Busniess Judgement Case Challenge PDF

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Summary

CASE CHALLENGESubject Name: Business Judgment Subject Code: BUSA Industry Number: ZP92161_ Company Name: Chester Industry: Fitness business (Fitness & Lifestyle Group) Focus: Specific Firm Range: AustraliaStudent Name: Student ID number: Xinyun (Chloe) Yin 980450 Xin (Joy) Xiang 980599 Cheok...

Description

CASE CHALLENGE Subject Name:

Business Judgment

Subject Code:

BUSA30000

Industry Number:

ZP92161_2

Company Name:

Chester

Industry:

Fitness business (Fitness & Lifestyle Group)

Focus:

Specific Firm

Range:

Australia

Student Name:

Student ID number:

Xinyun (Chloe) Yin

980450

Xin (Joy) Xiang

980599

Cheok Pan (Helen) Ho

973705

Jingyao (Cara) Zeng

980984

Word count: 3996 words

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Table of content Executive Summary

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1.0 Introduction

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2.0 Problem 2.1 Overall Problem Statement and its Significance 2.2 Specific Impact of problems on key aspects of business Operational inefficiency Low customer engagement rate Weakening of Competitive Advantage 3.1 PESTEL Analysis Political Economic Sociocultural Technological Environmental Legal 3.2 Industry Forces (Porter’s Five Forces Model) Threat of Competitive Rivalry Threat of Buying Groups Threat Of Supplier Groups Threat of New Entrants Threat of Substitutes

6 6 7 7 7 7 8 8 9 10 10 10 11 11 11 12 13 13 14

4.0 Internal factors 4.1 SWOT Analysis 4.2 Objectives to address Problem

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5.0 Solutions 17 5.1 Operating function area 17 5.1.1 sub-problem: Operation inefficiency 17 Solution 1: Lending out facility via the third party platform. 17 Solution 2: Place some of the equipment in the public open spaces. 19 Solution 3: make facilities available to charities in order to avoid inefficient use of equipment. 21 Recommendation 1: Lending out facility via the third party platform. 23 5.2 Sub-problem 2: Low customer engagement 23 Solution 1: foster different online communities based on the same interest of customers via apps 24 Solution 2: Offer a personalised plan and instantaneous online supports 25

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Recommendation 2: foster different online communities based on the same belief for customers via apps 27 5.3 Sub-problem 3: Weak Competitive advantage 28 Solution 1: adopt Influencer marketing campaigns on Instagram. 29 Solution 2: set up a brand hashtag challenge on TikTok.

Recommendation3: Adopt Influencer marketing campaigns on Instagram.

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Conclusion

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Reference List

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Appendix

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Executive Summary The purpose of the report is to outline the problems Fitness & Lifestyle Group (FLG) is facing in wake of COVID-19 and then suggested course of actions for the operation and marketing department to address the issue.

The key challenge has been identified as low customer retention with three recommendations following, the first is providing qualified equipment to customers for improving resource operating efficiency and relieving the financial pressure. The second advice is to organise some online communities based on the same customer interest via apps to improve customer engagement. Lastly, leveraging influencer marketing campaigns on Instagram is believed to help in enhancing brand awareness and attracting new customers.

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1.0 Introduction Owing to the COVID-19 outbreak, the fitness industry, including FLG, is under tremendous disruption due to various government restrictions and public health concerns. Therefore, the report is written to investigate challenges facing FLG currently and to propose actions to be taken in the next 12 months to combat the issue.

The major problem has been set up as low customer retention which brings impacts of operational inefficiency, low customer engagement rate and weakening of their competitive advantages. Next, both external (PESTEL and Porter’s 5 Forces) and internal (SWOT) analysis will be conducted to observe how FLG is being influenced by these forces, followed by potential solutions and their evaluations according to sound decision making processes to confirm on the final recommendations to be implemented.

