A group of five health clubs in one Northeastern state were making money and doing well until a super club from a national chain moved in. How were clubs one-third the size and almost double the price going to compete? The local clubs' prices were high — $59 per month — and they had debt from an expensive build-out. Because the club made a significant investment to build their upscale fitness facilities, they initially thought members would stay rather than flocking to a club offering “everything” at $39 per month. They were wrong. Their members started leaving in busloads. The roller coaster ride had begun.
So the local club group changed, becoming part of a different national chain and dropping their prices to $10 down and $10 per month. They also eliminated a lot of services. It seemed to work well. Other clubs also dropped their prices to $10 per month while other competitors still charged $49 to $59 per month. Profits dropped for the higher-priced clubs, forcing them to drop their fees to $10 to $20 per month. Soon, the original club group that converted to the $10-per-month clubs wanted to open a similar priced club down the street from a $49-per-month club. However, after seeing what was happening to other clubs facing this situation, the $49 club immediately dropped its prices to $10 to $20 — but still offered services such as group exercise and day care. In other words, more club and more services for about the same price.
Although this roller coaster ride isn't common for every club, it is true that in any market, clubs compete on price, facilities and services. No matter what one club offers at a certain price — another competing club will offer more for about the same price.
There is room for higher priced clubs in a market; however, a market needs strong demographics to support such pricing. Spending more to build an upscale club does not guarantee that members will come and then stay at that club. In addition, clubs will not continue to “own” the low price or any price market alone. Some clubs and chains may dominate a sector of the market, but someone else will eventually try to compete with a better club and price. Then it is back to the basics. Whoever offers the best product at the best price with the lowest build-out costs and overhead will have the most success.
Just how big is the very low price market? It appears that many people who are not committed to fitness — who would never join a club — will make the plunge for $10 per month or so. As one member said, “For $10 per month, I don't feel bad that I don't go.”
Most people know they “should” exercise, but do not, will not and often feel guilty about it. However, exercising regularly is not the widely accepted way to reduce this guilt. Most buy a book, home equipment or some fat burning pills. Some join a $10-down and $10-per-month club, feeling they have committed to exercise by just joining a fitness facility. The majority of the population is overweight and out of shape, so for better or for worse, a great, untapped “guilt” market exists. Low-priced clubs seem to tap this market better than other clubs.
This concept brings up an interesting question. Is such a low-priced model that is based significantly on members not showing up good for the health club industry? The answer is not as easy as it appears. Yes, such a model does bring in a percentage of the population that would probably never go to a club, so now they perceive themselves to be “club members.” But maybe a “no” answer carries more long-term weight. People buying any product or service that does not fulfill their needs will perceive that product as bad or ineffective. The psychology is complicated. Much of the population have become creative in finding ways to not regularly exercise while making it appear that they are doing whatever they can. For this reason, very low-priced clubs seemed to have opened a new option for many to “do without doing,” and therefore such clubs are probably here to stay for a long time.
For club owners, the message is clear. In any competitive market, if you are doing well, someone else will come along and try to be better than you regardless of your price, facilities and services. At any given time, prices fluctuate. Many markets don't have a low-priced model; many don't have a high-priced model. Yet the expanding demand for fitness by a market that widely views exercise as a “dreaded but necessary product” will continue to strongly affect pricing. So the roller coaster ride continues.
Bruce Carter is the president of Optimal Fitness Design Systems International, a club design firm that has created about $420 million worth of clubs in 45 states and 26 countries.