Winners / Selection Rationale

The training gym market in Japan has been growing steadily since 2012(*1). This market, valued at 461 billion yen (about US$4 billion) in 2017, increased by 2.9% from the previous year. The leisure market includes sports, hobbies and crafting activities, and entertainment, as well as sightseeing and excursions, according to a survey by the Japan Productivity Center. The sightseeing and excursion market during the same year rose 8% from four years earlier, due to growth in the number of international tourists visiting Japan. In contrast, hobbies and crafting activities decreased 6.8%, while entertainment fell 5.9% in the same period. The sports market grew 4%. Within the sports category, the training gym market increased 8.7%. The training gym market accounted for 11.3% of the sports market.

Industry observers attribute the growth of the training gym market to: (1) heightened awareness regarding extended healthy life-spans and the attendant risks that go along with longer life-spans, against the backdrop of an aging society; and (2) the growing number of Japanese people who are becoming more health conscious. Many Japanese companies are now also stressing the importance of health management to their employees. Simultaneously, with many new services being introduced, the selection of available services is becoming increasingly diversified. Services being offered include a performance-based reward system, 24-hour self-service gyms, small "women-only" studios, darkened room gyms, hot yoga studios, stretching-only workouts, and programs to prevent "locomotive syndrome" (i.e., reduced mobility) in seniors.

(*1) Japan Productivity Center, Leisure White Paper 2018. July 2018

RIZAP, Inc.'s Body Making Business operates 120 training gyms, and hires 800 personal trainers. The company's service is unique because results can be achieved in a short time by maintaining a strict focus on the customer's fitness goals, and the staff is fully dedicated to helping customers attain their desired results.

The target customers are individuals who want to lose weight, transform their bodies, become healthier, and maintain the good results that they have achieved. In the early days, the majority of customers were women in their twenties and thirties who had a strong desire to lose weight. Then, men in their thirties and forties started enrolling in the RIZAP program. Now, RIZAP customers represent all age

Under the RIZAP program, a designated personal trainer will be with the customer every step of the way for the duration of the program. In the first counseling session, the customer and trainer together set the fitness goals to be achieved within the first two months. Customers visit the training studio twice a week for a workout session. In addition to the physical workouts, trainers also undertake rigorous monitoring of their customers' dietary intake for every single meal, and provide nutrition advice. Customers are asked to report all meals and any snacks they eat. They must also report their body weight daily, via a smartphone application, "RIZAP touch." The trainer responds, giving advice and emotional support. The trainer's aim is to help customers modify their behavior, both in the studio and in their daily lives. The company provides customized exercise program and dietary advice that will differ from person to person, depending on the individual's age and lifestyle. In addition to the trainer, there are counselors who work with customers and provide support to help them make it through the plateaus. Dietitians are available to answer questions from customers 365 days a year. RIZAP's total number of customers has surpassed 120,000 (on a cumulative basis). It can be said that customers today are not as committed to losing weight as customers were in the company's early days. With the proper encouragement and support, even such customers can attain their fitness goals. If a customer stops coming to the gym, the trainer will stay in constant contact, via smartphone messaging and occasional phone calls. Such services help customers maintain their commitment to the RIZAP program, and make sure customers will not loss their motivation and give up part way through. This solid customer support system, coupled with an exercise program that has been developed based on empirical evidence and dietary advice increases the probability that customers will attain their fitness goals. The customer success rate for the RIZAP program is high.

When committing to a specific desired result, it is important to set realistic fitness goals, and it should be the right goal for the customer's body type. RIZAP encourages trainers, when they first start counseling new customers, to identify not only each individual's latent needs, but also any aspirations that have gone unvocalized. Trainers suggest to customers fitness goals that can realistically achieved, taking into account the accumulated data of all other RIZAP customers in the company's database. The company has developed an algorithm for prognosticating weight-loss results based on the data of 120,000 customers who have taken part in the program, and use this data to determine a range of probabilistically feasible results. RIZAP uses this algorithm to provide individualized prognostications regarding realistic body weight and body fat goals. The RIZAP Method helps customers to envision the transformation they are likely to achieve in the near future, and set suitable fitness goals. Trainers are instructed not to set targets too low (making them too easy to achieve), but rather to set reasonable targets (ones that customers would likely consider to be "high" targets).

