Through the development of KPIs, Refuge will be able to create a balanced scorecard. Some recommended KPIs for Refuge to utilize include: overall guest satisfaction, visitor fluctuations, average treatment time, and repeat guest ratio. Implementing these KPIs will aid Refuge in understanding how many employees should work at any given time, how and where improvements can be made, and who to market towards. KPIs could be implemented through the current CRM database. The importance of performance measures is directly related to the ability to expand Refuge. Without its own set of performance measures, Refuge will not know if it has the ability to be successful apart from CVAC.    Recommendation E: Expand Refuge Concept.  Refuge can begin to follow its corporate-level growth strategy by expanding Refuge beyond its current location, once the businesses have been separated. Refuge should restrict its expansion to markets with the following criteria: destination cities that are not prone to drought cycles and do not have water restrictions, with a presence of visitors with disposable incomes, availability of land to build on, and lack of similar facilities. The Refuge concept and brand could be standardized across all locations, ensuring consistency at each facility. Furthermore, establishing a corporate headquarters could create efficiency through standardization of business operations. Two options are suggested: partnering with a hotel and establishing stand-alone Refuge facilities.   Partner with a Hotel Chain. The first recommendation for expanding is to partner with a hotel chain. Since Refuge follows a best-cost strategy, it would benefit from partnering with a hotel chain that also follows a best-cost strategy. A deluxe package to Refuge could be included with a room reservation at a discounted rate to the hotel guests; however, if the guests choose to visit Refuge without purchasing the package offered with their room rate, they will be charged the regular admission cost to Refuge. Refuge should perform research-marketing tactics in order to find a well-matched hotel brand to partner with. It is recommended that the chosen hotel chain survey customers at various locations that meet the criteria to determine where to implement Refuge facilities. The partnership could start with a few different locations, and depending on the response from customers and the community, the hotel chain could continue to construct Refuge facilities at more locations. The name, as well as the hydrothermal cycle, could be replicated across all locations. The McKay family could share ownership of the Refuge brand with the hotel chain, and the hotel would be responsible for maintaining the brand. Refuge would be responsible for hiring all employees and supplying each facility with the same retail merchandise.

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Once the partnership is fully established, Refuge could move forward by deciding to partner with other hotel brands or remain exclusive to only one brand. Franchise Refuge Concept. A franchise business model could be utilized to expand the Refuge concept, and expand the brand into new markets. It is recommended that the Refuge facilities are only franchised in markets that meet the criteria as described in Possibility one, Recommendation E: Expand Refuge Concept. The primary benefit of franchising Refuge’s brand would be the minimal amount of initial investment needed. Franchise fees and royalties would allow Refuge to build its brand. The fees and royalties collected could also be used to fund operations, support and train franchisees, increase quality of service, and build brand recognition in the marketplace. However, in order to attract franchisees, it will be beneficial to separate Refuge from CVAC to demonstrate franchise viability.

Alternative B: Promote Synergy Between CVAC and Refuge Review of the alignment analysis indicated that some business components had a low or moderate level of alignment with Refuge's strategies. Alternative B: Promote Synergy Between CVAC and Refuge is proposed under Possibility Two: Evaluate Relationship Between CVAC and Refgue. A lack of synergy between CVAC and Refuge has been identified as the cause of misalignment. As the two businesses are fundamentally different, share a facility, and are in different stages of their life cycles, their business components are misaligned. This creates a lack of synergy between CVAC and Refuge. Since CVAC and Refuge share a majority of their resources, the businesses need to be synergized in order to maximize efficiency and profits. Improving synergy between CVAC and Refuge would benefit both companies by allowing them to operate more efficiently and profitably. Improving synergy between the companies could be accomplished through implementing KPIs and integrating CVAC and Refuge’s CRM databases. Recommendation A: Implement KPIs. It is recommended that CVAC and Refuge develop and implement KPI’s in order to create a balanced scorecard. Through development of KPIs the businesses can better understand their individual reliance on the shared resources in order to maximize efficiency. Recommended KPIs for Refuge are explained in in Alternative A, Recommendation D: Developing KPIs. Recommendation B: Integrate CVAC and Refuge’s CRM Databases. In addition to fully utilizing the CRM database as discussed in Possibility one, Recommendation E: Utilize CRM Database, it is recommended that CVAC and Refuge integrate their CRM databases. Integrated CRM databases could allow management to better track customer flow and fluctuations in demand between the businesses. Integrated CRM databases could also allow the companies to operate more efficiently by improving employee scheduling and streamlining resource allocation.

CONCLUSION After analysis of the history and overview, and external and internal environments, two strategic possibilities were identified to aid Refuge in developing a sustained competitive

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advantage: enter new market segments and evaluate the relationship between CVAC and Refuge. Recommendations were identified from each possibility that would best benefit Refuge.

Enter New Market Segments As a first step to enter new market segments, it is recommended that Refuge expand its amenities and target market. By offering a wider selection of amenities and pursuing the business and travel markets, Refuge will capture a broader target market. Bringing its amenity offerings more in-line with direct competitors will improve Refuge’s competitive advantage.

Evaluate Relationship between CVAC and Refuge There is a lack of synergy between CVAC and Refuge due to misalignment of their business components. Therefore it is recommended that management evaluate the relationship between the companies. Two alternatives have been proposed: separate CVAC and Refuge or improve synergy between CVAC and Refuge. Due to Refuge’s corporate-level strategic goal of ultimately expanding, it is recommended that management pursue Possibility two, Alternative A: Separate CVAC and Refuge. Separating the companies will allow management to create alignment of Refuge’s goals with its vision and performance measures. Separation will also help management gain the information it needs to make better decisions regarding expansion, as well as develop protocols that can be adapted to new locations.

