Monday, May 10, 2010

Sun Tzu - War On Business Part 5 (Ozone Gym)

Episode 5 of the Sun Tzu series brings us back to Beijing, China once again. This time we are introduced to a businessman by the name of Tomer Rothschild (“Tomer”), who has started up a chain of gyms called Ozone Gym around Beijing. It has been 7 years since Tomer set up the gyms and extended its branches around Beijing, but he is just barely surviving. James takes a visit to one of his gyms to see the facility, and also does some impromptu interviews with some gym goers around the area, and comes up with his conclusion on why the business cannot grow.

The main problem which James first notices is that China people like to do their exercise outdoors! This means that most of the Chinese will reject the idea of western style gyms as the climate and weather in China is generally conducive for outdoor exercise (generally cool and low humidity). This fact, coupled with Tomer not having a concrete marketing plan to draw in more crowds and advertise for Ozone Gym. James interviews Alejandro Angulo, one of the body combat instructors, who mentions that on a good month, there are about 100 joiners but on a bad month, as little as 30 people sign up. Considering there are 10 branches around Beijing, this translates to as little as 3 to 10 people per outlet per month. This is way below the optimal level required for operations to sustain themselves; James also brings in a venture capitalist and business expert called Cha Li, who commented that the gyms seemed to have lots of space but was simply lacking in crowds!

James went on to randomly interview some passers-by near Tomer’s gym, and one gym goer could not even recall the name of Tomer’s gym, displaying a lack of brand loyalty and non-existent brand awareness. Others simply did not even know a gym existed nearby, even though they had passed by the area umpteen times.

Armed with these facts, James and Cha Li met up with Tomer in the War Room and gave him advice on how to grow his business. James suggested initiating a marketing campaign (using traditional and guerrilla marketing) by tying up with a sports brand, in order to draw in the crowds and give membership a big boost. Tomer agreed to give it a try and roped in his experienced Management team to organize the campaign and get it going. Photo shoots were taken of models exercising, which were to be placed on the promotional banners and flyers to be given out. There were promotional items given out for referrals as well, a tactic which had worked well in the past (though its efficacy was limited by the lack of marketing support and planning prior to the current launch). Prizes would also be given out for new members (in a tie-up with Nike), and the marketing budget was to be kept at 5% of revenues (which is usually a standard).

In one ingenious move, Tomer’s team had also managed to liaise with the Beijing Subway Company to distribute brochures on the subway targeting the East Side of Beijing, which did not have any Ozone Gym outlets. Nancy Gao is the appointed manager in charge of launching the campaign, but had warned that there was a possibility the campaign will not take off due to the pending Lunar New Year holidays, when a lot of Beijing people were travelling to other parts of China for visitation. Tomer chose to ignore this advice and push on with the campaign, as he was afraid that the time lag would mean valuable time wasted in trying to recruit more members.

At the end of the one-month promotion, the result was that only 400 new members had signed up. Normally, this would be considered a resounding success; but James commented that Ozone Gym had 10 outlets, and assuming Tomer had spent considerable sums of money on this marketing campaign, it implies that the costs had far outweighed the benefits. James attributed it to bad timing and planning as Tomer had pushed ahead with the promotion in spite of being warned by his Chinese Management Team, and as a result of the bitter winter weather and the CNY period, had failed to attract more people than it should have. James concluded the episode on a sombre note, saying that Tomer did not win this battle.

Lessons to be picked up from this episode included:-

1) Survey your target segment’s lifestyle habits before plunging into a business – Apparently, Ozone Gym had been opened for nearly 7 years but membership numbers were still dismal. Tomer had neglected to understand the Chinese penchant for outdoor activities and exercising outdoors, or maybe he felt that habits would shift towards more “western” practises with the modernization of China. In reality many of the younger Chinese are indeed more westernised in terms of thinking, beliefs and behaviour; but this does not transcend all the way down to the way they do their exercise, as is evidenced by the slow and low take-up rate for Tomer’s Ozone Gym.

2) A good marketing plan is important – The lack of a vision and marketing plan seems to be a common theme for most of the Sun Tzu episodes thus far, and most of the time the CEO (boss) is clueless about expansion and how to go about it. In Tomer’s case, he wanted to expand but did not know how to go about creating a marketing plan to achieve his objectives. I guess James and Cha Li acted as a sort of catalyst to make him get going.

3) Moderate spending on capex if demand is low – This is something which I had observed of Ozone gyms, and that the scale of the gym is very large and has a lot of floor space with many pieces of equipment. Perhaps Tomer was emulating western style gyms which are generally spacious and have many different types of equipment, to provide a good assortment of training aids for those who wish to work out. But seeing that demand for his gyms was not high in the initial years, one wonders if he would have been better off down-scaling his gyms to smaller areas in order to save on rental costs and staff costs. He could have designed his gym to cater to niche customers instead, and this is linked to the previous point on not having a detailed marketing plan, thus he just carried on operating as usual without trying to reduce his costs.

4) Good advice should be taken – This point is simple and straightforward. If Tomer was aware that his Management team (which was composed of Chinese) knew the ground well and the habits and culture of the people, then he should have taken their advice seriously to delay the launch of the marketing campaign till after Chinese New Year. As a result of his insistence to push forward with the campaign despite objections from his team (who reluctantly acceded to his plan because he was the “boss”), it resulted in poor response and a lot of marketing dollars spent but wasted.

This is the first episode in this series I have seen in which James concludes that due to mis-timing, Tomer would not be successful. It would seem that not everyone which he advises in the War Room ends up executing their plans well, as evidenced by the way Tomer (mis)managed the marketing campaign.

Watch out for the summary and lessons learnt for the next episode six (6) on Witchmount Winery in Australia.

Note: Visit Ozone Gym’s website at

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