24 Hour Fitness (high concentration in the Western U. S. ) is a large part of the public health club market with the main competitors in their market: Bally’s (high concentration in NE) Gold’s Gym, and Wellbridge. 24 Hour Fitness has thousands of smaller unincorporated gyms and spas in the U. S. market that are a small threat at best. In Asia, 24 Hour Fitness has entered through acquisition into two main business hubs (Singapore and Hong Kong). Other entrants have begun to make presence into Asia, California Fitness Centers, Clark Hatch Fitness Centers, Bally’s also has plans to open 25 to 30 centers in S.
E. Asia within the next few years 1. Gold’s Gym also is presenting entry into the Asian Market through licensing with GlobalFit Industries 2. Analysis of Firm and Change Drivers24 Hour Fitness has differentiation in it’s IT and personalization of workout and nutrition tailoring that other clubs lack. They also have an atmosphere of catering to the needs of their clients in the types of activities that they can choose from by providing several different types of clubs ranging from a standard health club to a more sophisticated high end model that could tailor to a higher end clientele.
Another key piece to solidify this in the minds of their customers is their “All Club” option. This could be said to be a network externality that is a differentiation from the other clubs that have standard offerings. As more clubs with different amenities are added to a geographical location, the benefit is increased for those who choose the option. 24 Hour Fitness has continually improved their Revenue per employee over the past 5 years an average of 18% (Table 1) over that span.
It is speculative to imply that it is through attrition or through improvements in their operations and IT structure; however, customer base has also increased through these years, so it would seem that the base is satisfied with their service given the high switching and exit that pervades this industry. Key Management IssuesThe main issue is what to focus their expansion initiative on. Should they expand into the U. S. market further, if so how? Should they expand into the burgeoning Asian market, if so, how, given the number of clubs already making that move.
AlternativesDo Nothing -Always an option, but hardly appropriate given the apparent successes of 24 Hourfacilities in Asia as well as entrants rushing to get into the main cities in Asia. Themarkets of Asia at the time are starting to show promise beyond simply Japan,Korea, and Taiwan. The time surely is now or never, do nothing is not an optionto address Asia. The same can be said for the U. S. Market. Health clubmemberships continue to grow and project to grow steadily as the populationcontinues to grow older and live longer. More U.
S. Expansion – OrganicCreation of new health clubs in markets that are ripe for 24 Hour Fitness. Thiswill require speculation into market areas that have little high end competition and room for multiple club locations to take advantage of their breadth of line and customization. The other option in Organic growth is to delve headlong into an entrenched area where one of their major competitors enjoys serious advantage. More U. S. Expansion – InorganicThis method is similar to organic growth but through the means of acquisition.
Not only will this require up front efforts in marketing, but also understanding of the nature of particular club health where owners of smaller businesses are looking to divest. Asia Expansion – OrganicCreation of new health clubs in the Asian market. This will require efforts to further understand desires of the particular culture in terms of social activity as well as health activity choice. The Asian culture is different from the U. S. culture and will require research to get the offering right. High population density with stable markets obviously would be preferred.
It would also be advantageous to understand the plans of the major competitors in regard to their entry plans. Asia Expansion – IndirectAnother option would be to enter into the Asian market through partnering witheither health insurance companies like GlobalFit, or through introduction of high end club facilities in major and travel hubs. The 24 hour advantage is clearly in favor of business travelers. Also, this opportunity to share costs during expansion might allow for a multi prong expansion strategy not only in Asia, but in the U. S. market as well.
RecommendationIt is my recommendation to enter the Asian market through expansion near their current offerings as well as partnering with high end hotels. This will not only attract the Asian Market that has a high utility for a 24 hour facility 4, but business people as well. This strategy can serve as a bridge between foreign business people and Asian people as a social networking medium, one of the key attractions to health clubs.
I also recommend going after markets in the U. S. through acquisition, where there is little competition from the major competitors. Using this approach, 24 Hour Fitness can extend their brand in the U. S. Market which is also a growing market. The high quality offering and breadth of line is something that can energize an area that is underserved by locally owned gyms that do not have the capital and quality of service that 24 Hour Fitness has. Implementation PlanThis strategy will need corporate coordination.
The alignment of the heads of departments will have to align with the strategy for it to work. Some time will need to be spent aligning the organization to expansion as part of the new corporate focus. Key is to make the right acquisitions based on overall global presenceAsiaMarket Research in AsiaNegotiations with hotels and Health Insurance CarriersBreak Ground Locally in ParallelEnter quick to beat Bally’s and Gold’s to defend current clubsEnter early in ripe areas to be first to marketU. S. Search out opportunities for acquisitionAlign with corporate moves in the global senseAppendix
Revenue per Employee with 5 year trendChart 1, Memberships (US)Bibliography1 – http://asiamarketresearch. com/news/000275. htm 20032 – http://findarticles. com/p/articles/mi_pwwi/is_200106/ai_mark02027729/pg_1 20043 – http://bizjournals. bison. com/press/pr1-17-03bally. html4 – Asian Business, 1 Dec 2000, Volume 36, Issue 12