Recently I was fascinated and slightly amused to hear that there is a plan developed by the good people of Magaluf to turn it from its present image to an up-market, family-friendly resort!
For those that are unaware of this ‘holiday’ resort, it is on the Spanish island of Majorca. It has built a reputation as somewhere for young European tourists to go and get very drunk and then to demonstrate the most debauched and often dangerous behavior. Here the beautiful white beaches are simply a place to sleep off hangovers before returning to the bars for another round of drunkenness.
However, the townspeople of Magaluf have decided that they wish to build lovely new 4 star hotels and more expensive restaurants to replace the bars, nightclubs and discos that are there at present.
Unfortunately, too many new businesses also make the Magaluf error. Because the idea of redeveloping Magaluf is certainly an error as well as a reason for a good chuckle!
What businesses have proved over and over again is that where you pitch your business in the first instance is where you are likely to stay. Movement of a business from its starting point is not much more than five percent up or down.
A perfect example of this phenomenon would be Toyota. They very successfully developed a range of mid-range priced vehicles that were well accepted as such. However, to introduce an up-market, luxury model was too much of a stretch for the public to accept once they had defined Toyota and its market position. It would have been a bit like Rolls Royce trying to introduce a small family car at the bottom end of the price range.
Not only is it impossible to change the perception of the your product once it has been established, there is a real danger it may also damage the original product. Toyota, of course, solved the problem by launching a new company, Lexus.
Of course, launching a new resort is not a possibility for Magaluf, and now that the product has been established, it is going to be impossible to steadily migrate from a young people’s binge drinking resort to one for rich families within five years.
Even if they close the resort down, level the buildings and start again, there is the problem of building a totally new image that will take a considerable time, even if people do prove to have short memories.
But that is a lesson for entrepreneurs as well. They need to resist the desire to get things moving quickly by selling at the low end with the hope of moving up once they are going. Once you have established your image and your price point history says you will stay there.
The best that Magaluf can hope for is that a new and better binge-drinking venue appears. That is not what the fledgling entrepreneur would want to happen to his business.