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Pre-­‐Appendix    Brooke Hodges is a student enrolled in the College of Business, California State University, Monterey Bay (CSUMB), pursuing a bachelor’s degree in management and international business. After earning her A.A., Brooke transferred to CSUMB and has completes business classes such as, management, marketing, finance, entrepreneurship, computer information systems, international management and more. Brooke also works as a leadership development teammate for Bridgestone Americas, based out of Nashville, Tennessee. Brooke’s strengths are in

management, operations, and communication. Before working for Bridgestone, Brooke worked as a project manager for a landscape construction firm where she was responsible for scheduling, client communication, payroll management, and purchasing. Her current business interests include: strategic management, team development, and operations.

Madeline Petes is a student enrolled in the College of Business, California State University, Monterey Bay (CSUMB), pursuing a bachelor’s degree in management and international business. She also works with Brooks Winery. Madeline began her college education in 2011 and has completed several classes in areas of business including, management, marketing, finance/accounting, entrepreneurship, computer information systems, economics, and operations. Her strengths are in management, marketing, and computer information systems. She has worked with Brooks Winery since 2012,

and hopes to continue learning more about the wine industry. She began working as an assistant for the winery’s CEO, Janie Brooks Heuck. She is now responsible for updating and maintaining the website, interacting with wine buyers and distributors, and various day-to-day tasks. Her current business interests include: marketing, hospitality, and management.

Olivia Reed is a senior student at the College of Business, California State University, Monterey Bay (CSUMB), pursuing a bachelor’s degree in business marketing. She currently manages the social media marketing department for Blake Austin College in Vacaville, California, where she created and exclusively runs its social media website Instagram. Her most recent business achievement was successfully gaining over 350 followers for the college in just six months. Olivia began her college education in 2011 and has completed classes in areas of business such as, management, marketing, social media marketing,

finance/accounting, entrepreneurship, computer information systems, economics, and

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operations. Her strengths include her excellent communications skills and her refined eye for effective marketing. Prior to her final year at CSUMB, Olivia decided to intern during her summer to gain real world business experience, in order that she could complete sixteen to twenty units each fall and spring semester. Olivia was a marketing intern at Blake Austin College in 2012 and a communications intern at the Voice of America in Washington D.C. in 2014. Her current business interests include: social media marketing, and strategic management.

Philip Rohlik is graduating from California State University, Monterey Bay (CSUMB) with a major in Business Administration and an International Business Management concentration. Philip currently is working full time at Carmel Realty Company as a video producer and real estate photographer. While not working full time he runs his own photography business. Philip enjoys working in high activity situations and possesses natural people skills and leadership abilities making him a great team player and easy to work with. He embraces challenges and loves to problem-solve. Organization is

vital when balancing multiple projects and demands. The ability to organize well has made Philip’s work experience much more rewarding. Perhaps the greatest asset Philip has to offer is the ability to work with many personalities and groups of people. Philip enjoys working full-time; while learning all he can to better himself and bring something to his team. Philip Rohlik has a dynamic mix of abilities, talents, and enthusiasm.

Sara Wiese is a certified veterinary technician with an associate’s degree from Pima College. She is fortunate to have a rewarding career at a small animal veterinary hospital in Pacific Grove: Ocean View Veterinary Hospital. However, the business world has always been Sara’s true passion, and she is currently enrolled at California State University, Monterey Bay (CSUMB), pursuing a bachelor’s degree in business administration; expected December 2015. In her time at CSUMB, she has had the opportunity to work on numerous challenging and exciting projects, such as writing a marketing plan for a solar-charging laptop case, an international marketing plan

for exporting wine, and a business plan for a reusable bag manufacturing company. Sara enjoys combining her love of veterinary medicine and her love of business by testing out her newfound business skills at Ocean View, and is proud to have implemented a number of successful systems and programs at the hospital. Sara intends to use her degree to help her advance into practice management, as well as to aid her in developing her side hobby: a small antique jewelry resale business.

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APPENDIX  1  

Exhibit A: Milestones CVAC has weathered two major natural disasters, the timeline of events is demonstrated in Figure 1: CVAC’s Timeline of Events. An early morning fire destroyed the original two-story clubhouse in July of 2007. According to a local reporter, Mike Hale, “initial damages exceeded $400,000, but code improvements and the construction of temporary facilities put that figure well above $1 million” (Hale, 2012, para. 3). CVAC has continuously expanded its services and now provides a wide variety of activities including: an aquatics program, fitness center, mind and body classes, and a daycare center.

Figure  1:  CVAC’s  Timeline  of  Events.  

Exhibit B: CVAC’s Mission “At CVAC we aim to provide the premier destination for the nourishment of Mind, Body and Soul on the Monterey Peninsula. Athletic and fitness activities, along with venues that promote social interaction, are the foundation of the CVAC experience. CVAC is the ‘Local’s Resort’ where exceeding our Club member’s expectations is our daily mission and business principle.” (R. Haas, personal communication, September 15, 2015)

Exhibit C: CVAC Services For over 45 years, CVAC has provided the Monterey Peninsula with an exceptional athletic facility. Today, the club provides a gym, tennis courts, pilates loft, aquatic center, bocce ball, and much more. CVAC offers two membership options: an all-inclusive

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membership and a fitness/social membership (R. Haas, personal communication, September 15, 2015). The revenue structure of both CVAC and Refuge is detailed in Figure 2: CVAC Revenue.

