1. How many firms are there in the industry and what is the combined market share of the largest firms? Has this changed over the time period covered by the case study? If so, how?
• During the time of 2004, there were 26.8 thousand health clubs in the United States. There are 2 large firms that blow every other firm out of the water in terms of revenue. 24 Hour Fitness and Bally Total Fitness are the two companies with revenues of $981 million and $954 million. Market share is defined as a portion of total sales in relation to the market or industry it operates within. Both companies together had $9.6 million members (memberships) and the total industry had $41.3 million memberships. That means about 23% of the total industry revenue came from 24 Hour Fitness and Bally Total Fitness. This changed over the time period covered by the case study because leading up to 2004, the amount of health clubs rose and the amount of members and memberships rose.
2. Are barriers in the industry relatively high or low? Explain. Describe the nature of the barriers to entry. How do they affect the industry?
• During this time period, there were a few barriers trying to get into the industry. Heightened competition and less effective advertising made it difficult for firms to make a substantial profit. “Labor was the largest cost incurred by a club” (Wells, 2008, p.4). Also, firms had to purchase equipment which costed thousands of dollars, and firms needed a lot of capital in order to get started. These barriers affect the industry because if they are not carried out efficiently, companies would lose money which means the industry may not be as profitable.
3. How is the industry product differentiated? Has the nature of product differentiation changed over the period covered in the case study?
• The industry product is differentiated in this study based on marketing techniques, location, and services offered to members. “Bally conducted an extensive survey to determine what kept people from the gym. According to Pazzani ‘ We learned that the (hard body) image turned everybody off…It was an impossible standard to meet. It was impossible to envision perfection, and people didn't want to go to the gym” (Wells, 2008, p.7). Bally differentiated how they advertised showing that people of all ages, sizes, and ethnicities worked out here, and this made people want to come more. Location and convenience were also factors that were differentiated through Bally and many other companies. People are more willing to go to a gym that is close to home, so literally, gyms were popping up all over the place. Lastly, the services offered by a certain firm will lead to product differentiation. Bally specifically “launched a line of nutritional supplements and meal-replacement items” and offered, “comprehensive nutritional and exercise program customized to an individual's unique metabolism” (Wells, 2008, p. 7). The nature of product differentiation changed over the period covered in the case study because the ultimate goal was to get people into the gyms and buying memberships. Changes in marketing, locations, and services offered to members all happened over this time period, and honestly, these changes still happen today.
4. What types of nonprice competition are used in the industry? Describe each.
• Some types of nonprice competition used within the industry include: the use of famous people, being open 24 hours a day, and exclusive memberships for women. Arnold Schwarzenegger is associated with Gold's Gym because of his role in Pumping Iron which centered around bodybuilding. Gold's Gym was referred to as “The Mecca of Bodybuilding”, and it became internationally famous due to Arnold. 24 Hour Fitness offered their clients cards to get them in and out of the gym 24 hours a day. This allowed consumers with all sorts of busy schedules to come in and work out at times that were convenient for them. Curves offered exercise services targeted for “older women, those new to exercise, and women not comfortable in coed gyms” (Wells, 2008, p. 9).
5. Based on the above what is your conclusion about the type of competitive structure in the industry- i.e. perfect competition, monopolistic competition, oligopoly or monopoly?
• The competitive structure in this industry is monopolistic competition. There are large numbers of sellers or firms that offer differentiated products, and the entry and exit into this industry are relatively easy.
6. Has any government regulation been noted that would have impacted the industry during the time period in the case? If so, how?
• As I did a little research, I found out that some government regulations were created that would have impacted the industry during the time period in the case. One regulation talked about language that had to be “included in its statutes that provides the consumer with the right to: (i) Rescind contracts within a certain time period after signing up; (ii) Cancel his or her membership if their household moves between 5-25 miles from the location of the establishment where the consumer entered into the contract; and/or (iii) Establish limits on membership fees and the length of the membership contract” (Werner, 2016, para. 19). Also, I found that the government created a regulation where personal trainers have to register with the city and pay a fee before they are able to work. (Quinn, 2016, para. 3).
• I think both of these regulations would have affected the industry back then terms of how much money facilities could charge, and how many certified employees facilities were able to hire.
Quinn, M. (2015, September 18). Government Finds a New Business to Regulate: Personal Trainers. Retrieved June 17, 2018, from http://www.governing.com/topics/mgmt/gov-personal-trainer-regulations-florida-massachusetts-washington.html
Wells, J. R. (2018). Global & Economic Environment. McGraw Hill Companies.
Werner, A. D. (2015, August 2). Compliance with Health and Fitness State Laws: Background, Best Practices and Key Takeaways for Health and Fitness Club Owners. Retrieved June 17, 2018, from https://www.natlawreview.com/article/compliance-health-and-fitness-state-laws-background-best-practices-and-key-takeaways
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