marketing study for a fitness center at the natatorium installations...

Marketing Study for a Fitness

Center at the Natatorium

Installations at the University of

Puerto Rico Mayagüez

Campus

November 19, 2012

José I. Vega Torres, Ph. D.,

CPA Nydia I. López Muñiz, MBA Graduate Student

This document summarizes the results of the survey and research

conducted to determine the market potential among the Campus

Community of the proposed Fitness Center.

Marketing Study for a Fitness Center at the Natatorium Installations at the University of Puerto Rico

Mayagüez Campus

Executive Summary 1

Table of Contents

Executive Summary ................................................................................................................................................2

Background and Scope of Work ............................................................................................................................3

Methodology ............................................................................................................................................................3

Fitness Center Concept ...........................................................................................................................................3

Industry Conditions and Trends ...........................................................................................................................4

Competitive Analysis ..............................................................................................................................................6

Results from Survey to the UPRM Community ..................................................................................................8

Competitive Fitness Center Concept ....................................................................................................................9

Projections of Memberships .................................................................................................................................11

First Year .............................................................................................................................................................11

Second Year ........................................................................................................................................................11

Third Year ...........................................................................................................................................................11

Projections of Revenues ........................................................................................................................................12

First Year .............................................................................................................................................................12

Second Year ........................................................................................................................................................12

Third Year ...........................................................................................................................................................13

Conclusions and Recommendations ...................................................................................................................14

Acknowledgements ...............................................................................................................................................15

Appendix 1: Questionnaire for Faculty and Staff ............................................................................................16

Appendix 2: Questionnaire for Students ...........................................................................................................18

Appendix 3: Cross Tabulation for Category, Response, Age and Sex ...........................................................20

Appendix 4: Total Available Space for the Fitness Center ..............................................................................21

Appendix 5: Floor Plan and Equipment Layout ...............................................................................................21


Mayagüez Campus

Executive Summary 2

Executive Summary

The study conducted by the Business and Economic

Development Center was based on primary and

secondary data collected through interviews performed to

competitors' staffs, reviews of professional and trade

reports, and an online survey to the Campus community.

Based on the above mentioned procedures, the fitness

industry in the region seems to be stable and with

capacity for moderate growth. The proposal for a

Fitness Center at the Natatorium installations, including

ancillary services, was widely accepted by the Campus

community and the vast majority of respondents are

willing to pay monthly fees ranging from $ 25 to $45.

The revenue projections assume a fitness center, with the

amenities favored by respondents and suitable to the

UPRM community as its primary market. That

implementation will entail a final concept subject to users

preferences, as depicted from survey results, and

targeting as primary market, both the students and the

employees.

Based on the above revenue projections range from

$328,644 to $657,288 for the first year of operations; from

$657,288 to $985,932 for the second year; and from

$985,932 to $1,314,576 for the third year.

The Preferred

Fitness Center

In order of preference

Physical Activities

Machines to work individual muscles and body parts

94%

Cardio Machines 88%

Free weight lifting equipment

76%

30 minutes workout 75%

Weekdays to exercise

Wednesday 80%

Thursday 80%

Monday 78%

Tuesday 78%

Operating hours

4:00 p.m. a 12:00 a.m. 90%

Products to consume inside the gymnasium

Water 99%

Nutritious snacks 79%

Fruits, fruizles and smoothies

76%

Products to consume in off site concessions

Sandwiches 78%

Fitness Programs

Weight control 61%

Ancillary services

Lockers 96%

Showers 94%

Massages 64%


Mayagüez Campus

Background and Scope of Work 3

Background and Scope of Work

The Natatorium installations were part of the Mayaguez 2010-Central American Games. It is the

responsibility of the Natatorium Administration the development of the installations in order to

transform them into a self-sustainable installation. Within this broad developmental project named

CoNaTeRa, a Fitness Center suitable to students and employees in its first stage is considered.

The Business and Economic Development Center at the Business Administration Department was

asked by the Office of the Chancellor to perform a marketing study for the proposed Fitness Center at

the Natatorium installations. The study is based on reviews performed to the industry segment, the

competitive scenario and its potential market, through primary and secondary data collection. Also, it

comprises a review of the trade literature, the survey to affiliate of the Campus Community and the

field inspection of the competitor's installations.