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2.0 Problem 2.1 Overall Problem Statement and its Significance FLG has been facing a tremendous and sustained decline in client ale as suggested by the fitness industry impact report, 71% of respondents have zero client since the forced closure of gym by the Federal Government and most respondents reported cancelled memberships with 47% losing more than 60% of their total client base (Fitness Australia, 2020). Online platforms and one-on-one training was also adding to the problem with less than 10% of clients experiencing a successful transition (Fitness Australia, 2020). As a business with the largest proportion of their income generating from membership fees, 28.3% according to IBISWorld (Youl, 2019), which is used to maintain sufficient cash flow to cover the high fixed cost and pay employee wages for the business to keep running. Therefore, low customer retention is a crucial problem to tackle for FLG.

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2.2 Specific Impact of problems on key aspects of business 1. Operational inefficiency With all the fitness equipment and capacity in place, insufficient customers would result in leaving the idle resources and not maximising the value that they could bring us. This situation adds to the challenge of balancing out between revenue and expense under the recent complicated operating condition, which intensifies the financial pressure that FLG has borne.

2. Low customer engagement rate Since all of the physical stores are forced to close, it is hard for FLG to reach its clients with its minimal presence in digital marketing. Based on the data, less than 10% of the clients are experiencing a successful transition (Fitness Australia, 2020). With a poor performance, FLG generates a lower customer satisfaction and lower customer engagement rate.

3. Weakening of Competitive Advantage Fitness industry has faced an unprecedentedly competitive environment due to the COVID-19 outbreak. With a diminishing increase in market share and weak competitive advantage, FLG is gradually losing their clients (Fitness Australia, 2020). Hence, strengthening the competitive advantage is crucial.

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3.0 external forces A PESTEL analysis is a useful tool to analyse key external forces that have affected a company (UNICEF, n,d). To understand the current uncertainties and concerns for FLG, PESTEL analysis will be applied with the help of Porter’s five forces analysis in the following.

3.1 PESTEL Analysis Political Due to the impact of COVID-19, Australian government started a shutdown policy to slow down the infection rate and prohibited the fitness industry from charging a regular membership fee during the time (‘Coronavirus information’, 2020). The closure of gyms in Australia has had a severe impact on the fitness industry. According to the research (Fitness Australia, 2020): -

81% exercise processionals and sole traders have lost their job across the sector.

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71% of respondents have not had a single clientele since gyms closed on 23 March 2020.

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44% of respondents have lost more than 61% of their income.

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90% are continuing to pay up to $5000 per month for operating expenses despite not operating

Hence, the fitness industry in Australia is facing massive challenges due to the government restrictions.

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Economic Economic issues such as disposable income, economic growth and inflation can threaten the whole industry (UNICEF, n,d). As gyms and fitness are ‘non-essential’ service (Youl, 2019), the number of customers would depend on the economic conditions. In recent years, Australia’s economic growth has performed a slowdown trend (Mycd, 2019), hampering the earnings of the fitness industry. By estimation, coronavirus can potentially reduce the Australian GDP by $34.2 Billion and 31% of respondents say COVID-19 has impacted their household income (Duffin, 2020), leading to reduced spending on fitness.

(Diagram1: the real GDP growth in AUS)

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Sociocultural Social factors are a key factor which helps fitness companies to understand the target customers. These include age, sex and income (UK Essays, 2018). According to the research, people aged 15-34 (44%) are the main participants in fitness activity since they care about the body image (Youl, 2019). Besides, health-consciousness reinforces market trends as Fitness Australia (2020) stated that 67% of Australian adults are overweight or obese. Meanwhile, consumers may be reluctant to go to fitness clubs due to the impact of COVID-19, because they are concerned about safety issues.

Technological Technological developments influence the purchase decision. Consumers look for advanced equipment and professional staff in gyms. The distribution of service will thus affect the market. Due to the impact of coronavirus, traditional gyms have to convert to online fitness to continuously support their members, reconstruct the entire industry.

Environmental Sustainability has increasingly become popular in recent years. Therefore, fitness organizations have to take into consideration the energy consumption of their fitness centres as it is high among this industry and the complying of environmental protection laws are expected (UK Essays, 2018).

