Fitbit was able to gain a competitive advantage over other wearables due to its __________.

Executive Summary

Fitbit is a 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 increase 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 relatively 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.

We used a variety of tools to conduct our analysis of Fitbit, which led us to the recommendations in this report. We primarily focused on their growth within the general U.S. fitness tracker market in our report, although some data report on a global scale. This analysis included a financial overview of the firm, an external analysis using Porter’s Five Forces, and an internal resources analysis using the VRIS Framework. This analysis lead us to the conclusion that Fitbit is currently in a strong market position, but its competitive advantages are not sustainable. They will need to leverage their strengths and resources to appeal to new markets or find ways to further differentiate their product.

Based on these conclusions we 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.

Financial Summary

Fitbit has grown significantly from 2011 through 2015. The company achieved triple digit revenue growth versus the prior year in each of the last 5 years, most recently showing a 149% revenue growth in 2015 vs. 2014. This growth is even more significant when compared to other industry players like Garmin and Jawbone. Garmin suffered a 2% revenue decline in 2015 and also reported declines in 2013 and 2012. Jawbone, although not public, reportedly was having problems paying off its debt in 2015, suggesting that it was not profitable (Lashinsky, 2015). This disparity between Fitbit and its competitors indicates that Fitbit was able to effectively compete for market share at the expense of others in the industry. Fitbit’s success in 2015 was correlated with key business decisions including partnering with brands like Sketchers and Strava, product upgrades that included multisport tracking and heart rate capabilities, and enhanced features of the Fitbit app. (2015 Fitbit Press Releases).

However, since Fitbit’s last reported results in 2015, its stock price has fallen significantly from a high of $51.64 in August 2015 to a low of $5.96 in February 2017. Analysts attribute this decline to concerns about smartwatch competition (Saintvilus, 2017). A recent stock decline is also attributable to news that Q3 2016 earnings fell behind forecast, causing Fitbit to adjust expectations for the remainder of the year. (Vielma, 2016). This suggests that Fitbit is reaching a limit on potential growth from its current strategy. 

External Industry Analysis: Porter’s Five Forces

Rivalry among existing competitors- High: Fitbit was able to gain a first mover advantage, but competitors quickly entered the space. Fitbit positions itself as a premium brand, although their products are ultimately similar to other competitors. Other brands lead with slightly different attributes, i.e- fashion, cost, which helps prevent price wars. However, the fitness tracking market is reaching a saturation point. The vast number of similar competitors in the market creates fragmentation, where it’s difficult for any one company to move the industry in a particular direction. Companies that cannot find innovative ways to differentiate themselves will ultimately fail.

Potential entrants/threat of entry- Moderate: Barriers to entry are low but Fitbit’s current market position is strong. Fitbit has built a well-known brand name along with a foothold of about 25% of sales in the global marketplace (McNews, 2016). They also have established some switching costs through their social sharing and external application integrations. However, the fitness tracker industry is open to just about any company with access to tracking technology or software. This is further enhanced by the lack of proprietary technology on fitness tracker devices. As a result, new lower-cost entrants force Fitbit to adjust their pricing structure to remain competitive. This industry is projected to be worth $5B by 2019, with the general wearable technology industry at $34B by 2020 (Lamkin, 2015). These numbers have enticed recent apparel entrants like Kate Spade and Michael Kors, a signal of the diversity of new entrants.

Power of buyers- High: Buyers can choose from a variety of fitness tracker brands and products that range from $34 to $850+ (Stables, 2017). The explosion of new competitors has allowed consumers to demand more from their fitness tracker at a reasonable cost. This has helped drive innovation and diversification within the category as Fitbit continues to prove to consumers why they are the leading brand. Fitbit cannot rest on providing a quality step tracker, and has since introduced new features like text messaging, in-app workouts, and fashion accessories to keep their buyers engaged.

Power of suppliers- Low: Fitbit outsources their manufacturing to Chinese companies and buys in bulk quantities. Fitbit uses different vendors in China for each product and can easily switch between suppliers. Thus, suppliers do not have much control or power over Fitbit. All the designs are Intellectual Property of Fitbit hence it is difficult for the manufacturers to imitate products. The manufacturing vendors do not have any power to forward integrate the process as the software is embedded into the device by Fitbit company employees. Fitbit also has many alternative vendors available that are ready to manufacture devices (Global Sources, 2017).

