(upbeat music)
-: You work out at your local gym and you've noticed
a steady increase in clientele over the last 12 months.
The gym is now at capacity.
So you think, why don't I open a gym
and get a slice of this market?
One thing you would like to understand
is how do gyms compete against each other?
What is driving the increase in members at your local gym?
And will that replicate across to your new gym?
To answer this, we need to ask some simple questions.
The first one is about demand.
Why are more people turning up at the gym?
It could be a range of things
but let's mention some common ones
to illustrate the concept.
People view spending on exercise and fitness
as non-essential therefore a rise in discretionary income
is likely to result in a greater demand
for non-essential products.
As a society we are becoming more health-conscious
and there is a trend to increasing the level
of exercise we do each week.
And don't forget seasonal impacts.
How many of you say early in the new year
that you have to work off
all that Christmas holidays food and drink?
That it's time to get fit?
Next we might ask about what drives product performance
and supply availability in this industry?
This reveals a unique aspect about gyms.
The performance of the service is directly related
to our perception of our bodies and health
and heavily influenced by a commitment to use it.
There are plenty of unfit people out there
who hold gym memberships.
But conversely a gym that has regular clientele
who are looking fit and healthy will attract
more new members as there is a clear customer perception
of the quality of the product.
With supply availability we might be thinking
about travel time to a gym as it will have an impact
on a consumer's willingness to join.
Gyms are ideally located in more densely populated areas
which are easy for people to get to.
Another aspect to supply is the product features.
Do gyms in this industry offer
just the basic level of equipment or more?
Are group fitness classes
or personal training services important?
Some gyms are now moving down a more holistic service path
including supply of nutritional products
and fitness clothing.
How is price determined for this industry?
A subscription model is popular,
but does having the latest equipment mean
higher membership fees or is it about
all the additional services mentioned earlier?
You might find that you can segment the market
into budget gyms and full-service gyms to better understand
how prices are set.
Other factors such as location
or even the size of the gym may need to be considered.
Of course, you must also understand the cost
before opening up your own business.
There is the gym equipment, staff, administration,
utilities, and insurance.
What you want to understand
is how do different competitors manage their costs?
Do they purchase or lease the equipment?
Are there large differences in cost
between highly-trained staff and those that aren't?
Finally, you need to consider risks
that could lower the profitability of this industry.
It's unlikely that everyone will suddenly drop
their health-conscious mindset and return to the couch,
but it is possible that discretionary income
could decrease suddenly and people will always reduce
their spending on non-essential products first.
You might decide to open up
a high-end, full-service gym.
But what happens if the future market growth occurs
in budget gyms?
You would be unable to lower
your prices to their levels to compete,
your brand and reputation would likely be critical
to driving your revenue growth.
And so bad customer experiences
would put that key capability at risk.
To recap, when considering the basis
of competition in an industry,
you're trying to understand what makes the industry tick?
What makes the demand for the products go up or down?
What is key to product performance
and supply availability to the customer?
How is price determined and how are costs accounted for?
And what are the key risks that could make this industry
quickly become a lot less profitable
and not one you'd want to be in.