Example Essay Fitbit PDF

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Example essay for marketing management market analysis AIB MBA...

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Australian Institute of Business

8002MMGT Market Analysis “Fitbit”

AQF: Level 8

Word Count: 2,186

This exemplar has been provided for your learning with respect to this Assessment. Comments regarding its strengths and weaknesses (areas of improvement) are provided for your guidance. **AIB’s policy and procedures with respect to Academic Integrity apply to the use of this exemplar** The content of your submission should be uniquely yours.

Executive Summary Fitbit competes in the highly-competitive ‘Wearable Technology’ market. ‘Wearable Technologies’ are electronics worn on the person, including smartwatches and fitness trackers. As an early

Commented [DK1]: A well-considered Executive Summary of the whole report, highlighting what was done, how it was done, the main findings and key recommendations. Although the Executive Summary appears at the beginning of the document, it should be written last aft completing the assessment.

mover in this market, Fitbit’s market share was 45% in 2014. Today, however, Fitbit commands only 4% of the market, with industry giants Apple and Samsung assuming dominant positions. This loss in market share resulted in financial hardship for the company and, ultimately, led to Google’s acquisition of Fitbit in 2019. Google’s stated goal is to regain lost ground versus competitors and expand Fitbit’s market share. As part of an overall marketing plan to govern the growth aspirations of Fitbit, a market study was performed focusing on situational analysis and market segmentation. At a macro- level, PESTEL analysis identified potential restrictions concerning anti-trust laws targeting technology companies, as well as growth potential in the government-backed public-health fight against the growing obesity epidemic. Porter’s Five Forces analysis determined a high threat of competitive rivalry due to resilient competitors, high barriers to exit and low product differentiation. Moderate threats of substitutes and new entrants were identified, primarily from smartphone-based, highlyresourced technology companies. At a micro-level, Fitbit’s strengths in quality and customer satisfaction were offset by weaknesses resulting from under-investment and innovation. Fitbit is exposed to a variety of competitor-driven threats, most notably product obsolescence brought on through relentless competitor innovation. Google’s acquisition of Fitbit presents opportunities to mitigate threats and address weaknesses. These opportunities can be exploited through increased funding for development and innovation, and the integration of Google’s existing technology. A market development strategy was proposed to expand Fitbit’s market share. A multiattribute segmentation analysis identified a primary target market requiring a differentiated marketing approach. The recommended target market is fitness-enthusiast females aged 35to-44 years, who have ‘innovator’, ‘achiever’ and ‘experience’ psychographic attributes. Due to the saturation of the American market, the target market is focused on ‘developed’ countries and a subset of ‘developing’ countries, where infrastructure and affluence are more analogous to Fitbit’s existing America-centric customer base.

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Note, it is the only section of a report that does not include in-text citations.

Table of Contents

Commented [DK2]: A well formatted table of content Good to see main headings and sub-headings are included.

Executive Summary .................................................................................................. 1 1.

Introduction ....................................................................................................... 3

2.

Market Analysis ................................................................................................. 3 2.1

PESTEL Summary ........................................................................................... 4

2.2

Porter’s Five Forces Analysis ......................................................................... 4

2.3

SWOT Analysis ............................................................................................... 6

3.

Market Segmentation ........................................................................................ 9

4.

Target Market .................................................................................................. 11

5.

Conclusion ....................................................................................................... 12

References ............................................................................................................. 13 Appendix A – High-graded PESTEL Analysis ............................................................ 14 Appendix B – Porter’s Five Forces Template - Threat of New Entrants .................. 16 Appendix C – Porter’s Five Forces Template - Threat of Substitutes ...................... 17 Appendix D – Porter’s Five Forces Template - Bargaining Power of Customers .....18 Appendix E – Porter’s Five Forces Template - Bargaining Power of Suppliers ........ 19 Appendix F – Porter’s Five Forces Template - Intensity of Competitive Rivalry ...... 20

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1. Introduction

Commented [DK3]: A good introduction that sets the scene for this report, explaining why it is useful, providing a purpose and relevant background information, as well as outlining what to expect in subsequent sections of the report.

