Case Analysis of Fitbit: The Business about Wrist

Fitbit is relatively new company (founded in 2007) that has already established a strong brand
name and has positioned itself as a frontrunner in the fitness tracking industry. Although basic
pedometers have been around for many years, Fitbit saw an opportunity to revolutionize this idea
by creating a product that is social, interactive and stylish. They capitalized on consumer health
and wellness trends to appeal to a range of consumers-from fitness enthusiasts to workout
novices.
Fitbit faces some key issues that threaten their strategic objectives. Their current strategy is to
pursue a premium, differentiating positing in the U.S. market, by offering quality products that
increases their customers’ willingness to pay. However, competitors are working hard to gain
market share. The global fitness tracker industry is becoming saturated with new entrants due to
low barriers to entry, an attractive market, and non-proprietary technology. This is increasing
buyer power, as consumers have a vast choice of fitness trackers with various features and price
points. Another key issue is the threat of substitutes. Smartwatches with fitness tracking features
and a wide range of other capabilities are gaining ground. Success of substitute products could
eliminate the need for a fitness-specific device.
Market research on fitness trackers reveals that product pricing is the most important
consideration for most users and potential users, and brand choice is one of the least important
factors. Additionally, consumers prefer to wear tracking devices on their wrist as opposed to
other locations on their body or clothing. Understanding these preferences has important
implications for FitBit – as they seek to maintain and grow their competitive advantage, they
should seek out new features and technologies that are affordable and/or save consumers money
and integrate into existing wrist-based devices. Secondly, the company must both exploit the fact
that consumers make buying choices based on cost and features over brand, while at the same
time building better brand loyalty for FitBit itself.
We propose that FitBit move to establish themselves as a leader in health and fitness, and
capitalize on the increasing role of big data in the healthcare sector to forge strategic partnerships
with insurance companies, fitness clubs, and employers in the private sector to incentivize the
purchase and use of fitness trackers. In addition to that, we also provide two strategic options for
FitBit. First, to expand their presence in international markets. This has the benefit of increasing
the potential size of the market for all players, but has the disadvantage of being easily repeatable
by competitors if it is successful. A second option is to increase their focus on health and
wellness data tracking to provide detailed medical data to customers by integrating with medical
devices and healthcare customer offerings. This is our ultimate recommendation because it
enables FitBit to leverage its key resources while further differentiating their product and
fulfilling an important customer need. Furthermore, FitBit is advised to establish exclusive
contracts with fitness clubs like LA fitness, Gold’s gym etc., these companies could provide
discounts and incentives to employees/customers for reaching certain activity levels and fitness
goals, as tracked by FitBit. Healthier employees and customers save money for insurance
companies, hospitals, and employers, while discounted membership fees, copayments, and
deductibles strike a chord with cost-conscious consumers and provide an advantage over
competing fitness tracking brands. With this strategy, we think FitBit can maximize the potential
of their well-loved fitness tracking bands and establish themselves as a fitness and wearable
industry leader.

COMPETITIVE POSITION IN THE MARKET

According to the case provided, the wearable device market is developing intensely, attracting
many competitors to enter this market with great business opportunities. In spite of FitBit’s
leading position in the market with 76% market share in 2015, the long-term success is very
unstable due to tough competition from the part of not only consumer electronics manufacturers
like Apple, Garmin, Nike, Samsung, Xiaomi, and others, but also other companies like clothing
brands as Nike and Fossil Group, Inc. that looked to embrace the market niche. FitBit has a
product line that ranges in price from $60 for their basic tracker to $250, aimed at the serious
athlete (fitbit.com). Fitbit has a clear price advantage with the most affordable version of the
Apple watch retailing for $349 as the Apple ‘Sport’. However, Xiaomi, based in China, has
entered the market this past year with its much more affordable wrist wear tracker retailing for
$20 (mi.com) and taking 17.1% of market share for Q22015 ( IDC, 08/2015).
FitBit faces a clear brand crisis with larger companies entering the market and offering
similar products and features. With increasing competition in fitness tracking from multiple
competitors including the recent introduction of Apple Watch and Xiaomi’s Mi band, we
propose a shift from FitBit marketing simple fitness tracking devices to selling fitness itself—
through product features, strategic partnerships, and collaboration with health insurers and health
clubs, making the FitBit brand synonymous with a healthy lifestyle. We believe FitBit
exemplifies fitness (also emphasized in its recent IPO stock ticker—FIT). If we focus on selling
fitness, then we will be able to create a unified brand image to maintain our market position and
to diversify within the fitness domain into wearable technology.
Overall, FitBit’s key resources are valuable and rare, showing that they have a competitive
advantage at the moment. However, this advantage may not be sustainable. All of their key
resources are either imitable or substitutable, meaning that their position as a leader in the market
is at risk. FitBit is currently pursuing a differentiation strategy with a broad market focus, relying
on premium design and features to increase customers’ willingness to pay. In order to maintain
an advantage through this strategy, FitBit will need to hone their resources to ensure that they are
continuing to create value for the customer and offering new and differentiating features.

CONSUMERS
Company’s customers, both existing and potential, can be grouped into four segments, based on
the case study.
1. People that are concerned with their health and well-being. This group of customers is the
main target of FitBit that aims at improving people’s health and well-being. They are
 more loyal to FitBit brand comparing with others and are not ready to turn to other
brands.
2. People that try to keep up with fashion and be trendy. These people are more concerned
with the look of wristbands rather than their functions. By partnering with fashion
designers like Tory Burch to meet their expectations by offering chic wristbands made of
leather, metal or silicon.
3. People that love gadgets and new electronic devices. These are the customers that follow
the news about new electronic gadgets, pre-order devices that have not been yet released,
and are ready to pay premium fee for new devices.
4. Corporate clients. FitBit looks to enter B2B market by offering its products to companies
concerned with their employees’ health, while also decreasing expenditure on health
insurance.

