Bally Total Fitness
Case 1
2011 Fall Comm 400

Health Club Industry
Bally Total Fitness was a leading firm in the health club industry. Since market competition had intensified, Bally’s stock price dropped leading to an investigation by the Security and Exchange Commission.
To improve Bally’s current position, we apply the Porter’s Five Forces Model to analyze its external environment. The competitive rivalry in health club industry is intense as there are many small or equally sized competitors. In addition, exit barriers are high because of higher capital costs and operation costs, indicating that the health club industry is hard to exit. Equipment makers are the industry’s major suppliers. Suppliers have high bargaining power because there are only a small number of well-known suppliers. Consumers are the buyers and have moderate bargaining power when choosing a health club, because there are numerous clubs in the industry. But once they are committed to memberships, they have a lower bargaining power. The threat of substitute products is high. Consumers can workout at home, outdoors, or at gyms within their workplaces. Besides, they can go to health spas designed for workouts. Nutritional and athletic products are complimentary to the health club industry. The threat of new entrants is rather low because it is difficult to acquire decent real estate or a good location; also, exercise equipments are highly valued. Consumers who have had a good experience with their health clubs tend to be quite loyal, but switching memberships is costly due to cancelation fees with their contracts. The health club industry is still in a growth stage because of consumer demand. There are also trends of studios-sized clubs as well as bonanza markets of kids and baby boomers.
With a good understanding of its external environment, Bally implements some applicable