Methodology

The industry conditions and trends were reviewed through secondary data from professional and

trade reports and governmental sources. The competitive scenario was assessed through field visits to

each competitor, interviews to staff and customers. This primary data gathering was complemented by

performance data from governmental and private sources. Market potential among the customers

within the primary target market of the UPRM community was assessed through an online survey to

students and employees administered with assistance of the Information Technology Center. Two

different versions of the pre tested questionnaires were used, one for employees and the other for

students, copies of which are shown in the Appendix.

Fitness Center Concept

The proposed Fitness Center will be hosted in the Natatorium installations and is initially expected to

be equipped with modern machines and designed to operate as a high-end fitness center, suitable to

the UPRM community. At the present time, there are various rooms with a total square footage of 6,215

to host the proposed Fitness Center that is considered by the Natatorium Administration as the anchor

tenant of a major undertaking project denominated as CoNaTeRa that seeks to turn the Natatorium

installations into the center of the Campus life at UPRM. A preliminary floor plan and equipment

layout is shown on the Appendix.


Mayagüez Campus

Industry Conditions and Trends 4

The final concept will evolve around the preferences of potential memberships, as indicated by the

survey results and the competitive analysis. Proponents of the Fitness Center estimate an investment

from $400,000 to $500,000 and annual revenues of $1,224,000 based on a UPRM Community of about

16,000 persons. They had foreseen that once the Fitness Center gained acceptance within the UPRM,

revenues and operations became stable, secondary markets such as the surrounding community, the

universities from the continental United States of America(USA) or corporate and governmental

institutions could be targeted in order to expand operations. Incremental operational cost to establish

and run the new fitness center were estimated at around $262,800.

Industry Conditions and Trends

The International Health, Racquet and Sports Association (IHRSA)i and the IDEA Health and Fitness

Associationii, have presented an overview of the situation in the industry of fitness using as a reference

USA. Studies reflect that the number of fitness centers have grown by about 8% from 2001 to 2011 and

fitness industry remained at relatively stable levels. This might be due to the importance that people

has given to the exercise, as a tool for diseases prevention and healthier lifestyles. Currently, the

economic indicators project an industry growth outlook for the next 10 years.

The main source of income of fitness centers comes from membership enrollment and monthly billings

charged to affiliates who are willing to pay varying rates for their preferred services. It should be

noted that, the Boston University Fitness Center and the Alabama University Fitness Center do not

charge their students for the use of the installations but have charges for their spouses and children.

Nevertheless, they have significant charges for the Faculty, the Staffs, and their relatives for the use of

such installations.

According to the volume of business data provided by the Municipality’s Taxation Office, the fitness

centers' revenues in Mayaguez have increased by 5.67% from fiscal years 2010-11 to 2011-12 and almost

an annual average of 18.34 % for the last three years, as summarize in the following table. Although no

individual data was shared, considering that there are five fitness centers, at the present time, this

yields an average volume of business of $428,639 per competitor. This average seems reasonable

considering that the County Business Patterns data for 2007 reported aggregate sales of $25,476,000 for

80 fitness centers throughout the Island for an average of $318,450.


Mayagüez Campus

Competitive Analysis 5

Volume of Business of Fitness Centers in Mayagüez

Fiscal Year Volume of Business Percentage of growth

2009-2010 $ 1,530,441

2010-2011 $ 2,028,078 32.52%

2011-2012 $ 2,143,196 5.67%

Source: Municipal Taxation Office of Mayaguez

Another indicator of industry health is the number of fitness centers among businesses that have

recently applied for protection under the Bankruptcy Code. As per table below, the numbers of

petitions filed by fitness centers compared to the overall total seem not to be significant.

