Wednesday, October 3, 2007

Curves ® - reconstructing market boundaries

Since franchising began in 1995, Curves has grown like wildfire, acquiring more than two million members in more than six thousand locations, with total revenues exceeding the $1 billion mark. A new Curves opens, on average, every four hours somewhere in the world.

What's more, this growth was triggered almost entirely through word of mouth and buddy referrals. Yet at its inception, Curves was seen as entering an oversaturated market gearing its offering to customers that would not want it, and making its offering significantly blander than the competition's. In reality, however, Curves exploded the demand in the U.S. fitness industry, unlocking a huge untapped market, a veritable blue ocean of women struggling and failing to keep in shape through sound fitness. Curves built on the decisive advantages of two strategic groups in the U.S. fitness industry - traditional health clubs and home exercise programs - and eliminated or reduced everything else.

At the one extreme, the U.S. fitness industry is awash with traditional health clubs that catered to both men and women, offering a full range of exercise and sporting options, usually in upscale urban locations. Their trendy facilities are designed to attract the high-end health club set. They have a full range of aerobic and strength training machines, a juice bar, instructors, and a full locker room with showers and sauna, because the aim is for customers to spend social as well as exercise time there. Having fought their way across town to health clubs, customers typically spend at least an hour there, and more often two. Membership fees for all this are typically in the range of $100 per month - not cheap, guaranteeing that the market would stay upscale and small. Traditional health club customers represent only 12 percent of the entire population, concentrated overwhelmingly in the larger urban areas. Investment costs for a traditional full-service health club run from $500,000 to more than $1 million, depending on the city center location.

At the other extreme is the strategic group of home exercise programs, such as exercise videos, books, and magazines. These are a small fraction of the cost, are used at home, and generally require little or no exercise equipment. Instruction is minimal, being confined to the star of the exercise video or book and magazine explanations and illustrations.
The question is, What makes women either trade up or down between traditional health clubs and home exercise programs? Most woman don't trade up to health clubs for the profusion of special machines, juice bars, locker rooms with sauna, pool, and the chance to meet men. The average female nonathelete does not even want to run into men when she is working out, perhaps revealing lumps in her leotards. She is not inspired to line up behind machines in which she needs to change weights and adjust their incline angles. As for time, it has become an increasingly scarce commodity for the average woman. Few can afford to spend one to two hours at a health club several times a week. For the mass of woman, the city center locations also present traffic challenges, something that increases stress and discourages going to the gym.

It turns out that most women trade up to health clubs for a principle reason. When they are at home it's too easy to find an excuse for not working out. It is hard to be disciplined in the confines of ones home if you are not already a committed sports enthusiast. Working out collectively, instead of alone, is more motivating and inspiring. Conversely, women who use home exercise programs do so primarily for the time saving, lower costs, and privacy.

Curves built its blue ocean by drawing on the distinctive strengths of these two strategic groups, eliminating and reducing everything else. Curves has eliminated all the aspects of the traditional health club that are of little interest to the broad mass of women. Gone are the profusion of special machines, food, spa, pool and even locker rooms have been replaced by a few curtained off changing areas.

The experience in a Curves club is entirely different from that in a typical health club. The member enters the exercise room where the machines (typically about ten) are arranged, not in rows facing a television as in the health club, but in a circle to facilitate interchange amongst members, making the experience fun. The Quickfit training system uses hydraulic exercise machines, which need no adjusting, are safe, simple to use, and nonthreatening. Specifically designed for women, these machines reduce impact stress and build strength and muscle. While exercising, members can talk and support one and other, and the social, nonjudgmental atmosphere is totally different from that of a typical health club. There are few if any mirrors on the wall, and there are no men staring at you. Members move around the circle of machines and aerobic pads and in thirty minutes complete the whole workout. The result of reducing and focusing service on the essentials is that prices fall to around $30 per month, opening the market to the broad mass of women. Curves' tag line could be " for the price of a cup of coffee a day you can obtain the gift of health through proper exercise."

Curves offers the distinctive value at a low cost. Compared with the start-up investment of $500,000 to $1 million for traditional health clubs, start-up investments for Curves are in the range of only $25,000 to $30,000 (excluding a $20,000 franchise fee) because of the wide range of factors the company eliminated. Variable costs are also significantly lower, with personnel and maintenance of facilities dramatically reduced and rent reduced because of the much smaller spaces required: 1,500 square feet in nonprime suburban locations versus 35,000 to 100,000 square feet in prime urban locations. Curves' low-cost business model makes its franchises easy to afford and explains why they have mushroomed quickly. Most franchises are profitable within a few months, as soon as they recruit on average 100 members. Established Curves franchises are selling in the range of $100,000 to $150,000 on the secondary market.

The result is that Curves facilities are everywhere in most towns of any size in America. Curves is not competing directly with other health and exercise concepts; it has created new blue ocean demand.

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