The value RIZAP provides is primarily a healthier body, but also, more importantly, psychological changes, which include the self-confidence that comes from achieving a goal, and behavioral changes.

RIZAP sets the price of its program higher than the industry average. The enrollment fee is 50,000 yen (about US$440), and the fee for the two-month program is 298,000 yen (about US$2,600). This includes 16 one-hour training sessions with a designated personal trainer at the training studio, daily feedback regarding meals and dieting, advice via a smartphone message service, and unlimited access to the studio for self-training. Although this fee is all-inclusive, it is very expensive, considering that the hourly fee charged by personal trainers in the industry is 5,000 yen (about US$44.00). (Private brand products, such as supplements and low-carbohydrate diet food products sold at RIZAP, are as expensive as products by well-established brands.) Although the company offers the option to pay in installments, customers are asked to pay upfront for the two-month program. (*2) This requirement forces customers to make a two-month commitment. Such a high price can be set because the company is fully committed to producing results. To prove its commitment, RIZAP offers a money-back policy. The company offers a 30-day money-back guarantee if a customer decides to quit within thirty days, regardless of the reason. Reasons might include changing the location of one's residence or becoming busier at work.

The company's long-term program, called "the Body Management Program," is available to those customers who have completed the two-month program. The goal of this program is to establish proper daily habits to transform the body so it will not rebound. Customers are asked to make a one-year commitment for a monthly fee of 29,800 yen (about US$260). With the help of a trainer, customers set fitness goals for one month, one year, and three years. Customers who fail to reach their initial target can extend the service with the same trainer for two more months at no charge. (This is known as "Rebound Insurance.")

Average sales per customer in 2017 was 900,000 yen (about US$7,900), indicating that a significant number of customers purchased additional services beyond the first two months. As an example, customers who weigh 100 kilograms (220 pounds) and want to reduce their weight to 60 kg (132 lbs) would need about a year and 1.5 million yen (about US$13,000), according to the company. In 2017, 5% of customers got their money back or used "rebound insurance."

(*2) RIZAP offers an installment payment option, which 40 % of customers used in 2017.

The value chain of RIZAP, Inc.'s Body Making Business is unique in terms of its R&D and its approach to human resources management.

Procurement
The supplements and low-carbohydrate diet food products sold by RIZAP are developed and manufactured by one of the subsidiaries of the RIZAP Group, Kenkou Corporation.

Research and Development
RIZAP's training methods have been developed in collaboration with doctors, researchers and dietitians. The results of this collaboration have been compiled in the company's Trainers' Manual. This manual has gained the support of the Japan Trainer Association. RIZAP's training methods have been improved over time, so that customers can attain their goals more efficiently and in a safe way, taking into account each customer's age, gender and physical condition. The company maintains a database comprised of the digital records of 120,000 customers. The records document the physical transformation of RIZAP customers for the duration of their participation in the program. The company leveraged this data in developing the "RIZAP Navigator," which prognosticates changes in body weight and body fat for each customer. The company has been undertaking tests jointly with researchers at universities and hospitals to prove the effectiveness of the RIZAP Method, and the results have been published.

The company has developed communication tools for helping trainers to stay in touch with customers outside of the training studio. Such tools include the "RIZAP touch" smartphone application, which features a message service, allowing customers to: (1) post updates regarding their daily meals; and (2) ask questions and get advice from trainers and specialists.

