In this spotlight we’re going to take a look at the strategy of an independent gym in a major city. This is a real life case study but the name of the gym and location has been changed.
Stayfit Gym was founded in 2014 by an investment entity. Located in a major city, Stayfit offers a unique workout experience for its 500+ members comprised in a 1,600sqm that includes top-notch cardio machines, innovative training classes and a lit 75-meter indoor/outdoor, walking/running track.
Stayfit needs a strategy to help achieve their strategic objective goals which are:
- Increase the annual members’ acquisition rate by 15%
- Increase brand identity by becoming a top-of-mind brand in the city by 2022
External Environment Analysis
The core of the business environment is formed by its relationships with three sets of players: Customers, Suppliers and Competitors affected by the following environmental aspects:
The increased pre-occupation with health and fitness causes more people to exercise. This intrinsic motivation evolves to create social networks with people who work out and causes the formation of group dynamics that push each other to achieve fitness goals.
Growth in fitness technology, such as fitness tracker wearables and real-time audio workout applications, is helping more people learn about their bodies and exercise requirements Technology is therefore likely to make individuals become their own fitness consultants by exercising conveniently from home.
Youth will likely demand fitness technologies and gimmicks to establish healthy habits that work with their hectic, digitally-connected lives. Millennial customers are the driving force behind the recent 88% growth in health and fitness mobile applications.
The increase in import duty on gym machines results in low profit margins for fitness centres including Stayfit, and will continue to impact future profits of the industry when machines require replacement. The projected annual increase in inflation continues to increase consumer price-sensitivity, especially towards non-essential goods and services.
The profit earned by Stayfit Fitness centre is determined by:
- The differentiated, superior and high-quality service that Stayfit offers to its customers with a wide variety of fitness facilities and innovative classes (virtual studios and physical classes).
- Management of people’s calibre who belong to the affluent segment of society allows Stayfit to charge a premium price and carefully recruit members who fit with its culture.
- The main specialized suppliers, such as LifeFitness© equipment, cleaning service, juice bar and live-streamed music DJ, are all able to capture a significant part of the value created.
Five Forces Analysis For The Gym Industry
Threat of Substitutes: Medium
- Internet-based substitutes such as free online workout videos and at-home gym equipment is valuable to price-conscious or convenience-seeking customers but does not pose as a high threat due to their lack of social element.
Threat of Entry: Moderate
- Capital requirements for traditional fitness centres with a wide range of equipment require a high investment. Smaller-scale gyms that focus on group exercise require a relatively low-capital cost.
- Economies of Scale: Fitness centres require many customers to amortize start-up costs over as many members and utilize excess capacity.
Power of Buyers: High
- There are many alternatives for buyers to choose from.
- Capacity for vertical integration is moderate as members may buy their gym equipment to work out from home. While it does not necessarily occur, it may pose a threat.
Power of Suppliers: High
- The best gym machinery equipment has one exclusive distributor in the country.
Competitor Rivalry: High
- The product offering for fitness centres is inherently similar; thus, customers are more likely to switch between them. Small group gyms, on the other hand, seek to differentiate with the workout type and group dynamics.
- Barriers to exit for fitness centres are somehow substantial: Machinery depreciation rate is high, and interior design needs to be uninstalled and returned to its original state upon exit.
The industry is becoming intensely competitive with new entrants, and fitness centres are actively seeking to acquire more members through cutting prices; hence, cost efficiency for maintaining financial strength is essential.
Small gyms, on the other hand, are operating with low-budgets yet are more able to charge higher prices due to the uniqueness of the group exercises they offer to their members.
In developing the strategy we will first define the company’s strategic direction, scope and the advantage.
The Strategic Direction
With the increased threat from boutique gyms and increased costs, Stayfit’s current objective is to maintain as many current members as possible while increasing total members' acquisition by 15% annually, to reach the maximum capacity which is 600 while taking into account the potential immigration of some of its members.
The difference between what Stayfit desires amidst the broader environment and internal capabilities is the accomplishment gap, which is to sustain competitive advantage while increasing liquidity.
