Introduction:
I have had two Fitbit devices personally, my first was the Fitbit Alta, which I later upgraded to a Fitbit Charge in December 2016. Both of them are attached to the wrist as a watch, and they both monitor my physical activity, as well as my sleep. The difference between these two devices is that Fitbit Charge keeps track of my heart rate, number of steps climbed, and it also has a stopwatch, which I find very useful especially when I work out. I love this watch and would not switch to any other company, not as it is right now at least. As a soccer player, I found it highly beneficial to monitor my physical activity so that I can eat and fuel my body accordingly. For example, on non-training days, I might aim to eat a bit less since my energy expenditure that day is lower, in contrast to days when I train where I have to eat more to able to perform. I try to aim for 10,000 steps on my off-day at least, because I have found that my body responds well to that in terms of recovery. Also, the function of tracking my sleep is something else I found beneficial in this device. Once again, as a soccer player, your sleep is highly important and if I lack sleep one night my performance the next day drops significantly. I aim to get at least 8 hours of sleep every night and my Fitbit has a function where it reminds me when it is time to go to sleep, based on when I have to wake up.
Background
Fitbit was founded in October 2007 by James Park and Eric Friedman. The potential for using sensors in small wearable devices to track physical activity lay as foundation for starting the company. Park, who served as CEO, and Friedman, who served as CTO for the company, had neither experience of manufacturing. Therefore, they travelled to Asia to find suppliers and a company which could produce their product. Fitbit put its product on the market in 2009, named as “Tracker”, and the company had around 5,000 units ordered. The purpose of this device was to measure data such as number of steps walked, number of steps climbed, quality of sleep and heart rate. At this time, the device could only be worn clipped to clothes, but eventually the product developed and became a watch to be worn on the wrist. The collected data from the device was uploaded to their website once you connected to a computer, and consequently, you got an overview of your own physical activity and could monitor thereafter. In 2015, Fitbit executed a successful initial public offering, which boosted liquidity by 4.1 billion US dollars and revenues of 1.86 billion US dollars in its first year as a public company. Revenues during 2016 expected to rise even more, above 2 billion US dollars. But, on the last day of February 2016, the price of Fitbit stock dropped almost 20 percent after the company announced that the sale and earnings in the first quarter would fall short of various analysts’ forecasts. This missed forecasting created a huge problem for Park and Friedman, who now had to come up with a strategy to turn things around at the now publicly traded company.
Problems:
Fitbit are facing many problems with its product, such as antenna problem, design flaw, allergic reactions, information overload, privacy issues and cost of launching new products. Whenever a product breaks, Fitbit offers the consumer a replacement or repair of the unit. Personally, I had to switch out my Fitbit Alta once, after the wristband itself broke. However, I was pleasantly surprised over Fitbit’s customer service and their ability to just replace my old watch with a new one. I felt like they really care about their reputation, and if I as a consumer were to face any problems from their side with my complaints it could potentially harm their reputation and I would consequently not buy another watch from their company. I haven’t experienced any of the stated problems above with my watch, such as antenna problem or allergic reaction from the wristband. However, most of these problems occurred during their early stage, right after launching their product and I bought my first Fitbit in 2016 when most of these problems had been fixed already. Their cost of launching new products relates to their release of two new products, Fitbit Blaze and Fitbit Alpha, which both would incur large manufacturing costs.
Mission:
According to Fitbit themselves, “The mission of Fitbit is to empower and inspire you to live a healthier, more active life. We design products and experiences that fit seamlessly into your life so that you can achieve your health and fitness goals, whatever they may be.”