The company has arranged alliances with 170 medical institutions, and all of RIZAP's 125 training studios in Japan have partnered with hospitals and clinics in the neighborhood. At the time of enrollment, if any health-related concerns are identified, the company will introduce the prospective customer to a partner medical institution, which will conduct a medical checkup, make recommendations, and give advice regarding whether the RIZAP Method is suitable for that individual. Trainers can ask doctors for advice if questions arise while they are providing support to their customers.

Individual coaching by designated personal trainers
RIZAP's trainers provide customers with an exercise program and a diet that has been geared to the individual. Workouts with the trainer are twice a week. Therefore, the success of the program will depend on how customers use their time outside the gym. It matters what they eat and what they do. Trainers can extend support to customers on a daily basis via the smartphone. Customers can use their smartphones to post daily detailed information about their meals and snacks. Trainers evaluate their food choices using a five-point scale, and send some comments. Customers must record their body weight on a daily basis, and they can get advice from dietitians and counselors.

Marketing
RIZAP has raised brand awareness for its Body Making Business by aggressively investing in TV advertisements and posters in major train and subway stations. The level of recognition for the RIZAP brand in the Kanto area (which includes the greater Tokyo metropolitan area) has reached 74%.

New customers introduced by existing customers will receive a 50,000 yen (about US$440) coupon. (This, in practice, is the waiver of the 50,000 yen enrollment fee.) Partner medical institutions will introduce patients who need to shed body weight to reduce the burden on their knees and those patients with lifestyle-related diseases.

After-sales services
Regardless of the reason, if a customer is not happy with the service, RIZAP will return in full the money received from the customer if the request is made within the first thirty days. Once customers have completed the two-month program, they can choose whether to go on and enroll in the gentler "Body Management Program." This follow-up program, which focuses on the maintenance of one's fit body, involves less frequently supervised training sessions at the studio. Body Management Program, customers can receive free additional service for two months is not satisfied. (This is what is known as "rebound insurance.")

Studio development
All RIZAP studios are under the company's direct management. Undertaking direct management of gym operations allows the company to dispatch trainers to different studios, responding flexibly to changes in demand among gyms. RIZAP gyms are not equipped with swimming pools, saunas, or any other large-scale equipment. As a result, RIZAP can take advantage of a much wider selection of locations when looking for a new site. Also, all customers are members--individuals who visit the studio for a specific purpose. Therefore, the studios do not have to be located at street level or at highly visible locations (such as streets with high foot traffic). The studios can be located in the basement, or even on the second or third floor of a building, which reduces the rent significantly.

When RIZAP opens a new studio in a new area, it can estimate the market size after seeing the kind of response the company's advertising gets. RIZAP can minimize risk by starting out with a small studio, and then gradually increasing the size of its studio to a larger one (large studios usually have ten trainers). All RIZAP studios are equipped with private booths.

Human resources management
RIZAP hires all its trainers as full-time employees. When the company recruits, it does not require that applicants have experience in the industry. The company attracts many applications. In 2017, only 3.2% of total applicants were hired. Those who are newly hired must undergo 192 hours of rigid training at the RIZAP Academy. The curriculum includes personal training fundamentals (specifically, the knowledge and skills that a personal trainer requires), physiology, nutrition, training psychology, and the business of personal training. Upon completion, only those participants who pass a very demanding examination will be assigned to a RIZAP training studio.

After being assigned to a studio, trainers are required to participate in periodic training programs. Also, personal trainers have the option of learning through an E-learning system. Anyone who wants to become a studio manager or a supervisor must get certified through the company's in-house certification system. Individuals who wish to advance their career path as a trainer can become a coaching trainer. The company also offers in-house certification for coaching trainers.

Trainers are evaluated by their ability to provide customers with a high level of attentiveness and support. Specifically, trainers are evaluated according to: (1) the number of times a customer had used the studio within the contracted period; (2) how frequently the trainer communicated with the customer via the "RIZAP touch" app (i.e., providing comments about dietary intake after grading the customer on a five-point scale); and (3) the degree to which the customer had achieved the agreed-upon fitness goals.

