Based on the case please answer the following question: 1. What is competition l

Question

Based on the case please answer the following question:

1.       What is competition like in the activity tracking industry? How strong is the competitive strength of buyers and suppliers? New entrants and substitute products? Rivalry among competing sellers? Prepare a Five Forces Model of Competition to support your conclusions.

Fitbit, Inc. Has the Companyy Outgrown lts Strategy? Rochelle R. Brunson Baylor University Marlene M. Reed Baylor University itbit revolutionized the personal fitness activ- ity in 2009 with the introduction of its Tracker TechCrunch50 Conference drumming up preorders for their product. Neither man had any manufactur wearable activity monitor. By 2016 the com experience, so they trave led to Asia and sought pany was a hit in the marketplace with Fitbit devices out suppliers and a company to produce the device becoming nearly ubiquitous with fitness enths for them. asts and health-conscious individuals wearing devices and checking them throughout the day. The market at the end of 2009, and the company shipped company's sales of activity monitors had increased approximately 5,000 units at that time. They had from 5,000 units that year to 21.4 million connected additional orders for 2,000 units on the books. health and fitness devices by year-end 2015. The company executed a successful IPO (initial public called an "activity monitor" which was a wireless- offering) in 2015 that boosted liquidity by $4.1 bion enabled wearable technology device (see Exhibit 1). and recorded revenues of $1.86 billion by the con The purpose of the Fitbit was to measure personal clusion of its first year as a public company. Fitbit's chief managers expected 2016 revenues in the range EXHIBIT1 Fitbit Ultra of $2.4 to $2.5 billion. However, on the last day of February 2016 the price of Fitbit stock plunged nearly 20 percent after the company announced that the sales and earnings in short of analysts' forecasts. The missed forecasted milestonecreated a dilemma for founders James Park and Eric Friedman, who were now faced with finding a strategy to turn things around at the now publicly traded company the Fitbit put its product named Tracker" on the The product Park and Friedman developed was first quarter would fall BACKGROUND ON FITBIT Fitbit was founded in October 2007 by James Park (CEO) and Eric Friedman (CTO). The two men started the using sensors in small wearable devices to track individuals physical activities. Before they had a prototype, Park and Friedman took a circuit board in a wooden box around t money. In 2008, Park and Friedman addressed the company after noticing the potential for Dons Kr unov Source: Fltbit, Inc. webslte. o venture capitalists to raise Copyright Rochele R. Brunson and Marlene M. Reed All rights erved

Explanation / Answer

FIVE FORCES MODEL OF COMPETITION FOR FITBITS INC.

Five Forces Model is considered to be a vital framework for developing the strategy of an organization. It was developed by Michael Porter. These are the five forces that determine the structure of the competition, which helps the managers to make strategic decisions. They are

Threat of new potential entrants

Initially the threat of new entrants was low for Fitbits. This was due to the high switching in fitness tracking, consumer electronic industry. When the switching cost between companies are higher, it will be difficult for the companies to switch between brands. By switching to a particular brand for a long period of time, develops a sense of loyalty in the mind of customers. When the brand loyalty combined with a high switching cost, makes a new potential entrant very difficult to enter into the market. Further, the company could also adopt a strategy of lowering the prices, in order to attract price-sensitive customers without losing much of their market share. As there is no threat for new threat for Fitbits, they could focus on producing quality products at reasonable prices.

However, the activity tracking industry is gradually picking more competitors like Xiaomi, a Chinese activity tracking company which had shipped around 12 million activity trackers across the globe. This company is certainly a threat to Fitbits as they have already captured a market share of 15.5 percent globally.

Threat of substitute products or suppliers

Threat from substitute products is high for Fitbits. The similar feature of activity tracking feature can be found in a variety of other devices by other companies. Ipods are used as fitness trackers by many fitness enthusiasts. Garmin and Under Armour are posing great competition to Fitbits even though they operate in different industries. It is also found that there are companies like Apply whose smart watches outperform the tasks of Fitbits product.

The competition faced from the substitute products could be the major reason for the decrease in earnings at some point of times, especially in the last quarter in 2016. Fitbits have to devise a differential kind of strategy to challenge the threat of the substitute products. Otherwise, these substitutes can limit the growth of Fitbits by setting a sealing price on the Fitbits product. It can be found that Fitbits have quite a few substitute products, which determine the potential returns for the company by limiting the upper limit of the prices, thus decreasing the revenue and earning potential of the company.

Bargaining power of suppliers

Since bargaining power of suppliers is low for fitness tracking and consumer electronic industry. Fitbits can utilize this low bargaining power of suppliers by purchasing electronic parts for their products from different suppliers. This makes the suppliers less powerful in the activity tracking industry so that they won’t be able to increase the price of their items. This gives an advantage for Fitbits to choose from a variety of suppliers. Moreover, suppliers will be able to provide quality products with affordable cost.

Bargaining power of buyers

Fitbits have a high bargaining power of buyers. Since there at least four to five known competitors and there is a large pool of buyers with high bargaining power. The existence of substitutes and competitors will enable buyers to bargain Fitbits product. In order to prevent such situations, Fitbits have to be unique in their operations and product features. Otherwise it will affect the marginal profit earning of the company.

Rivalry among competitors

The major existing competitors of Fitbits are Apple, Samsung and Garmin. Xiaomi is a new competitor which Fitbits have to be careful for. As people are becoming more health conscious and fitness freaks, it can be undoubtedly said that Fitbits have to devise innovative marketing strategies incorporating the marketing mix. Product features have to be added or innovative products with affordable prices have to be developed to keep the rivals and competitors at bay. It can be found that since the entry into the market in 2008, Fitbits have been experimenting its activity tracking products with innovative features. This can be considered as a winning strategy of the company, thanks to its foresight regarding competition and rivalries.

Considering its strategy for improving its products and innovative ideas in research and development, there is no doubt that Fitbits will be able to maintain its leadership in activity tracking industry as an established company.

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