Gym 5 Forces Porter's Five Thesis

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Brand identity is not important. There are numerous gym chains but the industry remains highly fragmented. A new gym can expect to face only minor retaliation -- price promotions and other competitive tactics. This is because the industry is rapidly growing -- 8% per year since 1983 (Berkeley, 2008).

The threat of substitutes is high. What a gym sells, at its basis, is fitness. This can be accomplished in a wide variety of ways, many of which do not involve a gym. There are low switching costs as many forms of exercise are free. Even expensive forms of exercise are competitively priced compared to modern gyms. Buyers have a high inclination to substitute, as a multitude of fitness options is not only desirable but is healthy. The price-performance trade-off of substitutes is high, since some can be very inexpensive. The gym is a premium fitness experience that must deliver premium results in order to have value. It is worth noting that the available substitutes for consumers are not mutually exclusive. In many states where the winter weather is poor, gyms and their substitutes are viewed as complementary products. Thus, while the threat of substitutes is high, those substitutes will not necessarily do significant damage to the gym industry as they will not necessarily take business away from the industry.

The degree of rivalry is relatively low. This is because of the industry's high growth rate. Exit barriers are relatively low, aside from the cost of liquidation. The industry is fragmented, rather than concentrated. There is seldom overcapacity in the industry. Product differences are low, but can be at least somewhat differentiated. There is low diversity of rivals, but also low corporate stakes.

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Some of these factors promote a higher degree of rivalry, but most of the factors promote a lower degree. It is also worth noting that the industry's sustained strong growth rate has meant that players in the gym industry have never needed to engage in intense competition, as there are always new customers to be had. When firms do not need to steal customers away from their competitors, or when it is easy to do so, they do not engage in intense competition.

Overall, the gym industry is favorable. The most significant determinants of favorability are the high growth rate and the fact that buyers are price takers. With low intensity of rivalry, gyms are able to focus on their own internal excellence in order to compete. Since buyers are price takers, gyms can charge premium prices in order to pay for the development of that internal excellence.

Several factors would point to an unfavorable industry. The low barriers to entry allows for the infusion of competition. The threat of substitution would seem to increase the risk of buyers exiting the industry. However, there is no sign that buyers are willing to exit the industry. The gym industry is currently satisfying buyers' needs and therefore has been able to maintain strong growth rates over a prolonged period.

The lack of barriers to entry has allowed waves of new competitors to enter the industry, but strong growth has allowed the industry to absorb these new competitors to do so without significant damage to existing competitors. That several factors can be seemingly unfavorable and yet the industry players continue to thrive and grow illustrates just how favorable the gym industry is.

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