Pricing Strategies in the German Discounter Fitness Industry. The Prisoners' Dilemma (PDF)

Bachelor Thesis from the year 2018 in the subject Business economics - Business Management, Corporate Governance, grade: 1,0, EBS European Business School gGmbH, language: English, abstract: This paper deals with the question whether the framework of the prisoners' dilemma applies to the context of pricing in the German discounter fitness industry. It addresses the issue of the prisoners' dilemma and possible solutions. Furthermore, the author assesses the German discounter industry as well as current trends within the industry. The concept of the prisoners' dilemma is applied to the German discounter fitness industry to demonstrate that the pricing strategies of McFit and FitX, Germanies leading players in the discounter fitness segment, can be modelled using the game-theoretical approach. Lastly, a possible solution can be explained by the repetitive nature of the "game".

The fitness industry in Germany developed remarkably in the last one and a half decades. Between 2003 and 2017, the number of active members rose from 4.38 million to 10.61 million making it the most popular sport in Germany concerning members. The main reason for the enormous increase in members is the rising health awareness among the German population. Society further agrees that becoming active and working out has a positive impact on well-being, health, and mobility especially for older adults.

Increasing demand fosters rivalry within the industry as all competing firms want to benefit from the high demand and bind potential customers to long-term contracts. The high interest on the consumer side can result in price wars as the rewards immediately gained from cutting the price are high. Even though price cutting may be beneficial in the short run, the long-run consequences of price wars are decreasing profits within the industry.

The fight on prices seems especially present in the discounter chain segment as gyms are homogenous, and differentiation amongst the competitors in this segment is somewhat limited. Thus, competing on price could be the instrument chosen by firms engaging in the discounter fitness sector to attract new members, increase market share, and raise short-term income while simultaneously putting long-term profitability at risk.