Why Deceptive Gym Advertising Hurts Everyone and Risks More Regulations

Deceptive gym advertising  100421953 thinAs a gym advertising and marketing veteran who prides himself on building long term relationships based on ethical business practices, I have some core beliefs. Here’s the main one: there are certain lines you just don’t cross.

Misleading prospects is the ultimate no-no. Sensible people in the industry abandoned deceptive practices years ago.

 

That’s why I was so sad to see some major national franchises go back to the bad old days with misleading gym advertising.  Let me use understatement here to offer my comment on their advertising campaigns. I think it’s more than just a teensy-weensy little bit questionable.

But, hey, maybe that’s just me. Judge for yourself.

Maybe you’ve seen the ads on billboards, flyers, box vans, press releases and mailers:

  • Grand Opening!

  • $10  a month!

  • No contract! No Commitment!

  • Judgment Free!

  • No Intimidation!

Sounds like a pretty good deal…eh? Maybe not.

The Real Victims of Misleading Gym Advertising

My objection is that the entire business model is designed to prey on the poor and less fortunate.

The tipoff is the refusal to accept potential members’ credit cards, debit cards or pre-paid cards. All offer consumers some protection for disputed charges, especially yearly fees ranging from $29 to $60. Low income families are exposed to bank overdraft fees. Their only option is to pay a $58 “early termination fee.”

But hold on a minute. If there is supposedly “no contract and no commitment” what’s up with the “early termination fee?” I’m afraid it’s just another way of extracting money through clever play-on-words jargon. I’m not a lawyer and express no opinion as to legality of this practice. But I can offer my opinion as an industry veteran. I think this sort of misleading gym advertising is a bad idea.

$58 may not sound like a lot to end a business relationship, but for the poor, less fortunate or those on disability, Social Security, fixed incomes or other government assistance programs, it can be enough to get them behind. In desperation, some people may even be forced to close there bank accounts to prevent further payments.

I suspect the early termination fee was introduced to boost accounts receivables. I speculate that franchises who use this technique can then leverage and borrow more capital to open more clubs. Suppose a month-to-month club has 7,000 members X $10 per month. You have account receivables of only $70,000.  Adding a $58 termination fee and changing the terms to a contract adds another $406,000 to the balance sheet(7,000 members X $58).  With the combined totals the club now can post $476,000 in receivables. They can then borrow against this to open new clubs

What is the scale?  Let’s break down the numbers.  Suppose a chain has opened roughly 350 new health clubs in the last two years,  including those in the pre-sale stage currently.  Now some of these clubs aren’t panning out so well so let’s shoot on the low side and estimate that each location has acquired 4,000 members.  350 clubs X 4,000 members = 1.4 million members.

That’s 1.4 million members who where lured in under the guise that their memberships were ‘no commitment’  or worse ‘no-contract’.  If you go back 3 years I’m willing to bet that number is upwards of 3 million.

The Dangers of Misleading Gym Advertising

I’m amazed that the Federal Trade Commission or the Consumer Protection Bureau hasn’t stepped in. But I believe if things continue on this course, it’s only a matter of time. Which will hurt everyone. Regulations often tar everyone with same brush and end up punishing the good guys.

Some more numbers. How on earth can you squeeze 7,000 members into a 16,000 to 25,000 square foot space? There is a short answer: you can’t. If everyone showed up the fire marshal would close them down for exceeding maximum capacity.  $10 a month gyms are banking on donations from nonusers and the business model’s continued success is dependent on 15% to 25% usage rates.  So what happens instead?  People just walk in and walk out.

For successful locations, members that stay are faced with bottle necks forming around the circuit and the strength training equipment.  You have members standing around waiting and staring at other members as they rush to finish their set.  It is the most awkward and uncomfortable workout environment you could imagine.  Members don’t want to be hassled.  So what happens?  Members get discouraged and stop using the gym.

The sad part is many of these people are those in most dire need of help.  These clubs are an enormous let down.  Members  get lured in by cheap publicity stunts and advertising that boast of making everyone feel comfortable.  But nothing couldn’t be further from the truth. So no wonder no trial passes are offered.  Is it such a surprise this chain doesn’t offer trial passes? I would encourage anyone to purchase a $20 day pass and see for yourself.

The latter part of this post is just me complaining about the business model.  Understand that I have no problem with a franchise tweaking it’s business model.  But with the changes comes that added responsibility to change the advertising message as well.  I hope these chains clean up their acts or I see rough waters ahead.

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