Threat of substitutes- High: In addition to other fitness tracking devices, users have the option to use smart-watches and smart-phones to track steps and health data. The threat of viable substitutes has further increased with smartwatch companies enhancing the fitness tracker capabilities of their products. Apple’s Series 2 watch includes a partnership with Nike which directly targets fitness enthusiasts with a comfortable watch band, GPS, and enhanced running features (Bradly, 2016). This is a departure from the Apple Series 1 watch which suggests that Apple is positioning itself to compete as a viable substitute to the fitness tracker industry. Fitbit and Apple are both seen as premium brands and therefore may be competing head-to-head for customers. 

Assessment of industry attractiveness: Because of high rivalry, high buyer power, and high threat of substitutes, the fitness tracker device industry makes it challenging to succeed and maintain a competitive advantage. To change the dynamics of the industry, Fitbit should focus on either expanding the total potential market share, or offering new and unique features, beyond what is currently offered by competitors or substitutes. 

Internal Analysis and VRIS Framework

Fitbit has a variety of resources and competencies at its disposal that it can leverage to achieve a sustainable competitive advantage. An analysis of its top three key resources are as follows:

Hardware & Software Technology: Fitbit designs both hardware and software technologies for their products. The software platform helps track consumer data and allows consumers to use it in a meaningful way. Softwares such as Bluetooth low energy, PurePulse continuous heart rate tracking and Fitbit’s algorithms brought new and innovative technologies to the market, while the sleek designs and wireless syncing appeal to consumers. This technology is valuable because it allowed Fitbit to exploit the opportunity to create a stronghold in a relatively new industry. However, competitors are catching up and this technology is no longer rare. Other products on the market possess technology that is of very similar quality, showing that this is not a costly resource to imitate. Furthermore, many substitutes exist including non-fitness specific wearables, smart phone apps, or using nothing at all. 

Platform Openness/Open API: Fitbit’s commitment to an open API (Applications Program Interface) has more breadth than most of its competitors. Open API provides third party developers’ programmatic access to create health and fitness apps to interact with the Fitbit platform. There are dozens of integrations with apps like MyFitnessPal, MapMyRun, and Weight Watchers. This creates value by allowing Fitbit to neutralize threats of competition because their product is seamlessly linked with platforms that customers want to use. It also encourages innovation which allows Fitbit to identify and take advantage of opportunities. Although open API is evident in other fitness tracking wearables, Fitbit’s established ecosystem includes a large user base and thousands of third party apps, making this platform rare. Furthermore, it would be costly to imitate on the same scale. A substitute for this capability is a private API platform, where development is kept in-house, although this would limit innovation and the potential for platform integration.

The FitBit Brand: The Fitbit name has become synonymous with the fitness tracking market, making it a valuable resource that helps the company neutralize the threat of new entrants. Due to its first mover advantage, the company is a leading brand for fitness tracking wearables. The Fitbit brand instills pride in its users and is known for being high quality. Even with the rollout of the Apple Watch, Fitbit still maintains 25% global market share and is the largest player in the fitness tracking industry (McNew, 2016). The brand has become a household name that would be difficult and costly to imitate. However, the brand is substitutable. Other premium brands like Apple, and new entrant Kate Spade offer the same prestigious feel.

VRIS Analysis

Competitive Position in the Market

Overall, Fitbit’s key resources are valuable and rare, showing that they have a competitive advantage at the moment. However, this advantage many 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. 

Available Strategic Options

Option 1 - International Expansion: Fitbit saw promising returns in its expansion overseas with sales doubling in Asia-Pacific, Europe, the Middle East, and Africa markets while U.S. sales increased 33% (Pressman, 2016). A future strategy could include increasing the company's marketing push outside of the U.S. where there is market growth potential. A key advantage to this option is that it would increase the total potential market share for the industry, which could reduce rivalry among competitors and make the industry more attractive. However, differences in culture and living standards could be a disadvantage for Fitbit, as their price premium model may not be as successful in other countries.

Option 2 - Increased Focus on Health and Wellness Solutions: This strategy would include a full integration into a digital platform to help patients with certain medical conditions to better manage their daily activity and overall care. Data tracking could be expanded to include glucose monitoring, blood sugar, heart monitoring, daily medication alerts, and providing meaningful information that is linked to users’ healthcare providers. A key advantage of this option is that it serves as a differentiator by offering something completely new to the fitness tracking space. A disadvantage is that it is costly and requires significant investment in R&D. 

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, 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 of their product, Fitbit can further differentiate itself from the competition and sustain their competitive advantage in the industry. 

This article was a part of group research. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any company/agency. Examples of analysis performed within this article are only examples. They should not be utilized in real-world analytic products as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of any entity.

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