Main trends in general environment:
Technology is advancing everyday, and as new companies are entering the activity tracking industry, the competition for Fitbit increases. Entrance of new companies in this industry creates both a tension and a potential threat to the survival of Fitbit in near future. New entrances, such as Apple with their iWatch, outshines Fitbit’s products in terms of quality, attracting high prices, and more customers. This has lead to force Fitbit to drop their prices, in order to remain their sales high. However, I do believe the existence of intense rivalry is important in this industry, since every company is in business and one of the major reasons of being in business is to maximize profitability. The compete for the same buyers of their products, health-conscious people who like to keep track of activity. The rivalry arises when the companies tries to strategize to outweigh the performance of their competitors. Consequently, in this industry particularly, the fall and collapse of Fitbit’s competitor is an opportunity for them grow and take advantage of.
Porter’s 5-force analysis:
Threat of New Entry – Moderate
The threat of new entry in any given industry affects the competitive environment for the already existing competitors as well as affects the ability of these firms to achieve profitability. There are many competitors within the technology market, that potentially could go into this specific industry. This industry is open to anyone that has the capital requirement needed to bring the product to life. This industry has been growing since the calculator watch in 1980s, and I believe it will continue to grow as the health trend will keep growing as well. When trends like this grow, more competitors will be entering the industry, as the demand for such products will increase simultaneously. There is potential to make money in this industry. The capital requirements for this industry refer to that new entrants in this industry requires large capital budgets in order to enter. A company that wants to enter this industry must spend significant capital, both monetary and human, in research and development costs to develop a product. Another factor affecting the threat of new entry is product differentiation. Product differentiation is important in this industry, where customer loyalty does exist for several members of this industry, including myself as earlier mentioned. It would not be easy for me to just switch to another brand launching a similar product, since I have loyalty to Fitbit.
Threat of Substitute – High
The threat from substitutes within this market is high, where consumers has a wide variety of options of fitness tracking devices to choose from, but also smart-watches and smart-phones are increasing and have similar features. Many companies are improving their fitness tracker capabilities of their products, which has led to the threat of substitutes increase. As the fitness trend continues to grow, more competitors will enter this industry with similar products that already exist, creating an even bigger threat of substitute products.
Bargaining Power of Suppliers – Low
As more competitors enter this industry, with the growing trend, and more substitute products become available, suppliers will lose their bargaining power in the industry accordingly. This specific industry has become more and more lucrative to customer and suppliers, and with more companies demanding products from suppliers, the greater chance suppliers have of establishing themselves in the market. Many suppliers create more options for buyers, and consequently a loss of bargaining power for suppliers arises.
Bargaining Power of Buyers – High
As of right now, there are many different options of these types of devices within this industry and they range in price significantly. The increase of new entry in this industry has given the consumers a bargaining power to demand more from their devices at a still reasonable cost. This has helped push innovation and diversification forward. Step tracking is not a good-enough feature any longer, which has forced the companies to develop new features like texting, in-app workouts, and fashionable style at a low price to keep the consumers attracted. The consumers have to get convinced about the value of these devices to keep buying them.
Rivalry among existing firms – High
There is a clear first mover advantage in an industry like this, however, as more competitors join this industry the advantage of first mover starts to diminish. As more and more similar products within this industry are created, companies need to create a competitive advantage against other companies through having lowest price, improve quality on the product or lowering costs of developing product. The fitness tracking industry is reaching a peak, and the companies within the industry are quite similar, which consequently forms fragmentation. This means that it is very hard for one single company to move the industry in a certain direction. Companies will have to create new ways to differentiate themselves against other competitors or else they will fail.
Overall assessment of industry’s attractiveness:
Since there is high threat of substitutes, high rivalry and high bargaining power of buyers in this industry, the companies will have a hard time to succeed and sustain competitive advantage. Companies should focus on either expanding their total potential market share, to gain a bigger “slice of the pie”, or improving customers’ value, through providing helpful and unique features compared to its competitors.