Commercial Bankruptcy Protections Filed

Year ended

Six months

ended,

June

2009 2010 2011

2012

Total Protections Filed 888 850 971

379

Some Significant Sectors:

Fitness Centers 4 4 0

0

Construction Contractors 56 49 51

31

Restaurants 50 63 70

13

Cafeteria 34 27 26

10

Medical Doctors 19 18 46

16 Source: http://boletinpr.com

Trends reflect that Pilates® and yoga programs are currently with high growth potential, the group

training programs with simple choreography have also been well received, and staff’s training

programs always retain their popularity. On the IDEA's 15th Annual Fitness Programs and Equipment

Trend Report dated July 19, 2010, the favorite equipment seems to be the elliptical, the treadmills, and

TRX Suspension Training®. On the contrary, the cardio-respiratory equipment such as stationary bikes

and "steppers" has declined in terms of preference. Portable equipment is highly preferred for personal

training. Reportedly, these preferences will be considered by the proponents of the Fitness Center at

UPRM.

Fitness franchises that offered a convenient cost to both customers and franchisees, have experienced

an impressive growth and evolved toward including more fun activities and focused to martial arts.

Also, a trend toward recreation-based fitness has been more evident for children’s fitness.iii


Mayagüez Campus


Competitive Analysis

In order to build a core of loyal customers, a business needs to gain some advantage over its

competitors. A competitive advantage is reached by offering customers greater value, generally by

providing some unique benefits and services that will persuade customers to prefer the Fitness Center

rather than the competitors.

Internal competition was examined because there are two other fitness centers in the Campus one at

the Angel F. Espada installation (Picture 1) and the other at the Rafael A. Mangual installation (Picture

2), for students and athletes, respectively. The capacity and equipment in these installations are

limited. According to the proponents, these installations are committed to athletes and academic

coursework and will not be available for general usage of the UPRM community once the new fitness

center begins its operations.

Picture 1

Picture 2


Mayagüez Campus


External competitors pose the main competitive frame of reference and the proposed fitness center

product-service mix needs to be competitively designed considering the other options currently

available. The table below summarizes the most relevant characteristics that the competitors have and

the proposed competitive advantage that the proposed Fitness Center might elicit.

Criterion Proposed Fitness Center

Exygon Acrópolis New Era Fitness

HCOA Municipal

Working hours

Monday-Thursday

4:00am-12:00pm

4:50am-9:00pm

5:00am-9:00pm

5:00am-9:00pm

5:00am-10:00pm

6:00am-9:00pm

Friday 4:00am-9:00pm

4:50 am-8:00pm

6:00am-8:00pm

5:00am-7:00pm

5:00am-8:00pm

6:00am-9:00pm

Saturday 9:00am-5:00pm

9:00 am-2:00pm

1:00 pm-5:00pm

9:00 am-1:00pm

9:00 am-4:00pm

8:00am-4:30pm

Sunday 10:00am-2:00pm

No No No 10:00 am-2:00pm

No

Monthly Current Fee

Membership $ 0.00 $ 180.00 $ 79.00 $ 0.00 $305.00 $0.00

Monthly fee From $35.00 to

$ 50.00 approx.

$ 58.50 $ 54.95 $50.00 $59.95 From $10.00 to

$ 25.00

Child care Parent-child program

No No No Yes No

Living room Yes Yes No No No No

Whirlpool Yes No No No No No

Swimming pool Yes No No No No No

Study room Yes No No No No No

Sports courts Yes No No No No No

Bathrooms Yes Yes Yes Yes Yes Yes

Showers Yes Yes Yes Yes Yes Yes

Lockers Yes Yes Yes Yes Yes Yes

Snack Bar No Yes No No No No

Snack-Deli Bar Yes Yes No No No No

Memorabilia and Towel shop

Yes No No No No No

Weekly Classes Availability

From 15 to 30

36 13 15 31 16

Massage services ( $/hr)

$35.00 Yes No $ 35.00 No No

Parking Yes At the corner

Yes-not close

Yes-in front

Yes Yes

Special dance workouts Yes No Yes No Yes No

High performance training

Yes Yes No No No No


Mayagüez Campus

Results from Survey to the UPRM Community 8

In this case, some of the alternatives for the Fitness Center might be the combination of parents-and-

kids programs, swimming pool, complementary martial arts, yoga and Zumba® programs, snack bar,

snack-deli bar, and spot shop, among others. The Fitness Center might compete for being innovative

rather than focusing only on price advantage.

