Custom workouts that inspire customer loyalty


Crossfit: Custom workouts that inspire customer loyalty
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I. CrossFit’s sudden emergence in the stagnant fitness market

The traditional gym industry is in decline due to its excessive investment fees, abnormal profit structure, etc.

  • The fitness industry is closely tied to equipment production businesses that promote the franchising and expansion of fitness clubs. They develop and supply increasingly complex, not to mention more expensive equipment.
  • Opening a standard fitness franchise requires a massive upfront investment ranging from $650,000 to $3.3 million, including equipment purchases, rent, and various franchise fees. Therefore, franchisees offer customers discount rates proportional to registration periods to encourage maximum long-term registrations.
  • Fitness clubs can enroll more new customers and reduce operational costs when long-term customers become less active. Many companies are actually profiting from customers who do not come to exercise after registering. This unsustainable operation spreads customer dissatisfaction and distrust across the industry while lowering their profits. As a result, this decline in profits leads to a vicious circle of higher discounts and continued low attendance.
  • Bally Total Fitness, California Fitness, and other large franchises as well as individually owned local fitness clubs continue to go bankrupt due to this unsustainable profit structure and loss of customers.

CrossFit was designed and founded by Greg Glassman, who focuses on the essentials of exercise and community building to improve customers’ fitness levels.

  • After a successful career as a gymnast, Greg Glassman became a personal trainer. Taking advantage of the fact that a gymnast can learn new sports faster than others, he began to experiment with types of training that make for fastest learning and retention.
  • He applied the importance of measurable, visible, and repeatable data—which he’d learned from growing up under his rocket scientist father—to the realm of fitness.
  • After researching how to raise the overall fitness level of the body (rather than training regiments specific to a particular sport), he created a workout that combines gymnastics movements and Olympic weightlifting programs.
  • For customers who want to train even while traveling, CrossFit offers free workouts on their website under the title, WOD (“Workout of the Day”). Glassman established CrossFit, Inc. in 2004 with his wife to efficiently manage the rapidly growing community.
  • At the request of customers, Glassman allowed affiliates (gyms or “boxes” that are officially affiliated with the CrossFit brand) to be opened at $500 per year as the CrossFit branding fee, significantly cheaper than industry franchises. To manage the quality of these new branches, Glassman started a trainer certification program.
  • Trainers who are fed up with the traditional fitness industry and no longer in need of large capital have begun to open their own affiliates. Once they earn their license, they can register for CrossFit branding rights and participate in various events hosted by the headquarters.

II. CrossFit’s growth as the most successful fitness franchise in history

Through an affiliate model that is entirely distinct from existing franchises, CrossFit offers a new business paradigm centered around customers and trainers.

  • The traditional franchise model, along with an ongoing fee (5% of the revenue), requires franchising fees between $10,000-$30,000. Store operation systems and manuals are strictly dictated by the head office, and the headquarters has access to all statistical information of the franchisee. Franchisees are usually granted exclusive rights to a particular region, and contract terms are often longer than 10 years.
  • CrossFit’s affiliate model only requires a fixed ongoing fee of $500-3,000 and a $1,000 training course fee. Unlike existing franchises, which control everything, Glassman is not involved in each box operation at all and sets no contract period.
  • Glassman had the thought that if the pie grew adequately big, then he could take a smaller cut of the profits.
  • Trainers, now free from interference from franchise headquarters and cost burdens, can focus on training essentials for customers' health. Glassman stresses that most of the profits must go to the trainers who actually change the lives of their customers. This philosophy creates a business model that grants box owners full decision-making rights with low investment costs.
  • The number of CrossFit boxes, beginning with 50 in 2004, has skyrocketed to 13,000 in 2018, making it the most successful franchise model in fitness history.

Through an exercise program that is done in collaboration with other customers, CrossFit has revived the sense of “community” that customers had forgotten.

  • CrossFit WOD is designed so that you can do workouts measurable on objective criteria together with fellow customers. These characteristics give customers a sense of fun and passion, recalling childhood memories of the playground or field.
  • New WODs, constantly provided by the headquarters, encourage its customers to consistently attend the box, and the process of learning with and competing against other customers has built up strong emotional ties. This in turn has led to an explosive growth of the community.
  • Each box’s unique features and CrossFit’s differentiated culture have met customer needs in ways that the generalized mechanics of the existing fitness industry could not, and the various events held in each affiliate by region are designed to inspire even more customer loyalty to each box and to CrossFit.

Glassman focused on the core of the business instead of the immediate profits.