Competitors:
Competition in the activity tracking industry is very rough, where Fitbit is facing competition from several companies such as Apple, Xiaomi, Garmin and Samsung. Fitbit is leading in terms of financial performance and profitability, market shares and quality of products, however, they need to be creative and innovative to withstand the competition level as well as outshine them. The competitive strength of the buyers and the suppliers is key when determine the financial performance of the companies. The competition is extremely high in this industry, where competitors compete for the same buyers, same suppliers of raw materials and same market targets. The more the company acquires market share the more profitable the company will be. All companies in this industry also compete to create loyalty among their buyers and suppliers. Once Fitbit wins the loyalty over their competitors, its survival in activity tracking industry will be guaranteed.
Financial situation:
Fitbit had a tremendous period between 2011 and 2015, where they grew significantly. Fitbit even tripled its revenue in comparison to the previous year in each of the last 5 years, they reached 149% revenue increase in 2015 compared to 2014. When comparing with other competitors within industry, Fitbit’s growth is even more incredible. Garmin’s revenue decreased 2% and Jawbone also had debt problems in 2015. This shows that Fitbit had ability to compete for market share at the expense of competitors in industry.
The stockholder equity rises during 2015 compared to 2014, since Fitbit is in need of money to be able to fund the manufacturing costs of new products, develop new features and expand into new geographic areas.
The main factors that determine how well the financial performance is the profitability level and liquidity level, which in this is determined by the revenue obtained from the sales, and the final net income. When comparing the net income given in Fitbit’s financial statements, the level of profitability is growing, also, its liquidity ratios all show positive numbers. Fitbit seems to be in good financial health, but when calculating their profit margin, it shows that there is actually a drop from 18% in 2014 to 9% in 2015. It is easy to find where the problem is. This situation resulted from inefficient operating activity expense, mainly from R&D and marketing, which increased throughout the year and lead to only a slight increase in net income whereas revenue increased by 150% simultaneously. The net income for 2014 was $131,777 and $175,677 in 2015.
The current strategy is working well for Fitbit as their revenues and assets are both rising. However, there is always room for improvement and make more profit, as competitors are always threatening.
Current strategies:
The current strategy seems to be working well for Fitbit as their company revenues and assets are both rising. Fitbit also collects revenue effectively, but, the consequences are that the operating expenses and profit margin was affected significantly. Furthermore, this has caused Fitbit to drop on the stock market significantly during the last few years. It seems like their strategic performance is insufficient, where instability can be find in their financial statements. Fitbit’s domination within industry starts to diminish, because of the upcoming of competitors and Fitbit’s products defects. Fitbit will have to revaluate their current strategy to improve the analysts’ assessments of Fitbit.
Value chain:
Firm infrastructure – Firm infrastructure includes the coordination of resources, processes and operational tools to guarantee sustainable, profitable and replicable growth.
Human resource management –
Technology – Fitbit focuses on advanced, purpose-built hardware and software technology.
Procurement –
Inbound logistics –
Operations –
Outbound logistics –
Marketing & sales –
Service –
SWOT:
Strengths refer to what Fitbit as a company does better than any of their competitors.
Weaknesses refer to what competitors do better than Fitbit.
Opportunities refer to the favourable conditions to the operation of Fitbit’s activities.
Weaknesses refer to the unfavourable conditions to the operation of Fitbit’s activities.
STRENGTHS
WEAKNESSES
• Larger market share than competitors – Fitbit withholds the largest market share in industry as of now.
• Broad range of devices in terms of price and function: Fitbit offers many different variations of their product range, in terms of functionality and price.
• First mover advantage: Fitbit was first to join this industry, which gives them advantage over new entry competition.
• Privacy Issues: Tracked data was sold to third parties without consumers’ knowledge.
• Ineffective value chain: Fitbit spends a lot of money on manufacturing costs for Alpha and Blaze.
• Product glitches: there are several problems with the device, which affects the overall experience for consumers.
OPPORTUNITIES
THREATS
• Diversify its products: Fitbit could team up with healthcare companies, and other medical professionals in the industry, to reach new customer segments.
• Advancement in technology: Innovative creation in technology, could open up huge market potential.