The attrition rate of trainers is in the single digits. This is relatively low, considering the fluidity of the job market for personal trainers. This includes those new trainers who quit before completing the 192-hour training program. Hence, the attrition rate of the trainers working at the studios are even lower.

RIZAP, Inc.'s Body Making Business made three core strategic choices: (1) Deliver highly attentive customer support, and make this support always available to customers; (2) Demonstrate that RIZAP's brand equity is its commitment to results (or, in other words, its commitment to the customer's success); and (3) Educate personal trainers, and assess their performance. (The effective development of personal trainers is what enables the other two strategic choices.)

RIZAP's Body Making Business is able to provide highly attentive customer support, and make its services always available to its customers because of: (1) a proprietary approach to "body sculpting" (called the "RIZAP Method"), which is backed by scientific evidence; and (2) the development of personalized training menus using the "RIZAP Navigator," a database that contains the actual data of all RIZAP's customers to date. In addition, the company's dedicated personal trainers can provide customers support and exert a positive influence on their actions in their daily lives through the use of the "RIZAP touch" smartphone application.

RIZAP's brand equity (i.e., the confidence to commit to results) is supported by: (1) the trust that the RIZAP Method has earned through supervision by specialists and joint research with universities and hospitals; (2) reliable services that do not depend on the skills of an individual trainer; (3) a full refund policy (the "money-back policy") and rebound insurance; and (4) aggressive marketing that demonstrates the results that have been attained through the successful completion of RIZAP's program.

Finally, the company uses a proprietary curriculum to educate personal trainers at the RIZAP Academy, and employs a performance evaluation system that makes "attentiveness to customers" the top priority. These two factors make possible the provision of highly attentive customer support, and are also the reason why the company can commit to results. (Please refer to the activity system map of RIZAP, Inc.'s Body Making Business, appearing at the end of this report.)

• Has selected as its value proposition "the commitment to results" (specifically, the customer's fitness goals) for its Body Making services, despite large differences in customers' body types. Moreover, the company has developed methods for consistently and successfully producing results. These methods tend to eliminate differences in the performances of individual personal trainers.
• Has developed in-house a large variety of training techniques for body sculpting. Goals include weight loss, weight gain (muscle building), and leg shaping. The system was developed based on scientific evidence for different body types, under the supervision of a team of specialists (including doctors, dietitians, sports science experts, and psychologists).
• Has developed a proprietary prognostication system, backed by the cumulative data of the 120,000 customers who have experienced the RIZAP Method. By entering customer's information, such as body type and lifestyle, the program will simulate changes in body weight and body fat; predict when a plateau will occur; and estimate how long it will last.
• Has developed methods for influencing a customer's dietary intake and other daily habits utilizing the "RIZAP touch" smartphone application. This app enables trainers to communicate with customers when they are outside of the studio. Trainers provide advice regarding daily intake (meals and snacks), nutrition, and physical activity in daily life.
• Has created a curriculum that develops personal trainers who share the corporate philosophy of "being absolutely committed to the customer's success," and understand the value of "self-transformation" from the customer's perspective. The program also equips trainers with an extensive repertoire of body-sculpting techniques.
• Has introduced a money-back guarantee and rebound insurance for the RIZAP Body Management Program.

• Does not require personal trainer experience when recruiting new trainers. RIZAP believes that the most important trait for trainers is the ability to commit to a customer's fitness goals, and the willingness to be available to customers and provide highly attentive customer support.
• Does not assign multiple trainers to one customer. The assignment of a dedicated personal trainer to each individual customer makes appointment scheduling less flexible and limits the number of customers that can be served under this system. Regardless, the company believes that only a dedicated personal trainer will be able to provide highly attentive customer support and be with that customer every step of the way for the duration of the program.
• Does not compete on price.
• Does not allow customers to become inactive members.
• Does not have large facilities such as swimming pools or saunas in RIZAP training studios.

