AromaThaiMassage Business Plan Proposal

MBA, Hult International Business School Renan J. Barrios Peru

This paper was submitted in partial fulfillment of the requirements for the Masters of Business Administration (MBA) degree at the Hult International Business School, Cambridge MA, United States, January 2008.

JANUARY, 2008

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I. Executive Summary AromaThaiMassage offers its clients an immersive experience that releases them from daily stress. Thai massage is an ancient art very efficient in stress relief and is also used as a therapy for other health problems. The differentiating value of AromaThaiMassage is the whole experience. As soon as the client enters the parlor, the feeling is like moving into another environment. Everything connects to Thailand: the people, the colors, the sounds, the aromas. Finally, the massage sends him to a blissful, self-absorbed state. AromaThaiMassage will target the mid-high / high income population of the Boston metropolitan area. In this regard, the placement is of particular importance. Considering the need to be close to the target population, the Cambridge area has been selected as the venue where the parlor will be situated. The strategy to reach potential clients in an efficient and easier way is by offering agreements to large companies in the area, giving discounts to their employees as part of their fringe benefits. Simultaneously, advertising in selected magazines and leaflets will be part of the promotion strategy. AromaThaiMassage project has a high expected rate of return of 24% and breaking even in the first year. Achieving this result is possible because of having the high profit margin of a premium priced product in a large potential market.

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II. Situation Analysis A. Macro Environmental Factors Increased personal stress Stress has been called an epidemic of modern life. Americans of all ages and backgrounds are reporting high levels of personal stress. Sleep disorders and physical pains are among the most common stress-included health problems. Gallup research in 20061 revealed that about 70% of the American work force has experienced and probably is still suffering from the two problems. Workplace stress According to the American Institute of Stress (AIS), work is the leading cause of adult stress, followed by other factors including marital/relationship discord, violence and perceived threats to personal safety, peer pressures, loneliness and social isolation. As reported in a Gallup research, approximately four out of five Americans report job-related stress, one in four state that they feel like shouting or screaming due to job-induced stress and about half agree that they need assistance in managing their stress. Exhibit 1 shows the weekly hours of work for managers and professionals for 2005 and 2006. While the average weekly hours for managers has remained relatively steady between 2005 and 2006 between 43 and 44 hours per week, research finds that the average weekly hours of work for professionals is on the rise, increasing 3.2% between 2005 and 2006 to total about 41.5.2

1 2

Gallup Research, 2006 www.mintel.com 2

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According to the Mintel market research, workforce who suffered from work stress may be desperately looking for a respite from work-related stress. Personal Disposable Income Between 2000 and 2006 higher income households experienced the greatest growth while the number of lower income households experienced slower growth and comprised a shrinking percentage of U.S. households. While households with annual household incomes of $49.9K or less still comprise the majority of U.S. households, those with annual household incomes of $50K or above grew from 36.1% of the population in 2000 to 41% of the population in 2006.3 Exhibit 2 shows the distribution of household income in the U.S. between 2000 and 2006. Households that experienced the greatest levels of growth were those with annual incomes of $100K or more, followed by those with annual incomes that ranged between $75K and $99.9K. These findings are favorable for the massage industry since such services tend to attract consumers that have discretionary income to spend on personal luxuries like massages, facials and manicures. Wellness Industry and the Spa Lifestyle The culture of massages often emphasizes holistic health and the concepts of wellness and fitness. Consumers that are part of this holistic lifestyle generally embrace the interconnection between one's environment and one's physical and emotional balance. Grounded in a variety of alternative health practices including herbalism, meditation, acupressure,

U.S. Census Bureau, Money & Income in the U.S.: 2006 3

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acupuncture and nutritional therapy, this quest for wellness is becoming more main-stream. As massage becomes a part of traditional healing and wellness, more doctors will likely recommend such to their patients, creating further opportunity for market growth. B. Industry Analysis Massage Market: Size and Growth The massage industry is rapidly expanding with new massage parlors and spas opening daily across the country. The U.S. massage market is worth $1.3 billion in 2006, and has experienced steady annual growth since 1998 as revenues increased over 140% between 1998 and 2006. While industry growth has slowed somewhat since its peak of 21.2% in 2000, future opportunity for growth abounds and is anticipated within the industry. A way to estimate the massage market is to indirectly look at the spa market, which offers massage services as their most important service. Mintel Market Research4 estimates that 23 million people support the spa market. According to Mintel's own consumer research administered in July 2006 around 9% of female respondents 18 years and older had been to a spa in the last six months. Further, and based on Day Spa Association (DSA) estimates in 2005, around 11% of U.S. adults have been to a spa with massage services. Consideration of these facts would suggest that the spa market is accounted for by some 19 million women and about 4 million men. Massage services account for 21% of all spa services.5 Exhibit 3 shows the market size of spa and massage market in the U.S.