Figure 2: CVAC Revenue CVAC Membership

Fitness Initiation Fee Monthly Dues

Single $500 $135

Family $1,000 $243

All-Inclusive

Single $600 $208

Family $1,200 $264 Professional Strength Training Facility. The two-story strength training facility provides equipment from Hammer Strength, Life Fitness, and Cybex and a state-of-the-art cardio theater. Tennis Courts. CVAC takes pride in being the most active tennis club on the Monterey Peninsula, with ten tennis courts, five of which are lighted. CVAC regularly hosts social events for its tennis players, league play sessions, beginner, intermediate, and advanced tennis lessons, and allows for drop-ins. The staff of the tennis program is highly qualified, each instructor is part of the United States Professional Tennis Association, (UPSTA) and is U.S. Professional Tennis Registry (USPTR) certified (United States Professional Tennis Association, n.d., Professional Tennis Registry, n.d.). Mind & Body Center. CVAC offers over 70 group classes in its Mind & Body Center. The spacious and sunlit room is finished with hardwood floors, multiple large windows, and essential training equipment. Pilates Loft. CVAC’s Pilates Loft is equipped with Balanced Body Reformer Towers, chairs, and a private studio space with a trapeze table. Aquatics Center. CVAC offers a 25-yard lap pool that’s open for recreational swimming, lap swimming, swim lessons, and aqua group fitness classes. Kids Club. CVAC operates an on-site children’s club to carefully watch over members’ children, ages 6 weeks to 12 years. The company also hosts a CVAC ‘parent’s night out’ and a children’s summer camp is also are additional uses of the kids club.

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Cafe. Moises Munoz, an award-winning chef, provides a menu full of healthy and delicious options for CVAC members and staff. The cafe also caters parties, tennis matches, and special events for both members and non-members.

Exhibit D: Fitness and Recreational Sports Centers Industry Information CVAC falls into the fitness and recreational sports centers industry, which includes athletic facilities and fitness spas without accommodations (NAICS, 2012). This industry is in the mature-end of its growth stage, and is expected to transition into the mature stage as demonstrated in Appendix 2 - Exhibit C Industry Lifecycle Chart. According to industry experts, the fitness industry is moving into a highly competitive phase, which is characterized by increasing consolidation, new product and service extensions, and increasing pressure for growth (IHRSA, 2015).

Exhibit E: Fitness Industry Trends Fitness Clubs. In the U.S., interest in fitness and weight loss has grown rapidly in the past decades, compounded by the nationwide obesity epidemic (Statista, 2014). The rate of obesity in the U.S. has grown steadily from 1987 to 2007, and as of 2007, all states except Colorado consider at least one fifth of their population obese. In the U.S., annual health club revenues are expected to grow 2.9% annually, and are projected to reach $30 billion by 2018. According to the vice president of the International Health , Racquet, and Sports Club Association, (IHRSA) Jay Ablondi, the health club industry is doing better than it ever has before, and the future looks very bright: “All key performance metrics reached an all-time high in the United States [in 2014]... with one in five Americans utilizing health and fitness facilities, the industry is well-positioned for future growth” (IHRSA, 2015, para. 6). Within the U.S., health club memberships have increased 2.3% in the last two years, and 18.6% in the last eight years (IBIS World, 2015). As of 2014, more than 54 million Americans are currently members of a health club. According to the president of IHRSA, Joe Moore, the U.S. health club industry is doing particularly well at the moment: “For the second consecutive year, total health club visits surpassed 5 billion, an impressive mark for the industry... These numbers demonstrate the important role health clubs play in helping more and more Americans improve their overall health and wellbeing” (IHRSA, 2015, para. 3). Although health clubs around the world are enjoying increasing membership, the remarkable growth of the industry has led to a marked increase in competition (Franchise Help, 2015). Both the global and domestic health club markets are fragmented, with no particular firm taking a large share of the market. As of 2012, there were more than 150,000 health clubs in operation worldwide, with 30,500 located in the U.S. From 2013 to 2014, the number of health club facilities in the U.S. increased by 6.4% (Statista, 2014). In particular, major chains are expanding rapidly, and are increasingly being acquired by investment companies, which further propels growth. Additionally, spa services within fitness clubs are beginning to grow in numbers, and industry experts are predicting high-end clubs that offer spa services will grow in

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popularity in the coming years. According to John Aglialoro, chairman of fitness company Cybex International, "spa-based facilities [will] continue to grow in numbers, [along with] similar facilities focused on relaxation activities" (Peavey, 2015, para. 4).

