Greenwich Leisure Limited is a charitable organization with over 120 centres across the country. It was founded in 1993 to provide health and fitness services for the locals. After gaining success in the health sector, the company started to invest in leisure and other activities. This paper will analyse the business activity of the Clapham Leisure Centre, which is a part of the GLL fitness net. First, after looking on the assignment of the activity and the business plan of the Clapham Leisure Centre, it seems that the current business model does not have any economic problems and has good prospects of growth. Nevertheless, more profound economic analysis will be made with the purpose of identifying the core problems of the Clapham Leisure Centre and find solutions in order to reduce the risk of unprofitability. In addition, the instructions of the implementing of the new business tactics will be given, with a description of the timeframes as well.
The Economic Problems
According to the provided information about the GLL`s supply, demand, production, and costs, two crucial economic problems of the Clapham Leisure Centre can be identified. The first economic problem, to my mind, is a competition problem. The point is that, currently, fitness and other health services are in big demand and, as a result, there are thousands of different health centres opening every day. In the case of the Clapham Leisure Centre, it means that a growing number of health centres would be created though competition. Thus, the number of clients can reduce and the Clapham Leisure Centre could suffer losses.
In the annual report of the Town Sports International Holdings (2010), it is argued that the rivals are larger businesses that have more assets than the analysed company. According to the paper, they also can be a part of the market and compete with the company. Such terms might prevent effective work of the company, its ability to engage new customers, pay to the staff, and gain profits. Besides, enlargement of the discussed industry may lead to a more competitive market environment, which in turn means that the market players will try to attract customers by new locations, equipment, or discounts. This may enhance expenditures related to new procurements, lease payments, and recently obtained property. Moreover, the new pricing and marketing tactics could be used in order to attract and to win the clients. Competitors offer lower prices with the same level of service. Additionally, smaller and less sophisticated equipment for the gyms, namely exercise machines, may serve as an alternative for the clients. Moreover, competitors can break into the market through the acquisition of smaller fitness centres.
The second economic problem lays in the internal functioning structure of the Clapham Leisure Centre. I suppose that the core of this problem lies in the marginal costs which appear during the so-called monthly challenges when the Clapham Leisure Centre works one extra hour. During these challenges, the extra hours of the centre’s work require extra payment for the reception staff as well as for the fitness instructors.
In the Marginal Costing (2013) it is said that the idea of marginal cost is of key importance in resource assignment, as to be effective, management should focus its assets so that the surplus of marginal income over the marginal cost is the biggest. In this particular case, there is no strong confidence that extra wages would be covered by the clients who are training during these extra hours. This conclusion is made from the analysis of the gym visiting. As there is no way to hold the monthly challenges earlier than 6.00 AM, the extra hour is added after the Clapham Leisure Centre closing, thus after 10.00 PM and 8.00 PM, both working and weekends days respectively. The research shows that during the last two hours of working, the visiting of any gym or fitness centre reduces by 79%, as a result, there can be a few visitors or even none during the extra working hour of the centre. Therefore, the visitors themselves could not compensate for the extra wages.
According to Golden (2011), economic rule, called marginal decision rule utilizes marginal cost of a good to decide if it is recommended to rise production: “Expand production if and only if the price is greater than the marginal cost”. As the price should be more than marginal cost so that a company could gain profit, increased production cannot result in gains when the marginal cost is too low.
The Economic Solutions
As the economic problems are already clarified, the paper will propose possible solutions to those problems taking into account the timeframes of their implementing. The first economic problem of the Clapham Leisure Centre is a tough competition in the market sector. It is worth saying that competition is a core problem in every market sector, and there are thousands of tactics and steps on how to win the final consumer. Taking to account the analysed company, some important improvements in marketing and services are to be made.
According to Kratzman (2002), a company will transform itself into a market leader by simply seeing and hearing the needs, wants and pace of the market and by acting upon those stimuli, without taking negative perspective.
Increased competition between operators has encouraged lower levels of loyalty among members by offering incentives to attract members. Fitness first could look to see if they can reward loyalty for extended membership. According to Jenkins (2011), there some crucial compounds to succeed in the highly competitive fitness industry:
- Referrals - the trainers who get goof referrals from their clients and attract new visitors;
- Special promotions, challenges and contests, such as fat loss challenges or couples challenges make the process of fitness more entertained and increase the popularity of the gym;
- Charity is also very important in business. A company can spend 0,1% of the membership cost for charity, and clients will think that besides training they also spend money on good things. This step can create a good reputation for the Clapham Leisure Centre and help it to save the clients.
Balaji and Raghavan (2007) say that moreover, psychological pricing approach has to be used to win the clients. This theory proposes that pricing is usually stuck (rigid) at certain ending digits in prices, such as $9,99. Rational inattention theory, proposed by Bergen et al. (2003), gives comments about for price rigidity. Consumers do not pay attention to the last digits, as they are restrained by resources, information or time. As a lot of clients neglect last digits, companies usually try to make the last digit high, i.e., 99¢ or $9. Thus, businesses increase their gains by making price endings high.
The time needed to implement the above-given steps is not significant for the Clapham Leisure Centre. The new marketing strategy is a continuous project, but the changes to the current one could be made within one week, including the designing of new brochures, web site, blog, and slogans. The psychological pricing strategy could also take a week to make certain calculations and new price-lists.
The second problem can be solved much easier than the first one. As it has been already figured out, the clients do not cover the extra hour wages and these “monthly challenges” happen to be economically costly. Though these challenges in the gym could be a good marketing tactic, a company should not cancel them. Therefore, these activities are to be transferred in the time. According to Haymond (2013), the best time for such events is in the noon, when a lot of people have some spare time for the fitness. As a result, more people would participate and in future, such challenges could become a symbol of the Clapham Leisure Centre. By following this strategy, there is no need in extra hour wages, while the company saves its advantages over the market competitors.
After the profound analysis of the Clapham Leisure Centre business model, two core economic problems have been defined. The fast-growing industry competition along with uncompensated marginal costs appears to be the biggest weakness of the Clapham Leisure Centre. The new marketing strategy, as well as a new pricing approach, is expected to help the company to save its market position and win new clients. To reduce unnecessary marginal costs, the changes in the schedule of the fitness challenges must be made.
These solutions for the indicated problems are the initial steps that have to be taken into account while planning the business functioning of the Clapham Leisure Centre. Along with the market growth, the Clapham Leisure Centre has to develop new economic strategies and be current in its proceedings.