4 5

www.mintel.com www.dayspaassociation.com/ 4

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Future growth in the massage market is anticipated as massage penetration increases and consumer awareness develops. According to DSA data, around 39% of massage guests are first timers. This suggests that the massage industry has about 9 million first time visitors each year. Given that 4.7 million new recruits are necessary to maintain present massage penetration levels, it is apparent that the market is experiencing notable annual growth. C. Customer Analysis Generally speaking, for the massage industry, customers have different needs: some are looking for a place for stress relief (relaxation), while others are looking for pain relief therapies (healing). There are also customers who are looking for being in a good physical condition for specific purposes, for example: athletes. Depending on the different purposes, massage services can be delivered under a wide range of prices, going from a cost-based price to a high value-based price. But, most of the massage services customers will be more concerned about the value that they can obtain. AromaThaiMassage will focus on providing unique massage services that customers have been looking for, together with the oriental Thai environment. D. Competitive Analysis According to a market research there is a limited number of Thai Massage providers in the Boston Metropolitan area, therefore there is limited competition. The major competition comes from day spas that provide massage services within the same area. According to the American Salon Green Book, day

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spas are the fastest growing sector of the beauty industry. Some of the most notable growth in day spas is among beauty salons that have started offering a broader array of services such as massages, facial and Sauna. Industry estimates suggest there are upwards of 300 day spas in Massachusetts in 2006 and this includes traditional beauty salons that have started offering more treatments like manicures, facials and massages. Based on ISPA research, the number of day spas increased about 127% between 2000 and 2006 nation wide. The vast majority of salons or spas are independently owned, single-location facilities. Attendants must be specifically trained and the spa may offer different types of massage as well as body treatments including exfoliation, aromatherapy, facials and body wraps. Day spas with massage services are increasingly situated in malls, shopping centers and around upscale residential neighborhoods. Malls are increasingly popular locales, due in large measure to their high traffic. Day spas are also moving towards larger premises in order to provide more treatment rooms and a larger variety of treatment options. Many are located in urban areas, offering so called "urban retreats" from the usual bustle of the city, yet it is anticipated that day spa growth will likely occur in suburban locations that provide closer proximity to many people's homes. E. Company Analysis AromaThaiMassage is a new entrant to the massage service providing industry in the Boston Metropolitan area. SWOT analysis will be able to help in examining the companys pre-entrance status. SWOT analysis

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Strengths Highly differentiated service Native Thai therapists High-end positioning

Weaknesses Service awareness Lack of experience in the business

Opportunities Broaden product line Seeking for alternative healing method Stress is here to stay

Threats Lack of customer recognition Substitute services

III. Marketing Strategy A. Marketing Objectives Create awareness of AromaThaiMassage among the target market. Position the company and its service to be perceived as a premium high value unique service. Breakeven within one year of initial operations. Expand the business by opening new parlors subject to demand and market growth.

B. Target Market The target market of AromaThaiMassage is the Mid-High / High income workforce with a household income of USD 75,000 or higher per month while the geographic target is Boston Metropolitan area. As there are 922,000 families6 with a household income of USD 75,000, given that the average number of adult per household is 1.37, we believe that AromaThaiMassages potential market is about 1.198 million

U.S. Census Bureau, Current Population Reports, 2006 7

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people. The reason behind the geographic location is because the owners are familiar with the Boston Metropolitan area. Another major reason is that the population of this area is not very large, but the proportion of professionals as well as the number of people within the targeted household income is relatively high in the United States.7 As mentioned earlier, Gallup suggested that these professionals and workforce with a high level of income usually suffer from work-stress and physical pain, making Boston an ideal base for AromaThaiMassage. When using the demographic segmentation, we are targeting customers that will be willing to pay for an upscale service looking for either relaxation or healing regardless of their specific purposes. According to the Mintel research7, income has a notable impact on visits. Respondents with household incomes of $75K or higher were much more likely than those with lower incomes to have visited a spa or massage in the last six months. Just 2% of those respondents with household incomes under $25K reported having used similar services in the last six months compared to 15% of those with household incomes between $50K and $75K and nearly a quarter of those with household incomes of $75K or more. Respondents with higher household incomes are more likely to have higher disposable/discretionary income, and are therefore more likely to spend on pampering and personal luxuries. Other research confirms this relationship between income and massage demand. The results are analyzed by the educational attainment of respondent in Exhibit 4.