SWOT ANALYSIS

Strengths Weaknesses
 Versatile application (can monitor  Plain design (need to continuously
calories, exercise, sleep blood match functionality with fashion)
pressure, heart rate)  Low credibility in health
 Broad device portfolio across different  Unestablished brand in health and
users and prices (flex, charge, charge fitness (compared to Nike and Under
HR, Surge) Armour)
 First mover advantage (Built brand  Basic wearable instead of smart
awareness ahead of would-be wearable with third party applications
competitors) (ex: Apple watch)
 Advanced analytics allowing social  Single profitable product line rather
network among users to compare, than platform of products
compete and motivate
 Corporate wellness partnerships e.g.
Target
 Established distribution networks
 Platform is compatible with a large
number of applications
Opportunities Threats
 Can expand corporate wellness market  New start-ups (low price alternatives)
 Technology can be applied in  Established brand names e.g. Apple
professional health monitoring entering the wearables market
(Cardiovascular conditions, weight  Low price alternatives entering the
problems, sleep problems) market (ex. Xiaomi)
 Sale of data (academic and industry
 research-insurance medical fitness)
 Opportunity to position themselves as
leaders in health and fitness through
self-monitoring

OBJECTIVES AND STRATEGY

Our objective is to help FitBit maintain its leader’s position in the wearables industry and
reclaim a portion of the market share that the company has lost to its competitors. FitBit has
cleverly divided its product line on the basis of price with the value fitness trackers labeled
“Everyday Fitness”, the moderately priced category labeled “Active Fitness” and the premium
category labeled “Performance Fitness”. Based on the analysis we know that our current target
market is primarily females 30-44 years old, individuals with above average income, tech-savvy
individuals, and people who want to get in shape in potential market. Therefore, our new
strategies are:
 Increase awareness of product and brand
 Remain a market leader
 Target new segment on women from 33-44 and men from 30-44
 Add new features on the product, i.e. camera, social network direct link, etc.
 Include more personalizing options to increase the FIT community awareness
 More color options for bands and customized options
In terms of distribution and promotion, we are going to continue the current positioning at
retailers and partners with gyms, fitness stores and corporate to:
 Provide employees with FitBits
 Train employees on benefits the product can bring for fitness

In the US, 9% of adults already own a fitness tracker and 11% of adults are likely to purchase a
wearable fitness tracker next year. Furthermore, an additional 9% of adults remain unsure,
signaling potential increased growth if we manage to convince the yet-undecided buyers to
purchase a device (Civic Science, 2015)
Since the release of its first fitness tracker in 2009, FitBit as seen explosive growth with $750
million in sales in 2014. Year-over-year growth from 2014 to 2015 is at 158.8% growth for
FitBit, with an overall fitness band market increase of 223.2% (IDC, 2015). Currently FitBit has
the largest share of the fitness band market at 24.5% followed by Apple (19.9%), Xiaomi
(17.1%), Garmin (3.9%), Samsung (3.3%) and others (31.5%) (IDC, 2015). The wearable market
is constantly evolving and currently the biggest threat is the expansion of the smartwatch market.
However, FitBit can remain competitive by targeting a niche market. Based on our analysis, the
most profitable segments to target are fitness enthusiasts as well as middle-class educated and
middle-aged women. We will adopt a multi-segment targeting focus.
 Based on the income statement from the last quarter of 2015, we notice a 12% increase in
net income. Also, revenue increased by 3.3x in the past year. Therefore, we project our 2016
revenue could be over 2.5-3 million by implementing our strategy. Also anticipated marketing
and advertising budget could be 2x higher than 2015’s number and could be near 0.3 million.
(See figure # 1)

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, fitness clubs, 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 if their product, FitBit
can further differentiate itself from the competition and sustain their competitive advantage in
the industry.
The forging of strategic partnerships with insurers and fitness clubs is a win-win for FitBit, these
private sector companies, and consumers themselves. It would allow FitBit to increase sales.
Insurers to incentivize beneficiary sign-ups and save money on health costs, gyms to increase
membership and encourage increases use of classes and purchase of apparel, and consumers to
save money and improve their fitness and health. An added benefit is the promotional capacity if
insurers and gyms, who will help roll out this new feature and build FitBit’s brand.
 REFERENCES

1. Civic Science (2015). Insight Report: Popularity and Potential of Wearable Fitness
Trackers. Accessed from <http://civicscience.com/ourinsights/insightreports/insight-
reportpopularityandpotentia lofwearablefitnesstrackers/)>

2. IDC (2015). Worldwide Quarterly Wearable Device Tracker Accessed from <h
ttp://www.idc.com/getdoc.jsp?containerId=prUS25872215>

3. IDC (2015). Worldwide Quarterly Wearable Device Tracker Accessed from <h
ttp://www.idc.com/getdoc.jsp?containerId=prUS25696715
 APPENDIX

FITBIT, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts) (unaudited)
Fig 1: FitBit Income statement, Sep 2015 (Partial)

2014 2015

Revenue $1,146,428 $375,249

Cost of Revenue $593,664 $188,486

Operating Expenses:
R&D $95,808 $35,842
Sales & Marketing $178,672 $ 42,123
General & Admin. $48,327 $ 23,909
Change in contingent consideration ($7704) 0
Total Operating Expenses $315,103 $101,874

Operating Income $237,661 $84,889