Marketing plans preside over the fortune of any firm in a competitive environment and occur within two intersecting dimensions, strategic and tactical. While strategic marketing focuses on the overarching goals, tactical marketing focuses on the granular requirements that drive the achievement of these goals (Marshall & Johnston 2019).

Commented [DK4]: Note the correct use of an autho date style of in-text citation, with surnames only used and ‘&’ between the two authors.

This report provides market situation and segmentation analyses to provide

If the citation is used in sentence, it would be:

recommendations for the selection of a target market for the ‘Wearable Technology’

…. Marshall and Johnston (2019) …..

company, Fitbit Inc. (Fitbit) that will inform the development of a strategic and tactical marketing plan for growing the brand. ‘Wearable Technologies’ are electronics worn on the person, facilitating hands- free operation. ‘Wearable Technologies’, such as smartwatches and fitness trackers, have gained popularity with advancements in technology and growth in innovation. At present, the ‘Wearable Technology’ market is primarily a ‘Business to Consumer’ (B2C) offering. The market for ‘Wearable Technology’ will grow to US$57 billion by 2022 (from US$20 billion in 2016), representing an annual growth rate over 16% (Allied Market Research 2019).

Commented [DK5]: Good to see the sources of thes ‘statements of fact’ from an industry report are acknowledged by an in-text citation, with the full reference at the end of the report.

Competing in the ‘Wearable Technology’ market is Fitbit, a technology company, founded in 2007 and headquartered in California. Fitbit offers wireless-enabled devices that track personal fitness data, such as distance cycled and stairs climbed. As a first-mover, Fitbit’s market share was 44.7% at the beginning of 2014. However, by October 2019, market share had fallen to 4.1% (Statista 2019). Google purchased Fitbit for US$2.1 billion in November 2019, with an objective to expand market share through renewed innovation (Fitbit 2019). The report begins with a review of the macro- and micro-level environment, using industry recognised frameworks. Next, market segmentation will identify meaningful submarkets, an analysis of which will determine which submarkets should be targeted, along with a

Commented [DK6]: A good introduction to this sectio is provided, selecting the tools of analysis and justify them with references to theory.

recommended target market segment for growing the brand. 2. Market Situation Analysis

Note, it’s important when referencing theory to use credible academic sources (e.g. journal articles and textbooks) rather than blog posts.

The market situation analysis was performed with a combination of three complementary approaches. Firstly, a PESTEL analysis (Political, Economic, Social, Technological, Environmental 3

and Legal) determined macro-environment restrictions and growth potential. Next, Porter’s Five Forces analysed the macro-industry for ‘Wearable Technology’. Porter’s Five Forces approach highlights the intensity of industry competition (Steenburgh & Avery 2010) and was chosen as it prioritises the competitive environment more effectively than other approaches (Grundy 2006). Lastly, the macro-level approaches were augmented with a Strengths, Weaknesses, Opportunities and Threats analysis (SWOT). A SWOT analysis is a micro approach, focusing on Fitbit’s internal and external environment. By combining all three approaches, a complete picture of the environment, industry, and Fitbit’s position, will emerge. 2.1 PESTEL Summary

Commented [DK7]: The sub-sections here do well to a.introduce each framework with a reference/s to theory; b.discuss the key findings of the analyses; and, c.put the details of the analyses with supporting evidence in appendices (PESTEL and Porter’s Five Forces) and a table (SW OT).

Starting at the highest level, PESTEL analysis identifies the impact of the external macroenvironment on a firm's competitive position (Rastogi & Trivedi 2016). A high-graded list of identified PESTEL factors is illustrated in Appendix A, which will be incorporated within

This is a good approach as the reader should not ha to refer to tables, figures or appendices to follow the discussion.