RIZAP opened its first training studio in February 2012, in one of the busiest areas in downtown Tokyo. Since the very beginning, RIZAP has been training customers using its own proprietary body-sculpting method, which was developed in collaboration with specialists from various fields. Personal trainers fully commit themselves to the attainment of the fitness targets that the customer has selected. They demonstrate their commitment by remaining in contact with customers even during the hours spent outside the studio. For example, trainers provide rigorous monitoring of the customers' diet and provide feedback. The practice of assigning a dedicated personal trainer to each individual customer--the core of its strategic choices--has remained unchanged since the company launched its business.

Before opening its first gym in 2012, RIZAP had created a proprietary fitness regimen that enabled participants to lose weight in a short time. This program was developed in collaboration with psychologists, kinesiologists, physiologists, and dietitians. The company developed personal trainers who were able commit themselves to the attainment of the fitness goals selected by the customers. These trainers would be with their customers every step of the way, to keep up their motivation and help them achieve their fitness goals. The company's prices have remained unchanged since the beginning. RIZAP charges an enrollment fee of 50,000 yen (about US$440), and 298,000 yen (about US$2,600) for a two-month program. The company has also offered a money-back guarantee from the beginning. In 2013, RIZAP ranked No. 1 in customer satisfaction in the personal training market; No. 1 in popularity in the private gym market; and No. 1 in sales in the private gym market, according to a survey conducted by Neo Marketing, Inc.

In January 2015, the company established the RIZAP Academy, to produce a larger number of trainers who can follow the RIZAP Method. Trainers that complete this program are sent to the company's new training studios.

In July 2017, the company introduced its Body Management Program for customers who had achieved their initial fitness goals, to help them maintain the fit body that they had achieved. Under the Body Management Program, the company offers training sessions twice a month, conducted by a designated personal trainer at a RIZAP studio. The personal trainer also offers continuous support via smartphone for 29,800 yen (about US$260) per month.

RIZAP entered the BtoB market segment (i.e., employee welfare programs for private corporations) in 2016. The company then teamed up with local governments to provide health management programs in 2017. To corporate clients, the company sends a trainer eight times in three months to provide lectures and lead workout sessions for company employees. In this setting, a trainer can coach a lot of customers. This is different from RIZAP studios, where customers receive one-to-one instruction. For everyday coaching, the trainer supports group leaders, who, in turn, support group members by undertaking continuous monitoring to promote behavioral modifications. In March 2017, RIZAP launched a pilot program for the local government of Makinohara City, in Shizuoka Prefecture, with 23 senior citizens participating. The program effectively reduced the participants' physical age and body weight (without reducing muscle, but shedding body fat). (*3) In August 2017, the company announced the "RIZAP Declaration to Bring Health and Fitness to 10 Million People." The aim of this project was to have 10 million people experience the RIZAP Method by 2020. For three months, from January to March 2018, RIZAP worked with the senior citizens of Ina City, in Nagano Prefecture. The company provided exercise and dietary advice to 46 senior citizens, following the RIZAP Method. Out of 46 participants, 36 measured their physical fitness age, and 35 had reduced their physical fitness age by more than 10 years. As part of this initiative, RIZAP introduced a payment system based on a contingency scheme, with the company being compensated for the actual results achieved. The company was compensated for the total of: (1) 50,000 yen (about US$440) per person for participants who saw their physical fitness age go down by 10 years or more; or (2) 50% of the gap between the reduction in medical costs for participants and (1) above. To improve the payment scheme, the company is studying the RIZAP program's contribution to the participants' reduced medical costs, and the timing when the program's impact on medical costs appears.

(*3) RIZAP, Inc. Press Release, November 8, 2017.
https://www.sse.or.jp/wp-content/uploads/2017/11/rizap171108-1.pdf,
Accessed on November 1, 2018

RIZAP, Inc.'s Body Making Business had five-year averages for return on invested capital (ROIC) and return on sales (ROS) that exceeded the industry average by a wide margin. (Profitability analysis was conducted by PwC Japan.)

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