Often, club owners determine what they will charge members for monthly dues before opening their club, before finalizing a club concept, before identifying a site or before creating a business plan. Pricing this way can be precipitous and can limit success.
Pricing is just one element of marketing a club. Marketing is a key component of a business plan and helps develop fundamental conclusions to serve as the basis for the projected financial statements and return-on-investment (ROI) calculations for a new club.
Marketing is comprised of five Ps: positioning, product, promotion, place (or method of distribution) and pricing. If club developers know who they are targeting with positioning, then the other four Ps follow as secondary decisions. They can then determine how they will differentiate their product, where it will be located, how they will advertise and promote it, and finally, how they will price it.
Pricing is easier once the other four Ps have been carefully determined. A high-end, high-service club with beautiful finishes and expensive real-estate costs in a premium location clearly will not allow the club developer to consider a low monthly dues price.
It is easy to price a high-service, family-oriented club with a variety of programs and services in an upscale suburban neighborhood. Conversely, it is just as easy to price a low-service “warehouse” of fitness equipment with minimal building finishes at a “C” rated location in a dense residential area near an urban area.
The proper process to open a club begins with a concept and a proposed location. An independent market analysis is critical and should use accepted supply vs. demand methodology. If the conclusion by the outside analyst is a “go,” then the next step is to create a business plan. If the conclusion is a “no go,” then no pricing alternative will save the day.
With a proper market study and a detailed business plan, club owners are armed with tools to deal with the pricing issue. The challenge for the club industry as a whole is that members' perceptions of value are determined by their usage experience. If they use a club infrequently and it has a high cost, they often see a poor personal ROI for their membership equation. If they paid little for their memberships, their low usage is not so painful.
Ideally, business owners would test-market their pricing before finalizing their decision, but that is not typical in the club industry. Club owners assume that the industry allows for substantial price elasticity. In fact, mid-ranged clubs that are priced $5 to $10 per month apart often are not perceived as being substantially different.
Once prices are set in this industry, it is difficult to increase them substantially in short time frames. It is easy to decrease them, but decreasing prices often causes severe financial consequences. So ensuring that the monthly dues pricing is at a feasible level to successfully support a club is critical.
Owners use pricing to tell the marketplace what they want it to do. For example, club owners who offer a choice between $50 per month dues or a prepaid annual membership of $600 are clearly encouraging members to pay monthly since they are not offering a monetary discount for paying yearly. A discounted annual membership sends the opposite message. A 12-month committed dues contract priced at $50 per month and a $65-per-month open-ended membership on a month-to-month basis also sends a clear message.
The message needs to be clear and direct to the consumer. The same standards should apply to 12-month contracts vs. 18-month or 24-month contracts, as well as paid trial memberships. Also, the club owner needs to create a complete list of all pricing for all programs and services to ensure that the pricing structure works for the targeted segment that the club attracts.
Although this logic can apply to existing clubs, it is much harder to implement once an image and value perception has been created. Pricing is a decision that needs more care and consideration than is typically given in the club industry.
Rick Caro is president of Management Vision Inc., a 25-year-old consulting company that serves the club industry. The company focuses on market analyses, valuations, member surveys, club finances, expert witness testimony and operational analyses. Caro can be reached at 800-778-4411 or at mgmtvision@gmail.com.