Exhibit F: STEEPG Analysis A STEEPG analysis examines an industry’s social, technological, economic, environmental, political and legal, and global forces (Ketchen & Short, 2015, p.56). A STEEPG analysis has been conducted to examine the driving forces within the fitness and spa industries. Notable influences for each factor have been described in Figure 3: External Industry Forces. The significance of each force for CVAC and Refuge has been ranked as low, medium, or high. Social. Social factors include “trends in demographics… as well as cultural trends such as attitudes towards obesity” (Ketchen & Short, 2015, pg. 156). There are numerous social factors that affect the fitness and spa industries. A growing interest in health worldwide has increased the demand for preventative health and relaxation services. Many employers are beginning to offer employee wellness packages to reduce future healthcare costs (Peavey, 2015). However, the rising popularity of substitutes such as exercising at home, and do-it-yourself home spa treatments has diminished demand for fitness clubs and spa facilities (First Research, 2015). Additionally, the popularity of frugal living has led numerous consumers to avoid luxury products and services, such as spa visits. Interest in integrative health spas and wellness tourism is increasing, granting Refuge a relative competitive advantage among local spas that do not offer comparable services (Peavey, 2015). However, demand for medical spa treatments continues to grow, leading increasing numbers of spas to introduce medical treatments (Anderson, 2015). In recent years, there has been a significant diversification in spa customers: men are taking a growing market share, as well as people over 50 (Hoovers Inc., 2015). Simultaneously, the earning power of young women has been growing steadily, further propelling demand for spa services (Catalyst, 2015). These social trends are of a high significance to CVAC and Refuge, due to the level of influence customers have on the businesses. Technological. Technological forces involve “improvements in products and services that are provided by science” (Ketchen & Short, 2015, p.162). The spa industry is seeing a growing incorporation of technology (Peavey, 2015). Spas are increasingly taking advantage of the numerous marketing opportunities created by the proliferation of the Internet and electronic messaging. Software allowing customers to make and pay for appointments online has simplified the reservation and payment process for spa customers (Statista, 2015). The evolution of medical spa treatments has helped advance demand for medical spa services (First Research, 2015). Although technology is evolving rapidly in both industries, a trend of reducing technology is also emerging in the spa industry, particularly in integrated health spas. A growing number of health spas are banning use of technology on premises in order to allow customers complete relaxation (Morin, n.d.). As consumers increasingly begin to

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look for relief from the constant barrage of technology in their lives, facilities like Refuge that offer a technology-free experience will be increasingly in demand. Economic. Economic factors consist of “the economic conditions in which organizations operate” (Ketchen & Short, 2015, pg. 153). Increasing energy costs are a concern for Refuge, particularly when considering future expansion. Rising water costs are a concern in California (California Water Science Center, 2015). Facilities such as Refuge that are water-intensive are particularly affected by rising water costs, and water costs therefore have a significant impact on Refuge’s competitive advantage as a destination spa. While the drought affects Refuge’s local competitors similarly; regional, national, and international competitors that are not in a drought will be at a competitive advantage compared with Refuge. Additionally, the state of the U.S. economy affects fitness and spa businesses, as well as consumers. Rising interest rates are a particular concern for Refuge when considering future expansion opportunities, as higher interest rates make borrowing money more expensive (Koba, 2011). The state of the economy also affects personal income levels, and ultimately, consumer spending. Consumer spending has increased recently—reaching an all-time high of 11.2 trillion dollars in the second quarter of 2015 (Trading Economics, 2015). Consumers are spending more on luxury goods and services, including investments in relaxation (Horovitz, 2013). However, as income inequality rises, fitness and spa facilities will see their potential customer pool narrow as consumers sacrifice luxury items and services (Halzack, 2015). It is possible that a future economic decline could lead to a decrease in demand for spa services. Facilities like Refuge are considered luxuries, and are therefore highly affected by economic downturns. Economic factors are a medium significance to CVAC and Refuge due to concerns about rising energy costs, and the need for visitors to have disposable income. Environmental. The environmental segment consists of “the physical conditions in which an organization operates” (Ketchen & Short, 2015, pg.167). There are several environmental factors that affect CVAC and Refuge. The California drought poses a severe environmental threat to the fitness and spa industries (California Pool and Spa Association, 2015, Stromgren, 2015). The numerous water features including: pools, showers, saunas, and laundry facilities of fitness centers and spas use a great deal of water. It has become imperative for facilities in California to implement water-saving measures, and carefully plan future water needs when considering any renovations or additions. Spas in California may experience significantly harsher ramifications in the future due to lack of certainty about the duration of the drought (Stromgren, 2015). In recent years, there has been a growing push for sustainability among businesses and consumers alike (Stromgren, 2015). Additionally, growing number of consumers are seeking natural, organic, and homeopathic products and treatments. Environmental factors have a high significance to Refuge due to their high level of influence on operations.

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Political. Political factors focus on “the role of governments in shaping business” (Ketchen & Short, 2015, pg.149). There are several political and legal forces that affect the fitness and spa industries. Political factors are of medium significance as the regulating agencies have a high level of authority, however regulations do not significantly impact day-to-day operations. The Occupational Safety and Health Administration (OSHA). OSHA regulates all aspects related to working conditions in fitness and spa facilities (OSHA, n.d.). California Department of Public Health (CDPH). This department creates regulations affecting public swimming pools, including planning, construction, maintenance, and all aspects of operations (WestLaw, n.d.). The department also regulates establishments that serve food (California Department of Public Health, n.d.). Fair Labor Standards Act (FLSA). This act governs labor standards including minimum wage, overtime pay, and recordkeeping (United States Department of Labor, 2009). The California Massage Therapy Council. The council regulates massage therapist schooling and licensure, and is also responsible for investigating consumer complaints (California Massage Therapy Council, n.d.). Americans with Disabilities Act. The Americans with Disabilities Act requires that public facilities be accessible to individuals with disabilities (ADA.gov, 2010). Additionally, businesses may not discriminate against individuals with disabilities when hiring employees. Water Regulations. Due to severe drought, it is becoming increasingly difficult to secure water rights (Weiler, 2015). Therefore companies that have existing water rights are at an advantage over those without water rights. Many cities in California are beginning to ban the building of pools and the filling of existing pools and hot tubs. Building Codes. Building codes affect Refuge’s ability to expand regionally and nationally. Increases in building restrictions will hinder the company's ability to recreate is hydrothermal cycle affordably. Safety Regulations. Pool, spa, and sauna safety regulations impact Refuge’s daily operations, and increases in safety restrictions will impair the company’s ability to achieve its vision. Tax Regulations. Tax regulations affect Refuge’s ability to generate profit, and changes in tax regulations have the potential to affect Refuge’s profitability. Potential Legal Liabilities. Fitness centers and spas must ensure coverage of liability, property, workers’ compensation, and fiduciary insurance, and make use of release of liability waivers (Hoovers Inc., 2015).