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Legal In the fitness industry, health and safety of customers are protected by legal laws. There is strict regulation for the quality of equipment and trainers to ensure the safety of customers which may result in higher costs.

3.2 Industry Forces (Porter’s Five Forces Model) 1. Threat of Competitive Rivalry

（Table1: Porter’s Five Competitive Forces ----Threat of Competitive Rivalry ） 

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1.1 Competitor Analysis (Two Major competitors: F45, Anytime Fitness)

（Table1.1: P  orter’s Five Competitive Forces ----Threat of Competitive Rivalry ）

2. Threat of Buying Groups

( 

( Table2: P  orter’s Five Competitive Forces ----Threat of Buying Groups)

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3. Threat Of Supplier Groups

 （Table3: Porter’s Five Competitive Forces ----Threat of Supplier Groups ）

4. Threat of New Entrants

（Table4: Porter’s Five Competitive Forces ----Threat of New Entrants ）

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5. Threat of Substitutes

（ 

(Table5: Porter’s Five Competitive Forces ----Threat of Substitutes ） 

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4.0 Internal factors 4.1 SWOT Analysis

 (Table6: SWOT analysis）

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4.2 Objectives to address Problem Problem: Low Customer retention ● Reinforce Competitiveness: ○ Highlight the competitive advantage: Influencer Marketing campaign ● Full utilisation of facilities to operate efficiently ● Enhance Customer engagement/loyalty: ○ Foster communities to build “community spirits”. ○ Insist on a “customer-oriented” model and create added-value service for the clients. ○ Hold a Socio-economic view and pay attention to the public interest. ● Supply-side: ○ Enhance the relationship with suppliers in order to gain Supply-side Economies of scale and deliver benefits to the customers.

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5.0 Solutions 5.1 Operating function area 5.1.1 sub-problem: Operation inefficiency With all the fitness equipment and capacity in place, insufficient customer numbers will result in leaving the resources idle and not maximising the value, which intensifies the financial pressure that FLG bears. In this case, there are three solutions that FLG could adopt to solve the problem of operational inefficiency and fully utilize its facility.

Solution 1: Lending out facility via the third party platform. “Gymlend” is an app that allows fitness companies to lend out its unused equipment to their customers with a legal contract, which provides both lender and borrower legal protection in order to avoid unexpected situations (GymLend, 2020).  Based on the research, both Anytime Australia and F45 are lending out their equipment on this platform (GymLend,  2020).  As a large-scale company, FLG enjoys a supply-side economy of scale due to its massive demand (Youl, 2019). Hence, FLG can pass this benefit to its clients with a lower rental cost. By preserving a unique and distinctive feature, FLG possesses a competitive advantage in the lending market (Porter, 1996). Moreover, in order to encourage its members to try out the program and

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enhance customer engagement, FLG can lend them out for free in the first week.

By lending equipment on “GymLend”, FLG will face less financial stress on one hand. On the other hand, it enhances the client’s engagement with better performance and solves the problem of inefficient operation.

It may also enhance FLG’s relationship with its suppliers when there’s a large amount of order. As more gyms are forced to shut down due to the Covid19, there is a decrease in large scale demand for the equipment market, which brings FLG an opportunity to collaborate with its supplier. Since the relationship between FLG and its suppliers has been enhanced, FLG will enjoy more benefits from its supply-side economy of scale and thus creates more value to its costumes.

However, collaborating with a third-party platform also has its weakness. As more people can use equipment and train at home, there will be less motivation for them to go to the gym after lockdown. Also, there will be a cost by the third-party fee and delivery fee, which may intensify the financial pressure.

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(Table7: Condition analysis for solution 5.1.1 ）

Solution 2: Place some of the equipment in the public open spaces. Another possible way to address the issue can be the change to place some of the workout equipment as well as hold some of the group training outside of the designated fitness centre area such as some public open spaces. There can also be chances for non-members to use our equipment, charging by how much time they have used it. However, priorities will be given to members so whenever a member comes in and wants to use that piece of equipment, the person has to give up his spot and pay according to the time used.

