06 Jul 2022 World leisure: news, training & property
 
 
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SELECTED ISSUE
Health Club Management
2021 issue 11

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Leisure Management - Pricing

Everyone’s talking about

Pricing


Despite the renewed interest in health, a proportion of people remain nervous about going back to health clubs because of infection levels in the wider community. Would making adjustments to pricing help overcome these barriers? Kath Hudson investigates

Is flexible pricing the way to get members back to the gym? photo: Evolution Wellness

As reported in HCM issue 10 2021, Fitness First is one of the first UK health club operators to change its membership options in the era of COVID.

The company is offering a flexible membership with no contract and no joining fee, giving members the option to access all its 45 clubs.

Members opting for the new Fitness First FFX flexible memberships are signed up on a rolling contract, which can be cancelled at any point with a month’s notice. The estate has been divided into seven pricing tiers and members can use any club in their tier or lower.

Membership rates have also been refined, with the price for the highest tier, which gives access to 35 gyms in London, having been reduced from £139 to £99.

Fitness First UK MD, Lee Matthews, says this is to allow flexibility and not put limits on members’ access to fitness.

Will others follow suit? We ask this month’s HCM panel...

Simon Flint
Evolution Wellness

From a business perspective, a subscription model is still highly desirable, due to its high visibility, the relative consistency of future revenues and the relative simplicity of automatic billing.

Having said that, providing the customer with a choice is usually the best approach, rather than just a binary buy/don’t buy decision.

Presenting good-better-best options, such as a pay-as-you-go and pre-paid, is a great way to look at it.

Dynamic yield management models are absolutely the golden chalice if they can be implemented intelligently in order for operators to generate maximum returns on investment.

In general, in Asia, where capacity restrictions still remain, the ‘effective value’ of a spot in busy times has risen significantly, so measures that reflect value through yield optimisation will be even more important.

However, at the present time, peak-time spots in central business district clubs are not as premium as before the pandemic, due to the work-from-home hybrid pattern.

It does seem illogical to offer a discount to overcome consumers’ hesitancy over safety, but we have seen evidence that it does play a part in the extrinsic motivating factors to get people back to good habits.

Some of this is born from a few operators offering very attractive price-based incentives, which tends to mean others will need to follow suit to maintain market share – in this scenario, strength of brand is a big factor in being able to hold onto yield while also driving volume.

In Asia, post-lockdown confidence is varied and seems to be lower than North America, Europe and Australia. Several factors appear to sit behind this, specifically governments placing us last in the queue to reopen, which indicated an implicit concern over gym safety, despite evidence to the contrary.

Providing the customer with a choice is usually the best approach, rather than just a binary buy/don’t buy decision

Some families live with three generations together in Asia, so there’s concern for children and especially elderly relatives. This has meant some customers have de-prioritised their return to the gym through an abundance of caution.

The relative lack of government assistance – such as furlough schemes and job-keeper programmes – also means some have tightened the purse strings for a period, compared to other parts of the world, where significant government assistance has preserved spending power to a larger degree than in Asia.

These are all challenges we have to deal with, however, pre-pandemic we undertook measures to widen our appeal, with a range of new prices and a lower entry point based on utility. This is something we’ll continue to do as we recover.

In all parts of the world we can see people placing a higher value on health, so there’s an underlying impetus which will assist the trajectory of the recovery in the coming months.

We see the recovery as a steady climb rather than a bounceback and it’s my personal hope and belief that by the second half of 2022, most markets will be adapting to live with COVID-19 and the trajectory will steepen.

Flint says Evolution Wellness has found flexible pricing effective / photo: Evolution wellness
Sophie Lawler
Total Fitness

The subscription model is still the best for the industry. Members benefit from a lower monthly subscription, and gyms benefit from surety over future revenues, giving a more solid foundation from which to invest back into their products and services, from which members benefit again. It’s a win:win.

If members need more flexibility, then that should absolutely be an option too, but it may need to be a premium option so it stays viable for the business, as well as the member.

Dynamic pricing is something we may start to see, but we would need to employ it in a way that best serves our members. The gym sector is one that could be better trusted than it currently is, and pricing is always an influencing factor. On this basis, dynamic pricing should be approached with care, to ensure it’s used to enhance transparency and trust and never in a way that risks that.

If it’s used at membership subscription level, and/or at a frequency where prices change too sporadically, then trust will erode. If it’s used at product/service level to reward greater numbers of participants as part of a shared service – ie, more people share the same cost – then I think it can increase transparency and trust.