  • CrossFit is an individually owned business where almost all decisions are made by Glassman himself. For a considerable period after its founding, CrossFit has been run by a small executive team meeting at someone’s house to exchange ideas, without an office or structured organization.
  • When the apparel profits increased rapidly with the growth of CrossFit in 2008, Glassman said, “I don't want to turn CrossFit into a clothing company that provides a fitness program”—aborting any franchise-wide clothing business while allowing each box to produce and sell apparel on their own if they wanted. CrossFit earns profit through annual fees from branch offices and seminars hosted by its headquarters.
  • Believing that maintaining brand value is the most important factor in success, Glassman hired a large legal team to prohibit the CrossFit brand to be used illegally or excessively commercialized.

III. The pros and cons of CrossFit

Glassman is attempting to expand the base of CrossFit with the CrossFit Games and continuing to work hard to expand the CrossFit community and improve fitness culture.

  • In 2007, Glassman extended the concept of competition inherent in CrossFit by inviting more than 70 players to a ranch in Northern California to host the first CrossFit Games. Two years later, their player selection went international, and the Games grew into a massive event attended by over 4,000 fans.
  • As the CrossFit Games’ scale grew bigger, Glassman signed a title sponsor contract with Reebok in 2011 and agreed to broadcast the competition on ESPN. Glassman continues to operate the Games as support for its affiliates, not as a new revenue source for CrossFit.
  • The 2018 CrossFit Open is expected to have about 500,000 participants, with 40 teams competing in the Games at 40 men and women each, qualifying from five weeks of the main competition and subsequent regional competitions.
  • CrossFit focuses on helping its customers attain healthy and happy lives, unlike traditional fitness businesses that sell exaggerated muscle development and outward beauty. CrossFit tries to transform the lives of its customers holistically by also emphasizing non-exercise aspects of their lives, including healthy eating habits (e.g., Paleo diets) and a positive mindset.

That said, criticisms of CrossFit are also gradually increasing.

  • CrossFit’s exercise programs, summarized as “high intensity power training,” require capable and experienced trainers for the sake of safety. But there have been consistent criticism that CrossFit’s certification process does not adequately assess trainers’ capability and experience.
  • Additionally, CrossFit has been accused of exposing the public to dangers of excessive injury by encouraging beginners without adequate training to follow professional workouts performed by trained athletes.
  • CrossFit is being increasingly blamed for exertional rhabdomyolysis, which causes muscles to melt due to sudden intense exercise, as well as acute kidney failure. CrossFit responded by saying that rhabdomyolysis is a disease that can occur during sudden intense exercise, and that CrossFit’s risk of the disease is similar to that of doing a triathlon or any other high-intensity exercise.
  • CrossFit’s immature responses to various social issues and criticisms from the fitness industry also add to the controversy.

IV. Implications

There are three lessons we can learn from CrossFit:

Lesson #1: With a new perspective, you can create a successful business even in a red ocean market.

  • The fitness industry was a red ocean, suffering from high investment costs, increased competition among businesses, and decreased profitability. CrossFit introduced new workout methods and culture, not only inspiring explosive interest from customers but also allowing trainers to open up their own affiliates by lowering the investment cost of fitness facilities.
  • CrossFit focuses on building the CrossFit ecosystem without following the typical franchise formula. By giving the franchisee full control over the box opening, operations, and revenue, CrossFit headquarters can focus on brand management and trainer training to increase the overall profits.

Lesson #2: For the success of a business, it is important to focus on the essentials.

  • The traditional fitness industry focused on external aspects such as expansion and expensive equipment, neglecting the basis of both business and the fitness industry: customers and training.
  • CrossFit focuses on the essentials: raising customers’ fitness levels and inspiring healthy and happy lives. As for anything that could threaten the core of the business (e.g., additional profits in apparel, broadcasting, or franchising), CrossFit has delegated them to other branches within the CrossFit ecosystem or boldly given up on them.
  • CrossFit’s brand management and trainer quality, alongside affiliate owners’ focus on customers and training, has created a virtuous circle that increases the overall profits. This symbiotic relationship has helped ensure a healthy and highly profitable business.

Lesson #3: Companies must change according to the growth of the business.

  • Glassman is a CEO who has developed CrossFit into a culture and a global enterprise with his clear vision and strong charisma. Though the impact of his vision and strong leadership on CrossFit’s growth cannot be denied, there is doubt about whether the current decision structure focused on one leader and limited personnel can guarantee future growth.
  • Just as its partnership with Reebok and ESPN has taken CrossFit to the next level, Glassman needs to consider whether it is time to attract new investment and hire more employees to expand the company’s possibilities.
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