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Global. Global forces consist of worldwide influences that affect businesses (Pelle, 2007). The demand for integrated health spas has led to numerous opportunities for expansion of spa brands internationally. Spas with established integrated health operating models like Refuge are particularly poised to take advantage of this trend. However, health spa users are becoming more knowledgeable and experienced, and are increasingly demanding state of the art treatments, facilities, and services. Consumers are looking for new treatments and spa concepts, leading to opportunities for differentiation in the spa industry (Fenard, 2015). Furthermore, emerging economies with a growing middle class are driving the popularity of spa services upward (Hoovers Inc., 2015). Additionally, demand for spa services is flourishing in countries where an emphasis is placed on spas as a lifestyle, such as Germany and Austria. Advances in technology have opened the door to innovations in spa treatments and spa products around the world. As one of the first-mover hydrothermal spas, Refuge has the ability to learn from the successes and failures of these innovations. Global forces are a medium significance to Refuge due to the potential for future international expansion. Figure 3: External Industry Forces.

 

Exhibit G: Supply Chain Positioning Service Supply Chain. CVAC and Refuge offer an assortment of services that can be arranged into two different categories: gym and fitness, and spa services. Since Refuge and CVAC share the space in which they operate, the majority of the supply chains are integrated.

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Gym, Health & Fitness Club Supply Chain. CVAC utilizes suppliers from equipment manufacturers, toiletry, hardware, sanitary, and software to provide a high-class fitness facility as depicted in Appendix_: . Appendix F: The Gym, Health & Fitness Club Supply Chain depicts the flow of product from the supplier to the customer through CVAC and Refuge’s service. Spa Service Supply Chain. Refuge relies on the same toiletry, hardware, sanitary and software systems as CVAC. The only supply chain not shared are the equipment manufacturers. Refuge’s staff converts supplies from this supply chain by providing the service to the customer. The Spa Service Supply chain illustrates the flow of suppliers to customers in Appendix G: Spa Service Chain.

Exhibit H: CVAC and Refuge’s Value-Adding Activities

Value-Adding Activities Value adding activities are any business activities that increase the value of a product or service (Farlex Financial Dictionary, 2009). When a firm offers value to its customers, it increases its competitive advantage in the marketplace. CVAC and Refuge’s primary and supporting activities are illustrated in Figure 4: Value Adding Activities. Each activity is assessed as low, medium, or high ranking based on the perceived value it delivers to the company.

Primary Activities According to Ketchen and Short (2015), “primary activities are actions that are directly involved in creating and distributing goods and services” (4.3). Refuge has five primary activities that are involved in creating its services: inbound logistics, operations, outbound logistics, marketing and sales, and after-sale services. By adding value through its primary activities, Refuge has the ability to become more profitable. Inbound Logistics. Inbound logistics refers to how a company obtains its raw materials (Ketchen & Short, 2015). Refuge has a variety of suppliers that are necessary to maintain the environment that fosters customers’ experiences. Although needed to support day-to-day operations, the suppliers and the materials provided are easily replaced and therefore have a low level of significance. Value can be added through inbound logistics by using lower priced suppliers or through products that would differentiate Refuge from the competition. Operations. Operations refer to the production process of a good or service (Ketchen & Short, 2015). Refuge’s production is standardized, as it does not have the means to forecast customer usage. Refuge utilizes SunStar, a CRM software that helps with scheduling employees (R. Haas, personal communication, October 20, 2015). Operations are a high value adding activity because Refuge’s hydrothermal cycle differentiates it from competition. Effectively utilizing a CRM database in a customer-driven organization makes the information available to the right people at the right time, creating value through the customer relationships.

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Outbound Logistics. Outbound logistics are the activities that deliver the product or service to the customer (Ketchen & Short, 2015). As outbound logistics and operations are tightly linked in a service-based industry, the quality of service customers receive is very important. Refuge must provide a positive experience in order to obtain repeat customers; for this reason outbound logistics is ranked high. Marketing and Sales. Marketing and sales involve attracting potential customers and persuading them to purchase the products or services offered (Ketchen & Short, 2015). CVAC and Refuge market to potential clients through a partnership with the Monterey County Visitors Bureau, magazine advertisements, and mailing lists which reach over 30,000 people (R. Haas, personal communication, October 20, 2015). Refuge’s lack of marketing and sales tactics puts Refuge at a competitive disadvantage, resulting in a low significance ranking. After-Sales Services. After sales services are activities related to maintaining exceptional customer service after the services have been purchased (Arline, 2015, para 4). Refuge enhances its service value by updating clients and quickly responding to customer complaints. To build and maintain customer relationships, management responds to most customer complaints that occur either online or in person. (R. Haas, personal communication, October 20, 2015). Due to the importance of customer relationships in a service based industry, after-sales services have a high level of significance.

Supporting Activities According to Ketchen and Short, supporting activities are “not directly involved in the evolution of a product or service, but instead provide important underlying support for primary activities” (Ketchen & Short, 2015, 4.3). Supporting activities consist of research and development, human resources management, firm infrastructure, finance, legal services, and procurement. Research and Development. Research and development is “the use of technology to support primary activities” (Ketchen & Short, 2015, 4.3). Refue is currently not utilizing its CRM database system to its full potential, resulting in a competitive disadvantage; therefore research and development is ranked as low significance. Human Resource Management. Human resource (HR) management consists of hiring and retaining the proper employees to help design, build, and market a product or service (Ketchen & Short, 2015). Currently there is no human resources team at Refuge, limiting HR potential. Therefore, human resource management has a low significance. Firm Infrastructure, Finance, and Legal services. The McKay group has a team of accountants who ensures that proper accounting practices are being followed. Chris Sutherland, a lawyer in Chicago, is used in the event of any legal issues. Ranking firm infrastructure, finance, and legal services as medium significance since they function as normal business activities. (R. Haas, personal communication, October 20, 2015).