Proponents identified the initial target market as the Campus Community. Per reports provided by the

Office of Institutional Investigation and Planning (OIIP) this market could be estimated on 14,550

individuals.

Campus Community Female

Male Population

Students (1st semester 2012-2013)

5,663 6,321 11,984

Faculty ( Feb. 2, 2011)

385 549 934

Staff ( Feb. 2, 2011)

728 904 1,632

Total 6,776 7,774 14,550

Results from Survey to the UPRM Community

In order to project with reasonable certainty the level of patronage among the UPRM Community of

the proposed Fitness Center an online survey was administered through the Campus Web Site. To

encourage the maximum response level some press releases were published through Prensa RUM. The

survey was available from October 5 to October 22, 2012. Respondents had three choices, decline since

inception, decline after answering two demographic questions, or take a few minutes to answer

completely the questionnaire.

The required sample size of respondents should be 577 or more, based on a conservative criterion of

95% of confidence level, 50% of response distribution, a representative factor of the population of 65%,

5% of margin error, and an estimated population size of 14,550 individuals. A level of 695 participants

was reached and 96% of them indicated their intention of paying a fee to use the proposed Fitness

Center at the Natatorium installations. About 49% of the participants were female, and 51% were male.

Also, 88% were students and 12% were employees. Both compositions, by sex and by classification,

were very similar to the composition of the population.


Mayagüez Campus

Competitive Fitness Center Concept 9

Table 1: Survey and population composition

Survey Population

Sex:

Female 49% 47%

Male 51% 53%

Classification:

Employees 12% 17%

Students 88% 82%

Competitive Fitness Center Concept

Results were summarized in order of preferences. For this purposes both priority and maximum

priority were merged.


Physical Activities

Machines to work individual muscles and body parts 94%

Cardio Machines 88%

Free weight lifting equipment 76%

30 minutes workout 75%

Spinning 63%

Aquarobics 63%

Group classes 60%

Weekdays to exercise

Wednesday 80%

Thursday 80%

Monday 78%

Tuesday 78%

Friday 56%

Saturday 40%

Sunday 26%

Operating hours

4:00 p.m. to 12:00 a.m. 90%

11:00 a.m. to 4:00 p.m. 54%

7:00 a.m. to 11:00 a.m. 43%

4:00 a.m. to 7:00 a.m. 37%

12:00 a.m. to 4:00 a.m. 13%


Mayagüez Campus

Competitive Fitness Center Concept 10


Products to consume inside the Fitness Center

Water 99%

Nutritious snacks 79%

Fruits, fruizles, frappes and smoothies 76%

Nutritional supplements 62%

Salads 49%

Wraps 49%

Rehydration beverages 42%

Coffee 24%

Products to consume off the Fitness Center

Sandwiches 78%

Pizza 16%

Ice cream 16%

Tacos 16%

Hamburgers 15%

Fried chicken 9%

Fitness Programs

Weight control 61%

Kickboxing 53%

Physical rehabilitation 47%

Zumba 46%

Yoga 45%

Pilates 34%

Ancillary services

Lockers 96%

Showers 94%

Massages 64%

Television 54%

Lounge room 46%

Study room 39%

Potential customers are looking to new ways of training such as boot camp, cross fit, Insanity, P90X, Tai

Chi and other martial arts. Also, people are very concerned about the necessity of a great place that can

serve a better quality and more nutritious meals. Services like personal training and massages are

greatly valued. Some respondents were wondering about a sauna facility and a great number of

creative suggestions for the name of the proposed Fitness Center were provided. Notwithstanding,

RUM Fitness Center was the most acclaimed. The latter is an aspect that should be explored further by

means of focus groups.


Mayagüez Campus

Projections of Memberships 11

Projections of Memberships

The projected number of memberships was calculated based on the following assumptions:

The estimated population was based on the information provided by the Office of Institutional

Investigations and Planning (OIIP).

The population will remain almost constant for the three years period.

