It’s time for the health club industry to start a 12 step program in 2014 to drop some bad habits.
You want to know why $10 a month, low-cost, so called “no commitment” gyms have an edge? They don’t pressure people. And their price point requires few sales skills.
Private equity funders for this dubious business model may be all the rage right now. But you know what? Private equity funding is only there until sentiment changes. If the last 230 years of American capitalism has taught us anything, it’s that perceptions evolve rapidly.
Ten dollar a month low-cost high-volume gyms have capitalized on fundamental weaknesses in the old school health club business model. Most notably the old “rope them into a contract and laugh when they try to cancel” philosophy.
The problems with the budget gym business model have already been exposed via lessons learned from mature Planet Fitness franchises. Its the recently opened or opening-soon clubs that are causing all the headaches for gym owners.
In the most extreme cases, I have seen attrition rates as high as 39% for established clubs in those markets. But don’t panic: the first 18 months are the most challenging. And as the newness wears off, so do consumers’ appetite for gimmicks. Members may come back…but unfortunately, in many instances, at a lower price point.
The answer? Follow this five step plan.
1) Flexibility on contracts, freezes and transfers. And common sense and humility when it comes to cancelations. The flaw in $10 a month clubs? They boast of no pressure and easy online sign-ups. But saying goodbye is not so easy. Complicating the cancellation process is a crucial part of the business model… just as it was with our old school contract model. All of this provides fodder for media outlets and investigative journalists. Do you really need this kind of negative publicity? The billing companies can be just as much to blame. But there are also some great billing companies who have amended their philosophies and are industry leaders. Affiliated Acceptance in my home state of Missouri comes to mind. So choose carefully.
2) Results and retention are everything. The mature $10 dollar a month club owners know that every day as they leave the club they have lost more members than they have gained for the day. Again, private equity has covered up the flaws in the business model well thus far. Unless you’ve been living in a cave you’ve witnessed private equity bailouts of mature $10 a month franchisees over the last year. Of course these stories are window-dressed for media outlets differently. But it’s very clear what they are when reading between the lines. So focus on getting your members results. At United Fitness Marketing, we offer some very attractive entry level personal training add-ons that introduce new members to the concept.
3) Hire people persons and compensate them well. You need happy people who enjoy being around others, not sales sharks. You need folks who engage your members and make them feel like part of your family, not confrontation artists. Yes: your ultimate goal is to upsell. But it must be done tactfully after trust is earned.
4) Let them walk. Use common sense! If a sales prospect tells you she has to ask her husband… for God’s sakes…LET HER! And don’t flinch when she tells you so. Just smile and say you understand. If a prospect has to talk to their doctor…LET THEM. If a guy comes in to kick tires… LET HIM TEE UP! Nowadays, those who need encouragement or are ready to sign up same day will tell you so. Those are the prospects you don’t let walk! So spend your time listening to the prospect needs and circumstances …instead of doing all the talking.
5) Show them the real difference between a $10 a month, cheap club and your club. Give them three personal training sessions with the purchase of a contract membership. Introduce them to fun new concepts such as functional training. Educate them. Teach them that greatest and most sustainable results are achieved through variety, strength training and building lean muscle tissue-Not Cardio. This is your opportunity to win them over and earn their trust.
Three More Key Points
Most important is how you treat members of your community. This is where your no-pressure philosophy will serve you best. Brand yourself as the friendliest club in town who not only cares about your members but also any prospect that walks through the door. Focus your efforts on improving customer experience. It’s less about the instant gratification that comes with closing a sale and more about being sure that no one walks with a bad taste in their mouths. This will serve you well in the long run. You will be amazed at how many come back when they are treated like a person.
Don’t overuse price-point marketing. Again, this is the flaw in the 10 a month club model. Use in moderation and via cost effective advertising venues. Let the 10 dollar franchises blow through their advertising budgets with direct mail. As I previously discussed in my direct response marketing post, price point marketing loses effectiveness over time. After the market is conditioned to expect a membership for $10/per month from a chain, the shock value of the price point loses its potency. It leaves the mature $10 clubs in a lurch, scrambling to come up with a new marketing gimmick to drive traffic through the door. It certainly won’t be the results they helped their members achieve. And therein lies opportunity.
A la carte price wars. Worth pointing out (and to the horror of $10 gyms) some clubs are moving to a la carte pricing to compete. This strategy is not for every gym and requires careful operational analysis before implementation. That said, I say kudos to those clubs executing it well. At the forefront and leading the charge are many Gold’s Gym franchisees who are not taking the cheap clubs lying down. These franchises are not only making a stand for their businesses but drawing lines in the sand on membership pricing. For an industry that lacks any type of meaningful leadership…It’s brilliant — as these clubs have superior services, equipment and staff. The ability to upsell is greater than any of the of the gimmick clubs and exposes how business models designed solely around price marketing ploys have limited sustainability in our industry.
Final Thoughts on Long Term Trends
What has the $10 a month club model done for our industry? Forced us to improve our operations, shed bad business habits, and step up our game. For that, I’m grateful. What they didn’t expect was that Ma and Pa operations would step up their game and expose their weaknesses. That we will blow holes in their limited cookie cutter business model with the loud, cheesy colors, outdated amenities, substandard selection of equipment and a ridiculous fitness concept that doesn’t encourage members to exert themselves.
It’s time independent gyms unite to help each other take back the health club industry. Yes: when these chains first open, the $10 dollar price point causes pricing pressures initially. But membership price gimmicks fade over time. As these clubs mature…what’s left? Broken down gyms–unable to replace/retire equipment. Disinterested Minimum wage workers who know little or nothing about fitness. Frustrated members leaving in mass exodus who realize the model is designed to prey on those least likely to use the gym. Burned out club owners and managers who realize high volume–low service was a poorly thought out concept for membership based business models. And most notably a miserable health club experience–comparable to a dreaded shopping trip to your local Walmart. The gym industry is vastly different from a retailer. No matter the price, members will always hold us accountable for poor service.
The cheap clubs have done good job of capitalizing on preconceived and false perceptions of the health club industry. So Let’s focus on getting members of our communities results and making fitness fun. This should always be our intention in the first place. Grand openings are easy money when advertising predatory rates with shiny new equipment . Operating a sustainable gym business is far more challenging for clubs saddled with debt.
Over the next few years, you will see more and more disgruntled ten dollar franchisees surface. Many of the markets these franchises are opening in simply won’t work. A couple dozen are downright laughable. Once the newness wears off, most of these clubs will face cash crunches. The race to get these lines into every market through franchising and as fast as possible is really a slow moving ship wreck with cracks in the hull readily visible to the trained eye.
Note to our readers: These predictions ARE NOT based on guesses. Most of these facts are readily available to anyone willing to do some diligence. Everything I write of is already materializing on the East Coast where these chains are more established. Owners of these chains (the ones with amazing tenacity) are now faced with the daunting challenge of debranding from these chains…raising rates, scraping off logos and slogans from equipment and adding amenities their communities demand. And while these franchises smartly erase any internet footprint of their misfortunes, the sheer volume of new clubs they have opened over the last few years will eventually catch up with them.
Also note that ten dollar a month gym concepts are NOT a new or innovative business model. These chains have come, gone or failed throughout the history of our industry. What’s fueling the bubble this time around? Easy financing, excessive leverage, aggressive territory development mandates and a follow the herd mentality.