• New lifestyle: The “healthy-lifestyle” trend is a potential to increase customer share further.
• Competition: Fitbit is leader in industry, however, there are many competitors, both direct and indirect, that are threatening.
• Projected stock fall.
• Expected drop in sales in future.
Strategic Options barriers
Option A – International Expansion:
This strategy includes increasing the company’s marketing outside the U.S., where there is still room for improvement and a market growth potential. The rivalry among existing competitors would decrease and the industry as a whole would become more attractive, as the total potenatial market share for the whole industry would increase. However, it is important to consider the differences in culture and living standards among countries, and people in other countries might not appreciate the price premium model.
Option 2 – Niche market for specific and unique purposed devices in health care:
This strategy includes integration into digital platforms to assist patients who have specific medical conditions, in order to better manage their overall care. Data tracking could be expanded to include glucose monitoring, blood sugar, heart monitoring, daily medication alerts, and providing meaningful information that is linked to users’ healthcare providers. A key advantage of this option is that it serves as a differentiator by offering something completely new to the fitness tracking space. A disadvantage is that it is costly and requires significant investment in R&D.
Pros Option A:
International expansion would increase the total market share for this industry. It would also make the industry as a whole more attractive. Also, international expansion would reduce rivalry among competitors, and Fitbit would be able to continue to build on their first mover advantage internationally as well.
Pros Option B:
By incorporating features such as glucose monitoring, blood sugar, and heart monitoring, Fitbit would be able to expand their brand by reaching new customer segments. Fitbit would appeal to their already existing consumers in their later stages of life as well, which furthermore would increase their customer loyalty. Their product would go from being a device you might “want” to a device you “need”.
Cons Option A:
It is important to consider the differences in culture and living standards among countries, and people in other countries might not appreciate the price premium model. Another factor to put into consideration are the various taxes and regulations countries might have. These taxes and regulations will cause barriers to entry, and Fitbit would have to consider if it is worth it or not. Lastly, the first mover advantage is only good for so long. Once other competitors see Fitbit making profit by expanding internationally, they will most likely pick up on the idea as well.
Cons Option B:
This option would be very costly, as it requires both monetary and human capital so develop. It requires a very high level of R&D, as well as extensive time commitment. This whole option is also based upon partnerships with healthcare companies, and other medical professionals in the industry.
Course of action
Recommendation
Fitbit’s best chance for long-term differentiation and growth is focusing their efforts on health and wellness through patient data tracking. Fitbit built a trusted brand platform based on easy and fun fitness tracking, which gives them a natural segue into providing deeper, more meaningful health insights. Furthermore, their open API enables them to continue expanding their partnerships with software and hardware providers. Fitbit’s fashionable and discreet look will help them convert those who currently use monitoring devices that are bulky or not aesthetically pleasing.
Suggestions for Implementation: Fitbit should conduct market research to determine where the patient needs are and what data should be tracked. Then they should invest in R&D to learn how to enhance their current products or expand their product lines to meet these needs. The ultimate goal should be to become a “one-stop shop” for consumers who need to track a range of health-related data. R&D efforts should focus on how this data can be monitored in a way that is simple enough for users but provides sufficient feedback. Fitbit should also focus on enhancing the quality of its data. For example, instead of simply giving heart rate statistics, Fitbit can provide alerts to their users if their data falls outside of an acceptable range. Fitbit can use this data to provide personalized recommendations that users can implement to improve their health (i.e, go for a walk, take 5 deep breaths, set bed time alerts).
Fitbit should also look to partner with insurance companies, doctor’s offices, and medical device companies. This would further engrain Fitbit into customers’ lifestyles and would assist doctors with gathering and monitoring patient data. Insurance companies can provide discounts for customers who own a Fitbit and medical devices like glucose monitors can be synced through the Fitbit app. By enhancing the features and utility of their product, Fitbit can further differentiate itself from the competition and sustain their competitive advantage in the industry.