Wednesday

The Race to The Bottom

Have you noticed how many club locations are adjusting their pricing due to competition? You’ve probably thought to yourself … “Wait a minute - maybe that’s something I should be doing?” or “Will lowering my prices affect my whole business formula?”

Prior to making any move toward adjusting your pricing, it’s important to understand the history, purpose, and pros and cons when making such a move.

We have worked with fitness clubs and health centers across the United States and, believe us, you are not the only person asking these questions.

The strategy of lower pricing is not a new one. It was popular in earlier years of the fitness industry when “cash was king” and club owners were trying to generate as many cash sales as possible. The old adage was - the first day of business was no different from the next. But then came the computer age, and the cash concept was all but forgotten because the consumer only seemed to be concerned with what their monthly obligation was. The low price model only works today because of the electronic funds transfer payment method. The original lower pricing model had nothing to do with service; it was all about the price and average cost per month.

Just because Walmart or the local Toyota dealership says they are having a sale doesn’t mean that there are deals to be realized. How many times have you had a friend or relative tell you what they paid for a new car? I bet not too often. They seem to focus on what their monthly payments are. This is the new way of thinking and it’s here to stay no matter what your dues cost.

Does lower pricing work? Of course it does; however, what are the benefits of making such a move? The benefits of lower pricing are obvious. With increased enrollments comes increased monthly dues. The only catch here is that you may need to enroll three times as many new members as you did in the past to make the low price formula work. The old adage “a busy club is a healthy club” is true. But with the success of attracting new enrollments comes several concerns that must be considered. Lower pricing means more enrollments. More enrollments mean more traffic. More traffic means crowded conditions. Crowded conditions mean more wear-and-tear on the equipment and the facility. With this wear and tear come high maintenance costs. In addition, more enrollments impact your parking lot.

In today’s economy, the consumer is more concerned about price (not necessarily the lowest price), and they are demanding better service than ever before. Clubs with, or converting to, the lower pricing model should be aware of effects both positive and negative that go along with this type of pricing structure.

If you believe in the quality of your club and its services, then do yourself a favor and don’t sell your club short by pricing the memberships too low. Remember, perception is key.  Changing to the lower price model may suggest to your members and guests that your club is hurting financially, and the only thing you care about is the new enrollment. So, be very careful when making the move to the low price model and really think things through before taking the leap.  

You can create a lower pricing model in many ways, but keep in mind that it has to be done without affecting your current members. You don’t want your members asking questions or starting to look for another club. There is a solution; make lower pricing short term and place reasonable restrictions on the membership offered. For example, let’s say your normal dues average around thirty-nine dollars ($39.00) per month, and you want to attract more guests to your facility by advertising nine dollars ($9.00) per month. Not a bad idea, right? Just place a few conditions on the membership offered, i.e., make the term 1 month, have time restrictions, etc. By doing this, your current members will also be content.

An idea other than lowering your membership rates to attract new members would be to make your club different and set yourself apart from your competitors by offering unique equipment and ancillary services that no one else in your market place has.
  
Is it just a race to the bottom, or can the low price model be sustained over the long haul? We just don’t know. On the surface many clubs that use the low pricing model appear to be successful, but with that success comes a serious concern that the lower prices have hidden effects that operators discover over time. Not just in one or two years, but over five to ten years.

Whatever you decide to do, be assured that the jury is still out on the low pricing model, so strategize carefully.

For more information on this subject, give us a call at 925-672-4800 and we will gladly do our best to answer your questions. You can also visit our website at www.globalfitnessassociation.com/info for more information.