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Procurement. Procurement is the process of negotiating and purchasing raw materials (Ketchen & Short, 2015). There are many suppliers in the industry that Refuge can purchase its supplies from. Therefore, procurement has a low significance, there is potential to add value through cost advantage that would differentiate Refuge in the marketplace. Figure 4: Value Adding Activities

Exhibit I: Summary of Findings After analyzing Refuge’s value-adding activities, strengths and weaknesses were revealed, as depicted in Figure 5: Strengths and Weaknesses of Value-Adding Activates.

Figure 5: Strengths and Weaknesses of Value-Adding Activates Strengths Weakness

Primary Activities - Customer Service Management

- CRM database

Supporting Activities - Social media management Strengths. Analysis of Refuge’s value adding activities revealed two strengths: customer service management and social media management. Customer Service Management. Management is vital in adding value to Refuge and its customers. It ensures quality through hiring the best employees and by mitigating complaints.

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Social Media Management. Refuge’s exploitation of social media allows it to create awareness and opportunities to its customers. Weaknesses. After examining Refuge’s value adding activities one weakness was identified: marketing and sales. CRM Database. Utilizing the CRM database to its fullest potential would allow Refuge to analyze customer data and track performance and productivity of their marketing efforts. Exhibit J: Financial Performance Analysis This section examines the financial performance of the health spas without accommodations industry over time, as demonstrated in Figure 6: Health Spas Without Accommodations Industry Financial Performance. By monitoring financial ratios over time and comparing them to industry benchmarks, companies can identify strengths to capitalize on, as well as weaknesses to address. CVAC and Refuge have intermingled financial statements, and do not track each company’s performance separately (R. Haas, personal communication, October 21, 2015).

Figure 6: Health Spas Without Accommodations Industry Financial Performance

Industry Ratios 2013 2012 2011

Current Ratio .9 .9 .8

Quick Ratio .7 .6 .7

Total Asset Turnover Ratio 4.0 1.2 1.0

Debt Ratio .9 .7 .8

Gross Profit Ratio .79 .8 .8

Liquidity Ratios. Liquidity ratios measure a company’s ability to meet its obligations (Biery, 2014). Current and quick ratios are used to examine industry liquidity. Current Ratio. The current ratio depicts a company’s ability to meet it short-term debts, and is computed by dividing current assets by current liabilities (Biery, 2014). The 2013 and 2012 industry average current ratio was .9, up from .8 in 2011 (Risk Management Association, 2013). A current ratio greater than or equal to one indicates that current assets are able to satisfy short-term obligations. Quick Ratio. The quick ratio examines a company’s ability to meet its short-term obligations with its most liquid assets, and is calculated by dividing current assets minus inventory by current liabilities (Yahoo Finance, n.d.). The 2013 industry average quick

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ratio was .7 (Risk Management Association, 2013). A quick ratio greater than one indicates adequate liquidity. Efficiency Ratios. Efficiency ratios examine how effectively companies utilize assets and liabilities internally. The total asset turnover ratio is used to examine industry efficiency (morningstar.com, n.d.). Total Asset Turnover (TOT). The TOT ratio reviews how efficiently a company uses its assets to generate sales and is found by dividing net sales by total assets (morningstar.com, n.d.). The 2013 industry average TOT was 4.0. (Risk Management Association, 2013). The higher the total asset turnover ratio is, the more efficient a company is with managing its assets. Leverage Ratios. Leverage ratios examine how much of a company’s capital is debt, and assess a company’s ability to meet financial obligations (Morningstar, n.d.) The debt ratio is used to examine industry solvency. Debt Ratio. The debt ratio examines how much of a company’s capital comes from liabilities, and is computed by dividing debt by total assets (Yahoo Finance, n.d.). The 2013 industry average was .9, which has increased from the two previous years (Risk Management Association, 2013). A lower debt ratio implies a more stable business, as a company with a lower ratio has lower overall debt. Profitability Ratios. Profitability ratios examine a company’s ability to generate earnings (morningstar.com, n.d.). Gross profit margin is utilized to examine industry profitability. Gross Profit Margin. The gross profit margin represents the margin a company is earning on sales, and is calculated by dividing gross profit by total sales (morningstar.com, n.d.). The 2013 industry average was .79, down from .8 in 2012 and 2011. (Risk Management Association, 2013). The higher the gross margin, the more of a premium a company charges for its goods or services.

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APPENDIX  2     Exhibit A: Organizational Structure.