www.mintel.com 8

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C. Positioning AromaThaiMassage will be positioned as a premium service that provides its customers with a relaxing and energizing massage experience in the Thai style. D. Marketing Mix Strategy Product Thai traditional massage is the art of relaxing and healing that has been practiced for centuries. The root of the massage came from the lord Buddhas physician, Shivagakomarapaj, back in 2,550 years ago. Thai massage is also called Yoga massage or Thai Yoga massage according to the method of treatments, which is more energizing than other forms of massage. It is the same as doing yoga with a help from a therapist by pushing or pulling a client to the right position. Thus, with the assistance from the therapist, Thai massage provides immediate results comparing with yoga. In other words, having Thai massage for 1 hour is equivalent to practicing one hour yoga everyday in a week. Therefore, it is suitable for professionals who need to be relaxed and relieved from stress but do not have time for exercising. Generally, two things are required for Thai massage: mattress and props. At the same time, it is important to enhance customer experience through stylish decorations and peaceful environment. Professional massage therapists Thai massage has been taught by traditional master therapists from generation to generation. Usually, all Thai professional massage therapists learned doing the massage since they are youth. AromaThaiMassage will employ native professional therapists to provide high quality services to its clients. Selecting a

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skillful massage therapist is one of the keys to success. Thai culture emphasizes being friendly, polite, and helpful. Hence, it is not difficult to find a therapist with a service mind and the ability to deliver the Thai values to clients. Values and Differentiation To enhance customers satisfaction, the environment will provide the following attributes: Ambiance: With the unique environment, customers will have exotic experiences from all five senses of human body. - Image: Special designed wallpapers, decorations like Buddha sculptures and handicrafts will be used. - Culture: a Thai receptionist along with the therapists will greet all customers with Wai, which is the way to show politeness and warm welcome. - Nature: Fresh flowers and aquariums will be displayed to create a natural atmosphere. - Music: Relaxing music will be played to create a soothing environment. - Aroma: Thai aroma made of herbs will be used during sessions to enhance clients health. - Welcome drink: Herbal drinks such as tea will be offered to customers. Relaxing area: At the reception, customers can enjoy tea; cozy sofas with natural decorations. Books and magazines about Thai will be placed. Additional Products The company will sell other products, such as aroma candles, herbs, musical relaxing CDs, and Thai souvenirs under the AromaThaiMassage brand.

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Pricing The pricing strategy is based on the value that a customer would pay for the service. Our target customers are those who earn an annual income of $75,000 or above and therefore the monthly basis after taxes accounts for $4,688. Assuming that 6% of each individuals income is to be spent on personal care services and that each customer visits a massage parlor 3 times per month on average, clients will be able to spend approximately $95 per massage session. This is the proposed price for entering the market, being also a competitive price among the high massage suppliers. Promotion Association with companies: The key promotion plan is to associate with companies whose employees are potential customers. Thai massage will be offered as one the fringe benefits for the companies

employees. There will be 30% discount to the employees for the first 3 months and a 10 % discount thereafter for any number of visits. The promotion plan includes visiting selected companies. Two people will be dressed in the traditional attire of Thailand serving Thai tea and will provide a live demonstration of Thai massage for a few minutes. Website: Companys website, aromathaimassage.com will be available to support the communication strategy. Print Media: Promotions will be done through advertisement in local magazines such as Improper Bostonian. Improper Bostonian has a high readership profile.

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Customer Loyalty Program: A customer loyalty program will be introduced by offering a free visit on the purchase of first 10 visits. This will not attract customers but makes them loyal toward AromaThaiMassage service. Placement Due to the familiarity with Boston, it is recommended to open the massage parlor in this area. In addition, Boston is one of the major cities in the U.S. that has the highest average income, and increasing number of potential clients compared to other locations. Boston is a cosmopolitan place with a population of about 3 million where the average household income per year is about $87,000. This fact is very

important since AromaThaiMassage is a premium product targeted at clients willing to pay for quality. Cambridge is the most potential area because of safety, accessibility by the T and the distance of about 20 minutes from the business center. Furthermore, real estate and renovation costs are suitable.

E. Budget and Pro Forma Financial Statements Financial Highlights: Estimated Sales per year (First year): $ 1,026,000 Breakeven in the first year of initial operations. Net Profit margin (First year): 19.9%

AromaThaiMassage has excellent financial results resulting in a break-even point in the first year of operations and a net profit margin of 19.9%% in the first year. Refer to income statement pro-frorma and breakeven analysis in exhibits 5 and 6.

