In this Q&A, Curtis Mock discusses the advantages to lower prices in a health club model, and how to decide on your unique selling proposition.
Q. Our health club and equipment is older, yet we’re still competing at the same price as the newer clubs in town. Should we lower our prices? – Mike Northcutt, the owner of Peninsula Athletic Club, Soldotna, Alaska
A. The pricing question is difficult to answer without more information about your facility, your competitors and the demographics of your market. However, based on your question, I will answer yes; you can certainly lower your prices to give yourself a competitive advantage.
Some may disagree with lowering prices to compete, but if what you say is true, and everyone is competing at the same price, then you can easily change your Unique Selling Proposition (USP) to that of the low-cost competitor. It’s not the only thing that can differentiate you, but it is definitely one direction you can take.
Unless you have a large facility, I wouldn’t advocate going directly to the $10 model. Even a decrease of $5 or $10 below that of your competitors would allow you to become the low-cost competitor in your area.
It all comes down to value. If you’re competing head to head with all of your competitors at $35/month, and your competitors have nicer, newer, cleaner facilities, the prospect will join one of your competitors.
However, there are plenty of people who will pay much more to join a club with more value and amenities, and even more people who are price sensitive and are willing to give up the amenities in exchange for a lower price.
As I mentioned before, becoming the low-cost option in your area is only one of many USPs you can adopt. You can become the club that offers the best customer service, the club with the best programming, the club with the best location, the club that gets results, etc. However, since you asked about advantages to lower prices, the answer is yes. Yes you can easily lower your prices, become known as the value provider in the area, and focus on selling a higher volume of memberships.
Keep in mind also that many of the low-cost models out there really aren’t as low cost as they advertise. They may promote a $10 price point, but that comes with a heftier enrollment fee and a term commitment. Whereas a $20 price point offer would have a lower enrollment fee and no commitment. Most people actually choose the higher price given those two options. So when you consider your pricing, make sure to take this into consideration.
Another strategy is to keep your same rates, but advertise a longer-term membership at a lower price point, or promote your paid-in-full price at a lower monthly price point. When it comes down to it, your average receipt per member per month may not change much at all. Effective marketing can go a long way in helping the public perceive you as the value provider, without actually having to decrease your prices much at all.
There are many people in our industry who are against the low-cost model. While I do agree with them that devaluing a membership is not in the best interest of the industry as a whole, the track record of low-cost providers cannot be ignored. It is one of the most profitable business models to hit our industry in many years.
The real trick to finding success as the low-cost provider is not simply to lower prices to increase volume — it is to get more members to sign up so you can sell them more during the life of their membership. This is where many low-cost providers are missing out on additional revenue streams. You will likely increase volume when you lower your prices, but you want to make sure you have a system in place to sell more of your profit center options to your members.
There are many ways in which you can differentiate yourself from your competitors. You can invest money into a makeover and increase your rates, you can offer better service or programming, you can lower your rates and increase volume, and so on. In an older club such as yours, there are certainly advantages to lower prices — as differentiating yourself as the low-cost provider could indeed provide you an advantage over your competition.
Curtis Mock is the director of business development at Fitness Marketing Group.
