79469067 WAC Analysis of Transition Health Club

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Name: Shrisha Kumar Acharya

Roll No: 048

Subject: Managerial Communication

Written Analysis of Communication

on Growing a Premium Brand



Facts of the case

y Transition is a chain of ultra premium health clubs located in major cities throughout theworld

y Gordon Johnston is the owner and president of Transition health club. Scott Conner is

Director of Sales and Marketing and Frank Casale is Director of operations and Facilities.

y Target customers of transition health club are mainly senior executives, frequent business

travellers and high net worth individuals.

y An annual Membership fee of transition health club is 2300 dollars per year plus 600 dollars

initiation fee.

y The average member age of Transition health club was 41 ten years ago as compared to

present level of 46.

Identification of Objective

y To maintain current level of profit margin.

y To sustain current level of growth

y To increase present level of membership.

y To maintain premium brand image of Transition.

Problem statement

y Decline in sales due to reduction in number of membership adversely impacting the profit

margin and thereby increasing the operating expense of the company.



Solution [Plan A]:

Key to succeed in any business is Innovation .Constantly adapting to ever changing nature of

business is a must for survival thats when innovation comes into picture.

There are 2 major factors that we need to consider in order to increase sales and reduce operatingexpense

(i). Is to increase number of membership

(ii). Price of the membership fees.

Since Transition Health club is into elite client market. Hence the market for brand such as Transition

is very limited to the extent of availability of such High Net worth individuals which is bound to put

pressure on the operating expense in order to maintain such high standard facilities.

Company should look at tapping other lucrative market mainly into developing countries like Brazil,

China, India, and Russia.

As this would increase overall client base for transition health club worldwide.

And at the same time introducing customized schemes for all the elite clients where in they can

choose from wide variety of services and pay for only those selected services. This way one can

identify which service or which facility is utilized utmost and which ones are underutilized.

Above scheme can help in proper allocation of resources. Such schemes can be quite popular in the

developing economies. This in turn can help in reducing overall operating expense.

The main drawback in exploring emerging market and introducing customized schemes is that it may

dilute the brand image of Transition Health club as elite organization.

Taste and preferences of High end clients may not be the same in the emerging market as this

market would already have been exploited by the domestic companies providing same services as

transition but at a cheaper cost.

However considering above drawbacks, Transition still can explore the emerging market knowing

they are an elite brand having a requisite expertise in providing High end world class services.

Plan B:

Even after exploring the emerging markets and introducing customized schemes, the profit margins

are still weak and the operating cost is still on the rise then it is best to form a subsidiary company

which will cater to the requirements of the non-elite clients.

In this way, transition can cater to both class of clients .i.e. elite and non elite. Both the companies

can have customised services and the membership fees would be depended on the services selected

by the clients. In this way transition can create goodwill in the market as the non-elite clients would

get a taste of Transitions high end services.



Main advantage in forming a subsidiary company is that Transition as an elite brand wont get

diluted and at the same time subsidiary company can explore the non-elite client base.

Main drawback in forming a subsidiary company is that it would be expensive and very tedious task.

Transition though technically enjoys no competition in the elite health club segment may face stiff

competition in the non-elite segment.

Conclusion

Both the above solutions are feasible depending upon the market scenario but only recommended

when there is a steady fall in the sales growth and profit margin over a period of time.

Emerging Markets A study by Merrill Lynch has shown that China and Japan will dominate

more than half of the luxury fashion market in 10 years' time. Thereby the two Far East

superpowers will surpass Europe and the US. Merrill Lynch revealed that China currently has

an 11% stake in the EUR82 billion luxury fashion market. By the time 2014 rolls around this

market will have grown to EUR133 billion, and China will have a 30% stake in it. This will

leave Japan in second place with 21%, with Europe and the US following in third and fourth

place with 20% and 17%.

When any company considers taking its brand name into a new market {something each of

Gordon's proposed changes would do), its senior managers should first weigh the benefitsthat the existing name would bring to the new market against the costs of using the name.

That is standard, solid brand-management practice, but Gordon seems inclined to brush past

it in his haste to get something under way. Slow down, Gordon. Where's the fire?