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Exhibit 1: Average weekly working hours for managers and professionals, 2005 & 2006
2005 Managers hours/week Professionals hours/week Total hours/week
Department of Labor/Mintel

2006 43.2 41.5 42.4

% Change 2005-2006 -1.6 3.2 0.9

43.9 40.2 42.0

Exhibit 2: Distribution of household income, 2000 2006

2000 # All Households Under $25K $25K-$49.9K $50K-$74.9K $75K-$99.9K $100K or more Total all households 30,840 29,425 17,448 8,582 8,017 94,312 32.7 31.2 18.5 9.1 8.5 100.0 33,674 29,788 17,933 8,867 8,966 99,627 33.8 29.9 18.0 8.9 9.0 100.0 32,040 29,841 19,266 10,785 12,879 104,705 30.6 28.5 18.4 10.3 12.3 100.0 3.9 1.4 10.4 25.7 60.7 11.0 % 2003 # % 2006 # %
Change 00 - 06

U.S. Census Bureau, Money & Income in the U.S.: 2006

Exhibit 3: Day spa sales, segmented by treatment type, 2001 & 2006
2001 $million Massages Facials & body treatments Hair care services Nail care, manicures & pedicures Product sales Other* Total 850.3 678.0 664.5 604.2 445.5 807.5 4,050.0 % 21 17 16 15 11 20 100 2006 $million 1,282.7 994.5 925.0 854.3 750.8 967.7 5,775.0 % 22 17 16 15 13 17 100
Change 01 - 06

% 50.9 46.7 39.2 41.4 68.5 19.8 42.6

Note: Data may not equal totals due to rounding * Other includes aromatherapy, makeup application and consultation, hair removal treatments including waxing and electrolysis, tanning services, spa cuisine, nutrition and weight management consultation, exercise classes including aerobics, yoga, tai chi and meditation, use of steam bath, hydro tubs and sauna. CES/NPD/HTT/Day Spa Magazine/AMTA/U.S. Census Bureau/Company reports and financial information/Mintel 13

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Exhibit 4: Attendance at day spas in the last six months, by educational attainment, July 2006 "Have you attended a day spa for any service in the last six months?" Base: 4,033 women aged 18 and older
All HS or less % Yes, attended a day spa 9 % 4 Some college % 12 College/post college % 17

Exhibit 5

Aroma Thai Massage

Income Statement Years 1 to 5 ($) Year 1
NET REVENUES COST OF REVENUE % of Revenues GROSS PROFIT % of Revenues OPERATING EXPENSES Sales & Marketing Research & Development General and Administration Total Operating Expenses % of Revenues EARNINGS FROM OPERATIONS EXTRAORDINARY INCOME / (EXPENSE) EARNINGS BEFORE INTEREST & TAXES INTEREST INCOME / (EXPENSE) NET EARNINGS BEFORE TAXES TAXES NET EARNINGS % of Revenues 1,026,000 488,131 47.6% 537,869 52.4%

Year 2
1,026,000 488,131 47.6% 537,869 52.4%

Year 3
1,026,000 488,131 47.6% 537,869 52.4%

Year 4
1,026,000 488,131 47.6% 537,869 52.4%

Year 5
1,026,000 488,131 47.6% 537,869 52.4%

41,000 0 107,820 148,820 15% 389,049 (25,000) 364,049 (24,000) 340,049 (136,019) 204,029 19.9%

10,000 0 107,820 117,820 11% 420,049 0 420,049 (24,000) 396,049 (158,419) 237,629 23.2%

40,000 0 107,820 147,820 14% 390,049 0 390,049 (24,000) 366,049 (146,419) 219,629 21.4%

10,000 0 107,520 117,520 11% 420,349 0 420,349 (24,000) 396,349 (158,539) 237,809 23.2%

40,000 0 107,520 147,520 14% 390,349 0 390,349 (14,000) 376,349 (150,539) 225,809 22.0%

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Exhibit 6:

Aroma Thai Massage

Break-Even Analysis Years 1 to 5 ($) Year 1
Revenue Cost of Revenues Variable Fixed Total Operating Expenses Variable Fixed Total Total Costs & Expenses Variable Fixed Total Variable Costs/Revenue Ratio Break-Even Point Revenues Break-Even Point number of service sessions 1,026,000

Year 2
1,026,000

Year 3
1,026,000

Year 4
1,026,000

Year 5
1,026,000

134,460 353,671 488,131

134,460 353,671 488,131

134,460 353,671 488,131

134,460 353,671 488,131

134,460 353,671 488,131

20,520 117,300 137,820

20,520 87,300 107,820

20,520 117,300 137,820

20,520 87,000 107,520

20,520 117,000 137,520

154,980 470,971 625,951 0.15 554,771 5,840

154,980 440,971 595,951 0.15 519,433 5,468

154,980 470,971 625,951 0.15 554,771 5,840

154,980 440,671 595,651 0.15 519,080 5,464

154,980 470,671 625,651 0.15 554,418 5,836

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