If we reduce our cost-to-serve too far we deny our responsibility and duty to help our members retain an exercise habit

When it comes to heavy discounting, if ever there was a time to demonstrate the value of what we do, it’s now. Never before have we experienced an awakening to the importance of physical fitness such as this one and my view is that it’s time to stand proudly behind our purpose. We should also recognise that serving members meaningfully and meeting their efforts with our own means we should always be operationally leveraged – we have costs that we need to cover and need to charge a premium for the service.

If we reduce our cost-to-serve too far we deny our responsibility and duty to help our members retain an exercise habit.

Our focus should always be on how to meet our members’ efforts with the right level of value to reward them.

Frequent price changes can erode consumer trust, says Lawler / photo: Total Fitness
Dennis Mathias
RTS
Price is rarely the real reason people don’t buy, says Mathias

The subscription model is the best in any business and especially for our industry. It hasn’t changed in 40 years and I doubt it will.

Give people too many options and they won’t pick any, which is why it’s best to keep it simple with a flat rate membership, rather than using surge pricing or yield management techniques.

If you give people options to pay less for off-peak periods, or to use less amenities, they’ll pick the lower option and worry about the restrictions later. Or, they won’t pick any unless they get the lower option with the higher value.

After 40 years’ in the industry, I’ve seen it go down the rabbit hole of discounting multiple times. The same thing happens every single time. First, it negatively impacts current members, which creates attrition. Second, if it works at all it has a short lifespan and then you’re back to pulling teeth but getting less from each sale.

Third, if you really push it to drive numbers it’s very hard to come back from. The team gets used to selling at that rate and new members get used to buying at that rate, so most clubs that discount get stuck there. Honestly, it can signal the beginning of the end for a club.

If you make it about price, so will the customer. It always seems like a quick fix until you do it

Fourth, it’s never the price. I know membership sales people say everyone who doesn’t buy tells them it’s a price objection, but it’s not. So discounting creates more problems than solutions. Fifth, there are now multiple low entry point clubs everywhere, so price discounting isn’t what it was in the old days when everyone was around the same rate.

Sixth, in the past, when we discounted it often started a local landslide and everyone else dropped as well. If that happens, your drop gets buried in with everyone else’s and clubs simply devalue themselves. The word gets out that shopping for clubs in that area is like car shopping. Prospects won’t pay full rate and closing becomes a price negotiation, not a needs and value-based sale.  

If you make it about price, so will the customer. It always seems like a quick fix until you do it. My advice is, avoid it at all costs and try to find out why you need to do it and fix that problem instead. 

Jeff Bladt
Classpass
A two-channel approach is more effective, says Bladt / photo: Classpass

For most operators, direct discounting is a money-losing proposition – immediately and in the long-term. For a 25 per cent discount to merely break even in the short term, sales need to increase by 33 per cent.

But, without significant marketing spend, what most often happens is that an operator ends up primarily selling discounted packages to the same set of leads and customers who were prepared to pay full price.

The marketing that’s needed to reach new audiences only pushes the break-even point higher. Tactics such as limiting discounts to first time users can help, but conversions from discounted first visits can be very low, making the marketing costs hard to justify. Moreover, the monitoring of discount fraud is time consuming, and never ends. Repeated discounting can also train customers to wait for the sales, further eroding a business pricing power over time. 

A better way to maximise revenue is by selling at full prices to direct customers who have a higher willingness to pay, while working with an aggregator to target a more price-sensitive audience and clear remnant inventory with a different offer. That way the spots which otherwise wouldn’t be sold can be sold to customers the club wouldn’t usually be able to reach.

Studios should ideally skip a direct discount-driven sales cycle, and instead focus on getting as many direct customers through the door at full price, while providing them with the best possible studio experience.

Repeated discounting can train customers to wait for the sales, further eroding pricing power over time

These customers will be willing to pay more in exchange for reserving their favourite bike and guaranteeing they get booked into their favourite class. Whatever spots are left – often at less popular times or with lesser known instructors – can be opaquely cleared on the aggregator platform. 

This two-channel approach allows a studio to serve two different audiences, with two different offers, while maintaining their direct pricing power. Eighty per cent of our customers have never been to the studios they visit with us, meaning nearly every dollar or pound they spend is incremental. Moreover, less than five per cent of customers will ever end up switching their booking behaviour from direct booking to our service.


Originally published in Health Club Management 2021 issue 11

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