Defining Industry Boundaries
- Geographical boundaries: With the increased traffic congestion, proximity is becoming a key criterion for choosing a fitness centre. Thus, individuals who work or live far from Stayfit will not consider it.
- Financial boundaries: Stayfit’s subscription fees are three times higher than the average industry price; thus, only the affluent segment of the society, who seek high value in all aspects of their lives can afford it. Despite cash cyclability and frequent tightness in cash, Stayfit never compromises its service quality, yet, marketing activities are compromised.
- Substitutability: Current Stayfit members tend to be loyal and unwilling to substitute unless they move to another location (district, city or country) or they become intrigued to try boutique gyms that associate with high social status and high standards of quality.
The below identified sweet spot is where a company meets its customers’ needs in a way that rivals cannot in the context in which it operates.
Analysis of Competitors’ Offerings
Fitness centres which combine a wide variety of facilities and classes that are price-competitive, leading to a compromised service aspect such as low levels of cleanliness, mainstream music, minimal shower amenities and undifferentiated facilities and equipment.
Small group exercises gyms and boutique gyms offer:
- Specific workout experiences for different needs. For example, thirty-minute workouts for individuals who wish to increase their metabolism in a way that works with their hectic lives. Another example is CrossFit©, for those seeking a community-forming workout to increase stamina and strength.
- Niche exercises, such as aerial yoga, are usually known for boutique gyms. These gyms offer an attractive environment with a high level of workout quality. Moreover, they reinforce individuals’ identity and social belongingness through the influence of social and psychological motivation from other members. Usually, members there are identified by name.
- They have limited hours and specific timings for workouts.
- Regular gym-goers: They aim to enhance their physique and achieve their desired body objectives through a workout space that offers a wide range of workout facilities and equipment. They tend to have an ever-growing need for workout variety.
- New to gyms: They seek a place where they can be committed enough to, rather than overpay for the amount of time they attend.
- They aim to pursue a healthy lifestyle through a workout place where they feel less anxious and stressed publicly
- Reasonable price
- Convenient parking space
- A place where they can shower and change comfortably
- Pleasant ambience with positive vibes
- Someone to motivate and encourage personal goals
- A space for self-care, health and well-being
- Internal operations
- Variety of machinery and classes
- Specialized personal trainers
- Value-added services
- Easy parking
The Differentiation Strategy
Whereas other fitness centres offerings are undistinguishable, boutique gyms are highly differentiated and attractive to members due to their social element. Stayfit possesses the advantage of combining the benefits of both worlds, the variety of workout options found in fitness centres and the high-quality service experience found in boutique gyms, which sets its main competitive advantage.
In developing a strategy, Stayfit should identify which strengths can be exploited most effectively and which weaknesses can be minimised. Stayfit has the foundational assets for a product differentiation strategy, however, reflecting it externally is limiting given the tightness in cash.
The objective of a differentiation strategy is not only to be internal but should also persuade the market that there is a “distinct gap” between the company’s product and its competitors. Thus, in addition to the current product and price differentiation, Stayfit can further strengthen its differentiation through a brand, distribution and promotion differentiation:
It is vital that Stayfit preserves its differentiation to the extent that turns current members into brand ambassadors, thereby strengthening the impact of word of mouth in generating referrals. One way is through bundling; offering a combination of complementary products and services. For example, providing holistic wellness packages that include nutrition and mental wellbeing in addition to tailored workouts.
Extending reach to a similar target segment in distant areas
Enhance CRM system to provide a more customized service to current members, which enable it to retain existing members, up-sell, and cross-sell packages tailored to their needs. CRM systems can further be developed to enhance the company’s coordination, for instance, coordination between internal staff, such as personal trainers and the nutritionist, to support in responding to customers’ needs.
Despite an industry which is faced by an intensified price competition from fitness centres and high differentiation from small gyms, Stayfit was able to offer differentiated, uncompromised workout quality in its spacious workout facilities. By extending differentiation to include brand, distribution and promotion, Stayfit can increase revenue streams and sustain a competitive edge.
For the strategy to be enduring, the staff must be involved in understanding the nature of the challenge in the market, and be part of coping with the problem and contribute actions to deal with it.
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