BACKGROUND AND OVERVIEW
Bally Total Fitness was created in 1996 with Lee Hillman as its first CEO. Bally traces its existence to the Health and Tennis Corporation, run by Dave Wildman. Wildman had begun to purchase ailing gyms and aggressively expanded and acquired several other brands as well. In the 1990s, as part of a diversification move, Bally Manufacturing, a gambling equipment company, decided to purchase Wildman’s collection of gyms and other brands. This diversification of brands created what was known as Bally Entertainment. Bally Total Fitness was then created in 1996 as the health club portion of Bally Entertainment. Lee Hillman started the company off in an unusual path, Mr. Hillman used a retrenchment strategy by selling off outlets, rationalizing Bally’s brand portfolio, and closing several clubs, which then returned the business to profitability. During Hillman’s course of leadership, Bally developed a very broad range of products and services, which increased revenues out of the company’s existing membership base and added profit to the bottom line.
The company faced a triggering event when Bally’s CEO Lee Hillman stepped down suddenly in December of 2002. Bally’s chief operation officer at the time, Paul Toback, replaced Mr. Hillman and moved to the top of the company. Toback’s started as CEO explaining that he expected changes to the company to be “more evolutionary than revolutionary”. Under Hillman’s lead, Bally was operating essentially as two different business – a finance company and an operating company. When Toback replaced Hillman, he was ready to change Bally’s approach to member enrollment. Toback also developed two new strategies to keep Bally competitive in the health club market and to reach their target market. First of all, Toback believed it was important to change the compensation packages of the club managers to focus on local profitability, rather than exclusively on sales figures. Secondly, Bally reformed their brand and position in the market, from their original business plan, to create a one-stop fitness resource to meet all the needs of their target market.
The work that had been put into the new efforts to market and operate the Bally clubs proved to be successful with an increasing number of new memberships at an increased price. However, competition had intensified greatly and pressures from stockholders and the market were intense. Reports were made that the shareholders of Bally were pressing Toback to sell the company. Toback and the Bally Total Fitness corporate team were then faced with a difficult situation.
STATED AND IMPLIED OBJECTIVES
Within the case, Bally Total Fitness has both stated and implied objectives relating to profit, growth, citizenship, and survival within the health club industry. These objectives are:
Profit- Club-level managers were increasingly being asked to operate as general managers with responsibility of club profitability. In the past, incentives of club managers and regional supervisors had focused almost exclusively on the sales figures. Under the new system, compensation packages were modified to include a component based on local profitability.
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Growth- The main growth objectives for Bally Total Fitness is to grow through the acquisitions of already established gym chains in similar markets, broadening their target market, adding a broad range of products and providing their customers with a one-stop fitness solution. Bally’s goal was to become the leading firm in the U.S. health club industry, which was done by the above stated growth strategies. Bally was able to begin as a strong company through the acquisition of very similar and already proven gym chains to give it the broadest geographic distribution of a health club chain in the U.S. Bally broadened its target customers over time to encompass those whose discretionary income was higher as well as those communities that became prominent in the U.S. By adding a broad range of products and services to their already established clubs, Bally proved itself to be a one-stop fitness resource that met their target market’s needs.
Citizenship- In 2003, Bally launched a comprehensive nutritional and exercise program customized to an individual’s unique metabolism. The programs objective was to offer consultation to member who has weight-loss goals and to construct for each member a tailored combination of an exercise regime, personal training, and an approach to diet and nutrient. Bally’s had launched a line of nutritional supplements and meal-replacement items. This demonstrates how Bally is trying to relate on a personable level with their clients.
Survival- Bally Total Fitness’ survival method was changing the 36-month commitment to Pay-as-you-go for memberships. A number of member complained about cancellation requests that were not honored, the use of harassment or deceptive means to collect fees, and the unauthorized charging of credit card or debiting from bank accounts. In response, Bally began to experiment with pay-as-you-go memberships. This newly acquired method constituted for 8% of memberships in 2004 up from 3% in 2003. Which ultimately lead to an increase in overall gross profit margin from the previous year.
Diversify their portfolio of service and product offerings to meet the strategic needs of their target market.

Please note that this is not an inclusive list of every strategy Bally Total Fitness has used, but it does show examples of each type of objective Bally has used in the past or may still be pursuing to stay successful in the health club industry.

STATED AND IMPLIED STRATEGIES

Bally Total Fitness’ business level strategy is differentiation. Differentiation strategy is the ability to provide unique and superior value to the buyer in terms of product quality, special features, or after-sale service. Bally has provided the industry with a unique one-stop fitness resource center approach to a traditional gym. Bally’s differentiation strategy has enabled them to be able to charge a premium price for services offered to consumers who are loyal and have less sensitivities to price increases.
Bally Total Fitness’ corporate level strategies they have pursued in the past include the following: 1. Horizontal Integration – After becoming Bally Total Fitness in 1996, Bally spread nationwide through their acquisition of current gyms at the same point in the value chain, which included two gym chains in northern California as well as the 10-club Toronto chain. These key acquisitions gave Bally the title as the broadest geographic distribution of owner-operated health club chain the U.S. 2. Vertical Forward Integration - Bally has vertically forward integrated into the retail and distribution of their products by having retail counters in their clubs. At these retail counters, Bally offers their customers their Bally-branded merchandise, including nutritional products as well as exercise products. 3. Concentric Diversification – As mentioned in the overview and background section, Bally Total Fitness started out as a gym. Over time, Bally developed a broad range of products that all centered around the total fitness of the consumer. Bally introduced Bally-branded nutritional products as well as Bally-branded fitness equipment. Bally used its expertise in the health club industry and applied it to the retail industry, by selling their products in multiple retail stores.

This is not a conclusive list of all strategies Bally Total Fitness has pursued, but the examples above provide perspective on the strategies that Bally has used in the past.