Exhibit: B Industry Lifecycle Chart

Spa  Services  Industry

Fitness  Industry

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Exhibit C: Fitness Clubs and Health Spas Industry Statistics 1997 2002 2007 2012 Change

2007-2012

Number of Establishments 21,283 25,290 31,919 29,682 -7.0%

Receipts/Revenue (in millions)

$10,162 $14,988 $21,416 $24,065 +12.4%

Total Employment 332,103 445,508 579,175 605,316 +4.5%

Annual Payroll (in millions)

$3,264 $4,954 $7,090 $7,883 +11.2%

Population per Establishment

12,811 11,373 9,437 10,576 +12.1%

Total Population 272,646,925 287,625,193 301,231,207 313,914,040 +4.0%

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Exhibit D: Significance of Strengths, Weaknesses, Opportunities, and Threats. Strengths Insignificant Moderate Significant

Compatible with healthy lifestyle trend X

Management X

Industry growth X

Attractive location X

Weaknesses Insignificant Moderate Significant

Lack of synergy between CVAC and Refuge X

Family trust X

Property capacity X

Fluctuations in demand for services X

Opportunities Insignificant Moderate Significant

Loyalty program X

Expansion X

Variety of services X

Sustainability X

Expand services for children and teens X

Expand services for Baby Boomers X

Expand spa services for men and couples X

Threats Insignificant Moderate Significant

Attractive pricing of substitute services X

Competition X

Environment X

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Exhibit E: Influence of External Stakeholders External Stakeholders Low Medium High

Customers X

Suppliers X

The Cafe X

Independent Contractors X

Community X

Exhibit F: Importance and Influence Matrix

Exhibit G: Competitors Compared Direct Location Price Massage Options Amenities

Refuge

Carmel Valley, CA

$44-206

• Swedish • Sports • Deep Tissue

• Hydrothermal • Sauna • Lounge area • Massages

Esalen Institute

Big Sur, CA

$405-6,750

• Esalen Massage • Hydrothermal • Workshops • Massages • Lodging • Accommodations • Store • Art Center • Hypnosis

Sykes Hot Springs Big Sur, CA

$0-5 • Hydrothermal • Campsites

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Indirect Location Price Massage Options Amenities

The Spa at Pebble Beach

Pebble Beach, CA

$170-500+

• Classic • Therapeutic • Lymphatic • Maternity • Couples • Scalp, hand & feet • Pebble • Targeted

• Water experience • Juice bar & cafe • Body treatments • Massages • Esthetics & facials • Hair & nails • Gentlemen’s favorites • Day packages • Wedding parties • Accommodations • Golf, etc.

The Spa at InterContinental

Monterey, CA

$95-500+

• Symphony • Athletic • Aromatherapy • Coconut balm • River stone • Prenatal • Stress-less • Heaven express

• Café • Body treatments • Massages • Facials • Spa packages • Couple’s packages • Waxing • Pool • Wedding parties • Accommodations

Bernardus Lodge an Spa

Carmel Valley, CA

$150-500+

• Essential • Aromatherapy • Deep tissue • Mommy-to-be • Sports • Tuning fork • Soothing stone • Sticks & stones • Island Lomi • Japanese • Stretch • Reflexology

• Café • Body indulgences • Massages • Facial care • waxing • Signature treatments • Wellness rituals • Nail & hair • Makeup • Bridal parties • Pools • Accommodations

Massage Spa Chains

Multiple $50+ • Varieties • Massages

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Exhibit H: Destination Spa Amenities, Price, and Location Destination Spas

Amenities Price Location

Refuge 1 day (2 – 6 hours) Hydrotherapy Massage

$44-206 Carmel Valley, CA

Cal-La-Vie 3-7 day packages: Includes: massage, hydrotherapy, golf, etc. $4,000 - $9,000 Vista, CA

Aro-Ha

5-7 day retreat: Includes: nature exploration, nutrition, mindfulness, yoga, and functional movement to deeply improve your health.

$4,000 - $6,000 Aro-Ha, New Zealand

Mii Amo 3-7 day packages: Includes: daily spa services, outdoor activities, breakfast, pools, saunas, etc.

$6,000+ Sedona, AZ

Lake Austin 2-7 day packages: Includes: spa services, hotel stay, outdoor activities

$1,000 - $7,000 Lake Austin, TX

Westglow Offers mountain-spa vacations, weekend getaways, single day treatments, etc. $1,000+ Blowing Rock, NC

Exhibit I: Prestigious Destination Spas Aro Ha Wellness Retreat - Glenorchy, South Island, New Zealand

Retreat based spa where clients plan trips/outings with the company for relaxing mind/body/spirit experience. (http://aro-ha.com/) Aro Hā is a next-level wellness experience, offering life shifting, body morphing, and spirit lifting retreats. We condense optimal living practices into signature wellness adventures. Multi-award winning, Aro Hā fuses advanced eco accommodation, permaculture based self-sufficiency, and world-class results-oriented programming. Located in New Zealand’s ethereal Southern Alps, Aro Hā is designed for the rejuvenation of the human spirit. Ideal for solo travelers, couples, or friends, our physically stimulating programs sculpt the body & mind with sub alpine hiking, vinyasa yoga, and dynamic movement. Programs include nutrient dense vegetarian cuisine, healing bodywork, and daily mindfulness practice. Your diligent attention to wellness will be rewarded with a youthful embodiment of exceptional health. If a shift is needed, you’ve found the right elixir.

Cal-A-Vie – Vista, California, U.S. (http://www.cal-a-vie.com/day-cal-vie) Full day planned of activities and wellness

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Nestled on 450 private acres in a secluded valley in Vista, California, 40 miles north of San Diego, this exclusive retreat has 32 Mediterranean-style guest villas and suites with a 5:1 staff-to-guest ratio. Guests rejuvenate through the resort’s fitness programs, spa treatments, nutrition guides and more. As admitted Francophiles, Terri and John modeled Cal-a-Vie’s design to reflect the family’s trips to France. This Provençal style is mirrored throughout the spa, which is decorated with countless French antiques acquired during the Havens’ French buying trips. Cal-a-Vie Health Spa’s award-winning wellness and fitness program was cultivated in part by Terri’s advertising and marketing expertise, along with her natural flair for “Southern Hospitality” and commitment to a healthy lifestyle. With resident and visiting specialists in all fields of health, Cal-a-Vie Health Spa has been voted the number-one “Destination Health Spa in North America” by Travel + Leisure, amongst many others.

