Question 2 What is driving the health club phenomenon? What are the basic economics of the health club industry? What value is created? What does it cost to deliver that value? How do these costs behave? Selected Answer:
The driving points of health club phenomenon are: Growing awareness about health related issues and concern about obesity and its effects among Americans is one of the key elements of the health club phenomena. Increasing desire to maintain and control weight, get in shape, meet people and reduce stress has also got people going to the health clubs regularly. Several health clubs identified the new needs of consumers and built facilities that are one-stop centers for most of their health and fitness needs. Consumers get the benefits of various work-outs regimes and can also hire a personal trainer-all under one roof. Customized training regimes to meet each member’s personal needs also enabled them to choose the work-out best suited to them.
Economics of Health Club industry The health club industry consisted of 26,000 health clubs in the U.S. However fifty largest firms acquired 33% of industry revenue and 38% of clubs was not-for-profit which had Young Men’s Christian Association as the key player. The for-profit industry was divided into 4 main formats: Owner-Operated clubs: Comprised of the majority of all health clubs. Over the years they built chains of clubs in various parts of the country and maintained centralized procurement, program design, marketing, finance, accounting, and collections. Franchised clubs: A successful health club concept was franchised to buyers who agreed to pay a fee to operate a club and in return received professional advice and advertising. Design and management companies and Health Spas also are a vital part of the health industry.
Most health clubs charge customers for a one-time enrollment fee and then a monthly subscription fee. Minimum subscription period in most health clubs was 1 year but Bally’s required a 36 month subscription from its members.. About 70% customers renewed their subscription and 30% dropped out. Clubs proved the basic facilities to members at he cost of subscription paid, however they also made as much as 28% of their revenue by providing additional services like personal trainers, massage therapy, pro shops, and tennis programs. The industry is also seasonal and many members enroll after New Year’s and during winter. Clubs discount their enrollment fee heavily to attract customers and the marketing efforts of the clubs are focused on acquiring new customers from the demographic termed as “uninitiated believer”. Motivation and retention of the employees was very important as they were responsible to deal with members of all kinds
Value Creation Clubs create value for their members by providing them stateof-art facilities. Latest equipments are purchased from a select few manufacturers that give quality work-out satisfaction to customers. Additionally, clubs also provide various facilities like diet control, weight control, aerobics, personal trainers, health bar, pilates training, elliptical motion trainers and yoga all under one roof. This gives members a wide range of work-outs to choose from and obtain higher health quality. Members can also get customized help from trainers and can choose the regime best suited for them.
Costs and its impact It cost roughly $1.5 million to set-up a 40,000-50,000 square-
foot health club where one would have to spend half a million on equipment alone. Other option to set-up a club was to lease or buy used equipments. Labor is the largest cost incurred by a club. Retention, motivation and recruitment of skilled friendly labor were considered key challenges by the industry. About 43% of total revenue is spent on labor. About 72% of revenues were collected in form of dues from members as part of their subscription and 28.1% revenues were generated from additional services that clubs provided....
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