Existing Campus fitness centers, at no cost, will be available only to athletes and for coursework

or research. This policy will be enforced in a very strict manner.

The estimated growth rate in patronage will be 5% per annum.

A leader market share in a particular geographic market rarely surpasses 30%. A three-year phase

in period was considered.

Three scenarios were provided to enhance the decision analysis.

The estimated number of memberships can be managed during the operating hours even in periods

of peak demands. It is pertinent to conduct carrying capacity simulations once the final concept is

designed and deployed.

First Year

Worst Scenario Most Likely Scenario Optimistic Scenario

5% 10% 15%

Population Monthly memberships Monthly memberships Monthly memberships

Employees 2,566 128 257 385

Students 11,984 599 1,198 1,798

Totals 14,550 728 1,455 2,183

Second Year


10% 15% 20%


Employees 2,566 257 385 513

Students 11,984 1,198 1,798 2,397

Totals 14,550 1,455 2,183 2,910

Third Year


15% 20% 30%


Employees 2,566 385 513 770


Mayagüez Campus

Projections of Revenues 12

Students 11,984 1,798 2,397 3,595

Totals 14,550 2,183 2,910 4,365

Projections of Revenues The projected amount of revenues was calculated based on the previous and the following

assumptions and:

No enrollment fee will apply. Contracts should not exceed the semester period.

The monthly fee for employees and students was estimated at $50 and $35, respectively. The vast

majority of employees (86%) indicated a willingness to pay at least $35-$45 per month. Some, 13%,

were even willing to pay $45-$60 per month. The vast majority of students (85%)indicated a

willingness to pay $20-$35. Some, 13%, were even willing to pay $35-$50.

The estimated revenues assume that the total number of estimated memberships can be managed

during the operating hours.

First Year


5% 10% 15%

Monthly fee Annual Revenues Annual Revenues Annual Revenues

Employees $50.00 $ 76,980 $ 153,960 $ 230,940

Students $35.00 251,664 503,328 754,992

Totals $ 328,644 $ 657,288 $ 985,932

Second Year


10% 15% 20%


Employees $50.00 $ 153,960 $ 230,940 $ 307,920

Students $35.00 503,328 754,992 1,006,656

Totals $ 657,288 $ 985,932 $ 1,314,576


Mayagüez Campus

Projections of Revenues 13

Third Year


15% 20% 30%


Employees $50.00 $ 230,940 $ 307,920 $ 461,880

Students $35.00 754,992 1,006,656 1,509,984

Totals $ 985,932 $ 1,314,576 $ 1,971,864


Mayagüez Campus

Conclusions and Recommendations 14

Conclusions and Recommendations

Main conclusions and recommendations are as follows:

The fitness industry has continuously increased, regardless of the worldwide economic precarious

conditions since 2008 till today.

It is reasonable to project revenues ranging from $328,644 to $657,288 for the first year of operations;

from $657,288 to $985,932 for the second year; and from $985,932 to$1,314,576 for the third year

taking into account the amenities described and terms suitable the UPRM community as its

primary market.

In order to build a core of loyal customers the Fitness Center must develop its tailored competitive

advantage by providing unique benefits and services, and being innovative, rather than focusing on

price advantage alone.

The more the payment alternatives offered the better for the customers but not necessarily the more

convenient from the administrative point of view. A contract is necessary for a better financial

planning. Both alternatives, either the semester or the annual option could be offered. The preferred

alternative is the semester. Due to the nature of the Campus operations, the semester option might

best fit the student’s needs.

A more flexible payment alternative could be offered to whom resisted the semester payment

option: a prepaid access card could be provided. Special attention might be needed for appropriate

accountability of memberships' attendance in case of using the prepaid membership card.

The most preferred name was RUM Fitness Center but this question was included as a trial question

since the name that will be assigned should demand a more detailed analysis.

Because the most preferable operating hours was from 4:00 p.m. to 12:00 a.m. the parking

availability might not represent a greater problem. But, it is advisable to take into account that the

parking availability from 7:30 a.m. to 4:00 p.m. might represent a logistical challenge.

