Pricing to demand. Part 1

In these uncertain economic times, the club industry may be hard-pressed to sell long-term memberships or monthly contracts with large initiation fees, both of which require a hefty down payment at the time of enrollment. The demands of an increasingly educated consumer — who is reticent to part with cash without due satisfaction with the services offered by the facility — may require clubs to take a more service-oriented approach to membership pricing. Whether it be lowering fees or adding options to the club’s pricing structure, a facility focused on service will benefit from reducing the cash outlay required to become a member.

A smarter consumer
The idea of offering memberships for an initiation fee plus monthly dues is not new to the industry. However, its popularity continues to spread to facilities of all sizes, from neighborhood gyms to regional health clubs to corporate fitness centers. The dues system is often more enticing to the average consumer who can budget monthly expenses, without having to swallow a large initial sum for a membership.

A savvy marketplace is driving down the one-time enrollment fees to amounts manageable for first-time members, families and seniors alike. “In the last three years, the initiation fees have become a fraction of the original $500 to $600,” explains Rick Caro, president of Management Vision Inc., New York, N.Y.

Today, consumers shopping for a club have often belonged to another facility, are knowledgeable about fitness equipment, diet and exercise, and have already determined what they are willing to pay for a membership. According to Caro, these consumers are willing to pay no more than $100 to $150 in enrollment charges.

The large initiation fees were originally modeled after rates charged by country clubs, Caro says, and were supposed to act as a guarantee that dues would be paid consistently. “The concept was based on the idea that once you paid the initiation fee, you would never want to cancel because you have such a heavy investment in a non-refundable bond,” he says. Instead, many clubs are asking members to sign a contract guaranteeing the monthly dues will be paid for a year. The system is a compromise between collecting fees upfront (a burden to the consumer) and an open-ended membership that allows the member to walk away at any time (a risk for clubs trying to maintain a steady cash flow).

Healthtrax, the parent company that manages 11 New England Health and Racquet clubs in the Northeast United States, has sold memberships on a monthly basis for 15 years. The original pricing structure allowed members to cancel at anytime with 60 days’ notice, says Doug Lombardi, marketing director. But it was during that time that the clubs charged significantly higher enrollment fees than today. Healthtrax has revamped its pricing several times to meet the demand of the sluggish Northeastern market. “In the early days we did not require contracts, but we’ve now settled in at one-year agreements because it helps to stabilize our future planning,” Lombardi says.

Shannon Bohn, membership director at Clubfit in Mechanicsville, Va., touts monthly dues for similar reasons. “It’s good for us because it provides us steady income,” she says. Clubs bringing in large sums of money at one time tend to spend their capital quickly, she adds. “[With monthly dues] you can’t spend it before you have it.”

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This entry was posted on Sunday, October 21st, 2012 at 2:44 pm and is filed under Business. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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