Mii Amo – Sedona, Arizona, U.S. (http://www.miiamo.com/)

Mii amo is a world-class destination that defies the imagination. A place like no other. It is a spa getaway where holistic rejuvenation is an inspired, transformative event. Set within the soaring red rock backdrop of Sedona, Arizona, Mii amo is surrounded by awe-inspiring, surreal natural beauty and endless spiritual healing. Come embrace the bliss of customized, all-inclusive packages featuring luxurious, private accommodations, two spa treatments daily and delicious, healthy culinary delights. From fitness and nutrition counseling, to glorious spa treatments and Native American inspired therapies, this is more than special. This is your reawakening.

Lake Austin Spa Resort – Austin, Texas, U.S. (http://lakeaustin.com/spa-resort)

Tucked away in the beautiful Texas Hill Country, our all-inclusive luxury spa resort offers a truly unique experience, where we cater to your well-being and provide a sanctuary for rest and renewal. Come discover why our Austin, TX resort has been ranked the #1 Hall of Fame U.S. Destination Spa in the Travel + LeisureWorld's Best Awards 2015. Whether you want to focus on your health and fitness, or need some time to reflect and relax there is something for everyone. All-Inclusive Vacation Packages Our award-winning destination spa offers all-inclusive resort packages, featuring luxurious accommodations, healthy gourmet meals daily, a variety of fitness activities, and special programs and events. Guests can also enhance their stay by choosing from over 100 relaxing spa treatments and personal instruction sessions

Rancho La Puerta – Tecate, Baja California Norte, Mexico

Markets “vacation,” Fitness resort and spa.

Westglow Resort & Spa – Blowing Rock, North Carolina, U.S. (Higher price & medium location) (http://www.westglowresortandspa.com/spa/spa-facilities/)

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Located just minutes from Blowing Rock, NC in the beautiful Blue Ridge Mountains, Westglow Resort & Spa is a top-rated luxury destination spa offering leisure, recreation, and rejuvenation. Housed in a restored and updated Greek Revival mansion that was once the summer home of renowned artist and author Elliott Daingerfield, Westglow blends historic elegance with modern comfort. The full-service spa offers a variety of choices from face and body treatments to health and well-being therapies to salon services as well as day spa packages and spa vacation packages.

Miraval Arizona Resort & Spa – Tuscan, Arizona, U.S. http://www.miravalresorts.com/overview/

Situated in the warm shade of the Santa Catalina Mountains in northern Tucson, AZ, on 400 acres of idyllic land, Miraval is a top-rated all-inclusive destination resort and spa dedicated to helping guests live life in the moment. Since 1995 the property has been consistently ranked as one of the world’s top destination spas by Travel + Leisure, SpaFinder and Condé Nast Traveler.Offering an array of dynamic growth and development programs, one-of-a-kind, luxurious spa treatments, authentic, flavorful and healthful cuisine as well as an expert staff of renowned wellbeing specialists, Miraval helps to open eyes, minds and hearts. In 2012, the resort unveiled the Miraval Life in Balance Spa with Clarins, a state-of-the-art oasis designed to transform guests both physically and emotionally.

Exhibit J: Competitive Forces

Rivalry:  High    -­‐  Over  20,000  spas  

in  the  U.S.  

Buyer  Power:  Low  

-­‐  Spa  prices  vary  

Supplier  Power:  Medium  

-­‐  Utilities  high  -­‐  Products  low  

New  Entrants:  Low  

-­‐  High  barriers  to  entry    

Substitutes:  High    -­‐  At  home  spa  treatments    

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Exhibit K: Significance of Opportunities and Threats Opportunities Insignificant Moderate Significant

Expand marketing to target male demographics X

Expand amenities X

Incorporate medical treatments X Flotation chambers X Electronic scheduling X

Increase sustainability X Expand into international markets X Higher full-time massage therapists X Partner with hotel X Leverage supply chain X Threats Insignificant Moderate Significant

Water regulations X

Lack of handicap accessible facilities X Community involvement X Alternate spas X

Lack of amenities X

Substitutes: at home treatments X

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Exhibit L: Resources VRIN Tangible Resources Valuable Rare Inimitable Non-

Substitutable

Facilities X X Location X X X Raw Materials X X X X

Human Capital X Intangible Resources Valuable Rare Inimitable Non-

Substitutable

Social Capital X Reputation X

Exhibit M: Influence of Internal Stakeholders

Internal Stakeholders Low Medium High

McKay Family Trust X

Advisory Board X

CVAC X

Management X

Employees X ExhibitN: Refuge Visits Per Year

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Exhibit O: Refuge Visitor Data

Exhibit P: Refuge Business Level Strategy

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Exhibit Q: Significance of Strengths and Weaknesses Strengths Insignificant Moderate Significant

Location X

Reputation X

Ability to Increase Amenities X

Management X

Social Media Management X

Growth in Customers X

Ability to Adapt to Industry Trends X

Uniqueness of Concept X

Weaknesses Insignificant Moderate Significant

Facilities X

Dependence on CVAC X

Marketing and Sales X

Lack of Statement Separation X

No KPIs X

No Measurements of Return Customers X

Lack of Capacity X

Potential of Copying X

Lack of Alignment of Vision X

Response to Evolving Industry Demands X

Lack of Measuring Performance X