The Campus could consider the students-entrepreneurs as its first option for concessionaires and

adopt a policy to focus existing efforts to promote an entrepreneurial mindset among students,

faculty and administrative personnel. Some services offered under concessionary contracts could

be:

The products preferred to consume off the Fitness Center.

Complementary programs such as Zumba®, Yoga, and Martial arts

A well-managed snack-deli bar, supplying more nutritious and quality menu options, might

also serve to promote attendance among memberships by creating a friendship and a

sharing environment.

Spot-shop satisfying the memberships needs such as towels, gloves, head bands and some

memorabilia will also might stimulate the sponsorship of the Fitness Center.


Mayagüez Campus

Acknowledgements 15

Acknowledgements

Authors want to express their sincere appreciation to those faculty, administrative personnel, and

outsiders, who contributed to fulfill this assignment and made it a worthwhile experience. We are

grateful to the Office of the Chancellor, Dr. Efrank Mendoza, Dr. Mariam Ludim Rosa, Dr. Rosario

Ortiz, Dr. Pedro Resto, Jorge Bencosme, Andrés Rosado, Jose Cuevas, Yamileth Valentín, Wanda

Ortiz, Nilda Y. Soto, Sheila Marty, Maira Rodríguez, Roberto Irizarry, Estela Lopez and Lizaida Perez.


Mayagüez Campus

Appendix 1: Questionnaire for Faculty and Staff 16

Appendix 1: Questionnaire for Faculty and Staff


Mayagüez Campus

Appendix 1: Questionnaire for Faculty and Staff 17


Mayagüez Campus

Appendix 2: Questionnaire for Students 18

Appendix 2: Questionnaire for Students


Mayagüez Campus

Appendix 2: Questionnaire for Students 19


Mayagüez Campus

Appendix 3: Cross Tabulation for Category, Response, Age and Sex 20

Appendix 3: Cross Tabulation for Category, Response, Age and Sex

Want the Fitness Center

Do not want the Fitness Center

Total

Employees Students Employees Students

Female:

Less than 18 years 1 25 2 28

19 to 34 years 11 258 3 272

35 to 55 years 30 2 2 34

more than 56 years

2 1 3

Total-Female 44 286 2 5 337

Male:

Less than 18 years 26 1 27

19 to 34 years 4 278 10 292

35 to 55 years 24 2 2 28

more than 56 years

4 4

Total-Male 32 306 2 11 351

Total 76 592 4 16 688


Mayagüez Campus

Appendix 4: Total Available Space for the Fitness Center 21

Appendix 4: Total Available Space for the Fitness Centeriv

Room Space (ft2)

A 1480.05

B 421.875

C 2188.024

D 506.4583

E 309.9653

F 310.0035

G 310.0035

H 689.5747

Total 6215.954

Appendix 5: Floor Plan and Equipment Layoutv


Mayagüez Campus

Appendix 5: Floor Plan and Equipment Layout 22

i "Physical Fitness Facilities." Highbeam Business. The Gale Group, Inc., 2012. Web. 20 Sept. 2012.

<http://business.highbeam.com/industry-reports/personal/physical-fitness-facilities>.

ii "IDEA's 15th Annual Fitness Programs and Equipment Trend Report." Ideafit.com. IDEA Health and Fitness

Association, 19 July 2010. Web. 20 Sept. 2012.

iii Stapp, Tracy. "Three Franchise Industries to Watch." Entrepreneur. Entrepreneur.com, 14 Dec. 2011. Web. 9 Oct.

2012. <http://www.entrepreneur.com/article/222412>.

iv Mendoza, Efrank PhD. “COmplejo NAtatorio, TEnis y RAquetball: Propuesta con Fines Lucrativos para el RUM Sirviendo a los

Estudiantes y Empleados del RUM y la Región Oeste en General”. 26 Jun. 2012. v Mendoza, Efrank PhD. “COmplejo NAtatorio, TEnis y RAquetball: Propuesta con Fines Lucrativos para el RUM Sirviendo a los Estudiantes

y Empleados del RUM y la Región Oeste en General”. 26 Jun. 2012.

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