LA FITNESS Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

LA FITNESS Case Study Solution

Strategic problems

The key strategic problems identified at LA Fitness were the finance which was arranged through debt and there was a lack of strategic planning as many stores once opened by LA Fitness were being closed in later periods due to lower level of customer base and sales being generated. The company was on a mission to open new stores but was not carefully planning the location and in addition to this, the company did not have a proper pricing strategy and there were flaws in the incentive being given by the top management to the sales manager as increased sales were encouraged and the way in which the sales were generated will have an adverse impact on the brand image of LA Fitness.

Finance:

As in 2014 due to rapid expansion, the company had to raise the $2 billion credit facility and the terms were soon revised leading to a further loan of $1.6 billion of the company. This rapid expansion increased the debt of the company making it riskier for long term.

§ Strategic planning:

80 clubs were closed by the company in January which is a likely failure of the company in their planning as a huge amount of cost would have been incurred on this.

§ Pricing strategy:

The pricing strategy of the membership of LA Fitness in penetration pricing as it tries to attract customer by setting a lower price in comparison to its competitors. The business had a seasonal sales effect and the manager used to make bad comments about the psychical appearance of the potential customers so that they should get the membership of the gym. This can reduce the image of the company and the customer might feel offended by the comments made about him.

External Analysis

Porter five forces

The porter five forces model is used to assess the competitive strength of the industry. The porter five forces have five components namely bargaining power of customers, bargaining power of suppliers, threat of new entrants, industry rivalry and substitutes.

LA FITNESS Harvard Case Solution & Analysis

v Bargaining power of customer:

The bargaining power of customers is low as the membership offered by the gym industry is not of many years, whereas the membership of five years which means that the customer cannot switch to the competitor in this period and the memberships ordered by the customers are of relatively short amounts and customers are widely spread over all locations and hence are not big enough to influence the pricing of any fitness gym.

v Bargaining power of suppliers:

The barging power of suppliers depends on the machinery and equipment suppliers as the higher the number of suppliers in the gym industry then the easier it is to switch to another supplier so it will lead to a low bargaining power of suppliers.

v Threat of New Entrants:

There is a high level of competition in the industry as there are already many competitors operating in the industry but as the membership prices are going up then this will lead to more fitness gym companies entering the market in order to get the profit margins enjoyed by the existing companies. If there are some kinds of barriers as barriers can occur due to high level of expertise a gym fitness or it can be due to the brand as a high level of barriers to entry will deter new fitness companies from entering the market whereas a high fixed cost will also discourage new companies entering the market.

v Industry Rivalry:

There are many competitors such as 24 hours’ fitness as this competitor is industry leader so it will be difficult for other companies in the industry to compete with each other as previously established leaders will make it difficult for new companies to compete in the industry.

v Substitutes:

The threat of substitutes is that how likely it is that the customers will switch towards the competitors for the similar gym services. As there are many competitors in the industry so it is highly likely that the customer will switch towards other companies for similar fitness programs.

Pestel Analysis

The Pestle Analyses mainly includes the macro environment which includes the political factors, economic factors, social factors, technological advancements, eco logical factors and the legal factors.

v Political Factors:

The political conditions of USA are favorable as the country has democratic government with every government being selected in elections through public voting but the country often makes foreign intervention policies which are always criticized.

v Economic factors:

The economic factors of the country are favorable for the companies as the USA economy grows at the rate of 4% which is thought to be a good growth rate of economy.

v Social factors:

The social factors of USA are not in favor of the Gym fitness companies as the country has more growing age population which might make it difficult for the companies to increase its revenue growth and market share in future as old people won’t opt for some exercises but will opt for others.

v Technological advancement:

The technological advancement in USA is very important as the country is a good place with high tech technology and this is a good point for the Gym fitness industry as the companies will have the latest machines for their exercises. (Mather, 2016)..............

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