Gym Revolution: SDL's Ambitious Expansion into the Hull Market

Background and Context

The SDL is a new gym and fitness club that seeks to enter and acquire at least a 20 percent share of the Hull market by the end of its first operational year. The SDL purposes on positioning itself as a premier fitness centre that provides superior gym classes and activities to its clients, including cardio, boxing; salsa; HIT; aqua Zumba; kettlebell; Zumba; pilates; and advice on health, nutrition, and well-being. These classes will be offered in a manner that gives the clients value for money, and also ensures the business accomplishes its objectives and achieves profitability. It is for this reason that the fitness club tries to find a pricing strategy through which it can effectively enter the market, sell its services, acquire its intended market share, and maximize returns.

Competitor Analysis

The club is fully conscious of the many existing and established gyms in the city that pose a high competitive risk to it, several which are looked at concerning their prices in the table below:

Target Audience

Market Segmentation

To ensure efficiency, a business must clearly define the different sections or segments of the market it targets. It is through this that it will better understand their various needs and informs its creation of products and services that meet the needs of each segment. Segmentation also helps determine which sections it could easily acquire and profitably cater for. On this basis, the business can use segmentation to develop a single marketing mix or strategy to adequately reach and engage its clients (Wedel and Kamakura, 2012), create or offer better products or services, and improve sales. SDL fitness club will segment its potential customers based on their demography that is, demographic segmentation, and psychographic, which is psychographic segmentation.

Demographic Segmentation

This segmentation classifies consumers based on elements and attributes like age, gender, location, education, and income level. About 1 in 5 people in Hull belong to a health club or gym. Statistics show that gym membership is almost equally spread between men and women and that the average gym member is aged between 25 and 55 years, earns around £70000 annually, and is willing to spend nearly £52 in a monthly gym membership.

Psychographic Segmentation

That classifies consumers based on their psychological aspects such as attitudes, lifestyle, interests, values, traits, and opinions (Gilbert and Warren, 1995). To accurately identify their markets, most gyms and wellness clubs employ this segmentation method. A lot of consumers place a high value on their health, fitness, and wellness and are willing to pay a premium price to health and wellness centres to achieve these. A UK study (The Retention People) found that 48% of gym members went there for one activity, 32% for two, and 20% undertook three or more. It also found that health club members valued group exercises and were likely to renew their memberships as a result, compared to members of gyms only.

SDL Target Market

Following the market segmentation, SDL has decided to prioritize the middle-income professionals of Hull aged between 25 and 55 years- as their values and needs for health, fitness, access, and affordability (Lin, 2002) match the clubs' business model- as its target market. However, the club will also pay special attention to the wealthy corporate elite who could make use of its superior equipment and amenities, exclusive personalized services, and comprehensively designed classes. Special attention will also be accorded to commuters who would choose to visit the club on their way to or from work and who would require elastic sessional, weekly, or monthly prices.

Proposed Pricing Strategies

Pricing strategy, as a method, is used by any business to price its products or services in a manner that takes into account price elasticity of demand, economic trends, market/ customer needs, and market competitiveness, and also ensure profits. SDL will need a pricing strategy that will be effective in positioning itself, acquiring its target market, and ensuring it meets its marketing and revenue objectives.

Competitor-based or Customer Value-Based Pricing

Competitor-based pricing will focus on the current going rate of a product or service in the market. In this strategy, a business does not factor in the consumer demand or cost of the product or service but uses the prices of competing firms as a benchmark in setting its prices (Kent, 2004). The strategy is highly suited for businesses entering or operating in saturated markets. A value-based pricing strategy is dependent on the product’s or service’s perceived worth (value) to the client (Gregson, 2008). Based on this, a business will strive to produce a product whose value is much more than its production costs. The client’s perceived value of the product will be affected by alternatives available to them, for example, competitor products, and what a customer is willing to pay. This strategy is useful for relatively new products.

After critically evaluating these two alternatives, their applications, and the club’s operating environment, SDL will employ the competitor-based pricing strategy to set prices that fall in between the lowest and highest competitor facilities’ costs to compete better and maintain its pricing dynamism.

New Product Pricing Strategy

To price a new product, a business can choose either the market-skimming or market-penetration pricing strategy. In a market-skimming approach, a company will set the maximum price for its product as it introduces it into the market to break even with few sales. At the same time, the company will lower the cost as time goes by and its popularity decreases. This strategy is used mainly for products and services whose importance and relevance reduces with time (Spann; Fischer; Marc; Tellis, 2015), such as technology and software products. The market-penetration pricing strategy, however, is used by new market entrants to draw attention to itself and away from its competitors by setting lower prices at first and increasing them later on after gaining market share. This strategy, which is marked by the disruption of market prices and temporary losses, is best for new businesses or those entering a competitive market. Both of these strategies are or should be employed for limited periods.

To achieve its goal of attracting clients and gaining a 20% market share within a year, SDL will adopt the market-penetration pricing strategy.

Pricing Tactics

Psychographic pricing is a tactic through which prices are set up to points that create positive psychological effects in the consumers’ minds, for example, setting the price at £89 or £89.99 instead of £90. In their minds, £89, or £89.99, is less than £90, and this minor differentiation can help a business improve sales and profits (Pillai and Kumar, 2012). Product-bundle pricing is whereby multiple products are sold as a package at a price that is lower than if each was sold singly. That creates the perception of a good deal of value for money among clients and helps businesses sell items that are slow-moving or do not sell. Promotional pricing offers products at a discounted price and includes end-year sales and ‘buy one get one free’ promotions. Promotions appeal to clients, increase products’ competitiveness, and unlike penetration pricing, can be used anytime. Segmented pricing (or pricing discrimination) is whereby products or services that are similar are offered to different customers at different prices based on factors like age, class, occupation, among others. While this strategy may improve customer surplus, it is challenging to implement and may have many consequences (White, 2014).

In its case, and line with its target markets, SDL will employ the combination of psychographics, product-bundle, and promotional pricing tactics.

Table of Proposed Prices

Conclusion

SDL fitness club will seek to use the strategies mentioned above to adapt its services to the needs of the market to attract its target audience, gain a market share, and maximize returns.

REFERENCES

Gilbert, F.W., and Warren, W.E., 1995. Psychographic constructs and demographic segments. Psychology & Marketing, 12(3), pp.223-237.

Gregson, Andrew Pricing Strategies for Small Business 2008. Self Counsel Press

Kent B. Monroe, The Pricing Strategy Audit, 2004, Cambridge Strategy Publications, p. 40

Lin, C.F., 2002. Segmenting customer brand preference: demographic or psychographic. Journal of Product & Brand Management.

Mind of Marketing , "How your pricing and marketing strategy should be influenced by your customer's reference point."

Pillai, K.G., and Kumar, V., 2012. Differential effects of value consciousness and coupon proneness on consumers’ persuasion knowledge of pricing tactics. Journal of Retailing, 88(1), pp.20-33.

Spann, Martin; Fischer, Marc; Tellis, Gerard J. (2015). "Skimming or Penetration? Strategic Dynamic Pricing for New Products". Marketing Science. 34 (2): 235–249.

Wedel, M., and Kamakura, W.A., 2012. Market segmentation: Conceptual and methodological foundations (Vol. 8). Springer Science & Business Media.

White, J. (2014). "Price Discrimination: A Classroom Exercise." Business Education Innovation Journal . 6: 100–105.

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