Porter’s Five forces and SWOT analyses. Briefly, the PESTEL analysis reviewed several critical macro- environmental factors including the increasing economic costs of obesity (Political and Social), the forecast on-set of economic slowdown (Economic), the rapid increase in technological innovation (Technology), the increased stakeholder scrutiny of corporate sustainability (Environmental) and the on-set of comprehensive anti-trust laws in the technology sector (Legal). 2.2 Porter’s Five Forces Analysis

Narrowing the focus to the industry level, Porter’s Five Forces framework contends that five elements will shape the competitive environment and drive profitability (Porter 1998). Magretta (2012) and Porter (2008) outline several misapplications of the framework, including a lack of depth, structured analysis and strategic insight. Dobbs (2014) developed a guiding template to address the misapplication concerns, which has been utilised in this analysis. Appendices B through F contain the completed templates for each of Porter’s Five Forces, with subsequent opportunities and threats defined. The first element is the Threat of New Entrants (Appendix B), referring to the risk that new competitors will erode the market share of established firms. Higher barriers of entry lead 4

to a lower threat of new entrants (Porter 1998). The substantial initial capital investment required in the ‘Wearable Technology’ industry leads to economies of scale challenges for new entrants. Conversely, several highly-resourced technology companies (e.g. Huawei) have yet to enter the market. On balance, enough risk exists to classify the threat of new entrants as moderate. The second element is the Threat of Substitutes (Appendix C). Substitute products can perform similar functions as the industry’s existing products (Porter 2008). Substitutes for ‘Wearable Technology’ are primarily smartphone-driven. The most pressing substitution threats are consumers being satisfied with their smartphone solutions, and highinformation risk-seeking buyers driving improvements in substitute products. As the current substitutes offer some, but not all, of the functionality of existing ‘Wearable Technology’ devices, the threat of substitutes is considered moderate. The third element is the Bargaining Power of Customers (Appendix D). Commanding buyers can decrease profits within an industry (Porter 2008). Several factors have eroded the buyer’s influence in the ‘Wearable Technology’ market, leading to a low threat. These factors include the consumer being unable to reproduce the product, and the small product volumes being purchased due to the high cost of ‘Wearable Technology’. Additionally, as a large pool of buyers exists, no single buyer can demand priceconcessions. The penultimate element is the Bargaining Power of Suppliers (Appendix E). Powerful suppliers can charge more and impact quality (Dobbs 2014). In the ‘Wearable Technology’ industry, suppliers are exclusively located in China and provide operating software, microprocessors and sensors. As the components are purchased in bulk, and ‘Wearable Technology’ firms are easily able to switch between several suppliers, the suppliers bargaining power is low. The final element considered is the Intensity of Competitive Rivalry (Appendix F). Intense rivalry necessitates price cuts and new product development (Dobbs 2014). The rivalry among existing ‘Wearable Technology’ firms is intense. The most significant competitors have the scale to 5

engage in highly competitive actions to gain position and tap into growth potential. Furthermore, product differentiation is low in the industry, leading to higher levels of competitive rivalry (Porter 1979), and competitors competing on price. Finally, high exit barriers exist as firms are reluctant to walk away from their substantial capital investments. 2.3 SWOT Analysis

Complementing the macro-level analyses above, a SWOT analysis narrows the focus to Fitbit’s internal strengths and weaknesses, as well as external opportunities and threats as summarised in Table 1. Strengths are internal characteristics that are essential to execution and success (Marshall & Johnston 2019). Fitbit’s strengths include brand name recognition and mature distribution networks, which were acquired by being a first-mover. Further strengths include Fitbit’s high product quality (as evidence by the high customer satisfaction) and long battery life, both of which provide points of difference in a predominately undifferentiated marketplace. Finally, the acquisition by Google provides Fitbit with a strong balance sheet. Weaknesses are internal attributes that could prevent the achievement of business goals (Marshall & Johnston 2019). Fitbit’s recent financial struggles have exposed weaknesses, led to under-investment, and created gaps within its offering (e.g. music library). Cultural challenges have also plagued Fitbit, with lack of diversity and a high attrition rate (Langley 2019) which is concerning for technology companies, as corporate memory may be diluted. Opportunities are external elements that will provide chances to gain a competitive advantage (Marshall & Johnston 2019). Google’s 2019 acquisition of Fitbit provides extensive opportunities to address the intensity of competitive rivalry, the threat of substitutes as well as political restrictions. Governments may be keen to reduce society’s obesity-related health costs, potentially providing collaboration and subsidy opportunities. Product differentiation opportunities exist by integrating Google’s products within Fitbit’s offering. Additionally, the acquisition by Google can increase Fitbit’s bargaining power with suppliers, potentially leading to decreased costs. 6