At first glance, the benefits of using the Transition name seem pretty clear: the existing equity

in the brand could be leveraged through a new product; the brand could act as an assurance of

quality and give consumers some basic information about the product's heritage and promise.

But Gordon must ask himself certain questions. What is the message the existing brand

brings to the new target market? Along with the positives, are there conflicts that may arise?

That is, will too many potential customers automatically think they can't afford a club that

bears the ultrapremium Transition name? In addition, how many people actually know about

Transition? If the market is as select as it seems to be, would the name have any effect in the

new, broader arena?

If Gordon determines that there is a benefit to using the Transition name, he must weigh it

against two potential risks.

· Cannibalization. What happens if Gordon's current membership switches to his

own lower-cost alternative? That seems unlikely, as the bundle of services



available at the Ambassador clubs probably won't be the same as those offeredat Printemps or at Transition's stand-alone locations, but Gordon should give it

some thought. More likely is the danger that moving downmarket will put pressure on Gordon's current pricing structure: if he's having a hard time

maintaining margins at this price level, how will he offer comparable services at

lower cost?

· Dilution of Equity in the Existing Brand Name. As Kim pointed out,Transition is a Tiffany-type product: it is meant to be enjoyed by the privilegedfew. A large-scale expansion into a broader market will inevitably take

Transition out of the exclusive arena. Gordon should think of exclusivity as a product attribute; how important is it to current customers? But exclusivity maymean different things to Transition's different members. For jet-setters,exclusivity may relate to the club's ego-intensive image. For business travelers,

exclusivity might mean convenience: not having to wait and not having to

share. If a current member uses facilities bearing the Transition name at anAmbassador hotel and finds herself waiting to use equipment, she may adjust

the inherent value she places on the brand. Gordon might consider conducting amember survey to learn more. Transition's current users will probably be very

forthcoming about what they value.

Brand name aside, Gordon should also ponder the organizational impact of his

proposed actions. The skills needed to provide a luxury service are unlikely to be the same as those needed to manage a mass-market fitness chain, and Gordon

has no first-mover advantage in the broader market. Right now, his company

knows how to spend money better than it knows how to manage costs. And he'llneed a completely new marketing and recruitment strategy: mass-market health

clubs have tremendous membership turnover.

What if Gordon's team does turn its attention to the mass-market venture andsuccessfully develops a new kind of club? Who will mind the store? If Gordon'sstar employees are learning a new set of skills and putting out fires in a new

kind of business, the core business may suffer through neglect. In anorganization in which excellent service is the business, that could be disastrous.

That kind of a stretch could also have adverse affects on employee morale: alarge staff will have dynamics that differ from those of a small, select team. Do

Gordon's employees want to work for a different kind of company?

The changes Gordon proposes are not as simple as a new product offering: they

signal a change in the company's core strategy. Ultimately, tailoring the pricing, partnering with another company, and even opening satellite corporate locationscould be good ideas, as long as Gordon is clear about his objectives before he

makes a move.



If he determines that expansion is the answer, he might consider these options:Why not partner with Clarkhouse? Or develop a separate, complementary chain

called Transition II, which would specifically target younger business executives and travelers? An aging membership at the original Transition clubs

probably means a high retention rate; Gordon can use that strength to great

advantage if he tailors the core facilities to his current customers' changingneeds and preps a new generation of members to join them.

Mary Shelman

We have a surplus of similar companies, employing similar people, with

similar educational backgrounds, working in similar jobs, coming up with

similar ideas, producing similar things, with similar prices and similar

quality.

We also have a surplus of similar brands, with similar similar marketingbrand attributes, messages, making similar brand claims, with similar

quality, selling at similar prices. Welcome to the Surplus Economy! ©

Idris Mootee 2004

The market dynamics have changed. It used to be clearly defined by

how much you can afford. Before, if you belonged to a certain group,

you shopped at Wal- Mart and bought the cheapest coffee and bought

the cheapest sneakers. Now, people may buy the cheapest brand of consumer goods but still want Starbucks coffee and an iPod.

79469067 WAC Analysis of Transition Health Club

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