With placing its facility to the public open spaces, the problem of insufficient space as the result of social distancing can be solved. Also, there will be less

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chance of contracting the virus as compared to a closed area in the gym. Since the public area is a superb geographic location with a good flow of people and excellent visibility, it can effectively increase brand awareness of FLG and thus allows FLG to reach its potential customers. Then, as more people are engaged and pay, FLG can suffer less financial pressure.

The limitation of placing facilities in public areas is obvious. With this special geographic position, there can be more wear and tear as well as depreciation cost due to the unpredictable weather condition. It may also increase expenditure a  s the security guard is required to ensure no one is doing damage to the equipment and staff will exhibit more workload as they have to keep moving the equipment in and out. People who use fitness equipment in the public might feel embarrassed while being watched by passers-by. The pedestrian might also feel annoyed about the noises created by these equipments. The inadequate sockets and government regulation in regards to the usage of public places are also the problems.

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(Table8: Condition analysis for solution 5.1.2 ）

Solution 3: make facilities available to charities in order to avoid inefficient use of equipment.

As a Social Institution, Corporation is a public enterprise seeing a larger social goal (Kofman & Payne, 2018). In order to maintain sustainable development, it’s necessary for companies to be concerned about the public interest. Based on our survey, there are almost 70% of people who deem a fitness company with some community-minded actions as more reliable and thus affect their choice of gym. Since then, Fitness and Lifestyle Group can make their facilities for food bank pick-ups or offer child-sitting services, while some have

volunteered

to

open

for healthcare providers. By holding a

socio-economic view, Fitness and Lifestyle Group is worth a good reputation, which could offer an essential boost for membership levels upon opening.

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However, there is no revenue that can be generated through this method. Also, by operating facilities for the community-based organization, it causes a large amount of operating fees and cleaning fee. This might intensify FLG’s financial pressure, which brings FLG to a dilemma.

(Table9: C  ondition analysis for solution 5.1.3）

(Diagram2: S  urvey for “community-minded actions” ）

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Recommendation 1: Lending out facility via the third party platform. Fitness is a high supplier concentration market where suppliers have more bargaining power than the gym itself. Since then, a solid relationship between gym and supplier is crucial for a fitness company to operate in a more efficient way. By providing a qualified equipment to the clients with a legal contract on “GymLend”, FLG is able to discover more opportunities to solve its current problem of operating inefficiently by creating more value to its customer. This may help FLG to generate additional revenue to recover its financial loss.

5.2 Sub-problem 2: Low customer engagement A study from IHRSA (2016), found that the average customer churn rate is 28.6% in the fitness industry. To improve the churn rate, Fitness clubs need to build a strong customer engagement. Due to government restrictions, the fitness industry has managed to convert to online training. However, according to the research from Fitness Australia (2020), only 10% of customers have converted to online platforms. This indicates that there are large potential clients in this area. Unlike other product manufactures, the ‘products’ that are provided in the fitness industry are service, which features intangibility, inseparability and perishability (Martin, 2007). Based on the characteristics, we plan to provide value-added service for customers to keep active online engagement and offline engagement. Here, we have laid out two

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possibilities: We can attempt to leverage fitness clubs with networking platforms by organising different online communities based on the same belief for our customers via apps, or we can offer personalised plans and instantaneous online supports for our clients.

Solution 1: foster different online communities based on the same interest of customers via apps

The foundation of the first option comes from the needs of networking. In essence, gyms are communities and platforms where people can communicate and make friends. According to the research (Youl, 2019), functional gyms are regarded as social activity for members. It is terrific if our members can make new friends who are interested in doing fitness and other similar hobbies in our fitness clubs. We believe we should utilise our platform to be the bridge of our customers. For instance, communities are engaged with a group of people who work in the financial industry or like jogging. They can share ideas freely in this high-inclusive community (“six easy ways”, 2016). Clients will be motivated when they feel a sense of belonging. Based on the example of “F45”, the benefit of building up “community spirit” will enhance customer engagement and finally build up customer loyalty (...