Threats are external elements that will inhibit the achievement of defined goals (Marshall & Johnston 2019). Critical threats are derived from competitive rivalry, new entrants, suppliers and environmental restrictions. Due to the high start-up capital, it is unlikely that existing competitors will exit the market, ensuring long-term intense competitive rivalry. Supply-side threats include an over-reliance on China for component manufacturing, increasing exposure from regional unrest and trade wars. Next, while there are high barriers to entry, a small number of well-financed technology companies possess the resources to compete in the market, posing a threat that new entrants will further decrease Fitbit’s market share. Finally, increased stakeholder scrutiny of corporate sustainability could lead to increased operating and production costs.

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Table 1: Fitbit SWOT Analysis Internal Strengths Brand Name: A survey conducted by The Manifest (2019), highlighted Fitbit as having the highest brand awareness of any wearable device maker. Distribution Network: Fitbit has sophisticated and reliable methods for getting the product into the hands of the end consumer. Balance Sheet Strength: In 2019, Fitbit was purchased by Google for US$2.1 billion, providing financial stability. Customer Satisfaction: A survey conducted by Kantar Worldpanel ComTech (2017), shows Fitbit earning the highest customer satisfaction in the industry. Battery Life: The Fitbit devices have the longest battery life versus competitors. External Opportunities Prioritising Research and Development: The acquisition by Google can renew Fitbit’s investment in product differentiation. - Competitive Rivalry

Internal Weaknesses Under-Innovation: Due to historical financial challenges, Fitbit has been outspent by competitors. Lack of Diversification: Fitbit has been criticised for its low racial, religious and gender diversity. (Langley 2019) Attrition: Fitbit realises a higher employee turnover rate compared to competitors, losing valuable corporate memory. (Langley 2019) Product Overreliance: Fitbit relies on a few products for most of the revenue, increasing portfolio risk. Solution Gaps: Fitbit has solution gaps in its offering compared to substitute products External Threats Regional Exposure: As most of Fitbit’s current suppliers are in one region, any regional unrest could lead to uncertain delivery and higher costs. - Bargaining power of suppliers

Collaboration: The acquisition by Google provides additional differentiation opportunities to inherit Google’s existing collaborators. - Threat of Substitutes

Product Obsolescence: Fitbit’s main competitors will inevitably introduce new technological developments. - Competitive Rivalry / Technological

Integration: The acquisition by Google provides complimentary integration solutions to improve product differentiation. - Competitive Rivalry

High Exit Barriers: Due to the high initial capital outlay, competitors are unlikely to leave the market, leading to long-term competitive rivalry. - Competitive Rivalry

Buying Power: The acquisition by Google can increase Fitbit’s bargaining power with suppliers. - Bargaining power of suppliers

Competitors: Large technology companies have the resources to provide challenging competition and erode market share. - Threat of new entrants

Obesity Fight: Governments are looking to reduce the health-funding burden, providing the potential for collaboration. - PESTEL Political and Social

Monopoly: Google is currently defending multiple anti-trust lawsuits concerning bundling, which may restrict integration. - PESTEL Legal Sustainability: Fitbit receives an environment rating of 41/100, which is significantly below apple and results in a competitive disadvantage. - PESTEL Environmental

Attrition: Increasing worker protections (e.g. minimum wage, benefits) could decrease attrition and employee absenteeism, increasing efficiency. - PESTEL Political

Commented [DK8]: A well-presented table, consiste with the AIB Style Guide, with the number and title above and sources acknowledged below, as well as font size being dropped.

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