Commoditization Could Be In the Future


Health club memberships may be on their way to becoming a commodity, said one industry consultant. While low-priced memberships have always been around, low prices have resurfaced as a commoditized play, said Michael Scott Scudder, managing partner of Southwest Club Services.

“What some are concerned about is that price pointing is going to be hurt,” said Scudder. “We've been trying to drive that up so that clubs can make some money.”

Bally is known for its low prices and long-term contracts. 24 Hour Fitness also has come in with low monthly fees, but the hitch is that members have a huge membership deposit, Scudder said.

Now, the low prices are resurfacing at the chains — Bally is offering $19 down and $19 a month. Not only that, but Curves, with 7,800 clubs (out of 23,000 commercial clubs in the country), has been thrown into the mix with its $29 a month membership. The low rates that some national chains and local clubs are charging isn't a wrong philosophy, said Ed Tock, partner at consulting company Sales Makers; it's just different, similar to how McDonald's has a system that allows it to charge 99 cents for beef while higher-end restaurants charge $30 for a steak.

However, with the low membership rates charged by these companies, Scudder predicts that the industry will see lower membership revenue per member despite numbers that show that membership revenues have increased over the past few years. One concern is that commoditization will cause confusion in the population about why one club that seems similar to another is charging much less in membership rates.

Some regional and local clubs are also offering low prices. One small Midwestern chain is offering a $19-a-month introductory membership fee that gets the person in the door. Everything else, such as group exercise classes, is an add-on price. Planet Fitness, a chain of clubs mostly in the Northeast, offers $15-a-month memberships. Mike Groneahl, CEO of Planet Fitness, is working to lower that to $5 per month.

“I think the low end is lower than most people realize,” Groneahl said. His clubs have weight and cardio equipment only. No day care or aerobics. No sales reps — the front desk staff does the selling, and they have a high closure rate, he said. Each club employs about 13 people including the cleaning staff. Payroll runs about 20 percent of the company's gross not counting the board of directors' salaries.

Competitors to his club have tried to match the rates but usually only for a few months. Not everyone can compete with his prices.

“Without our approach, you couldn't do this,” says Groneahl. “A lot of people in the industry are making a mistake thinking this is just about low price.”

Not only does the no-frills method allow his club to survive on low prices, but his clubs' target market is beyond the “fit-getting-fitter” market that most clubs try to reach, he said. Instead, he targets people new to exercise or once-a-week exercisers for whom higher membership rates don't make sense.

“We capitalize on the fact that we understand these people and no one else does,” said Groneahl. “They aren't trying to be the beautiful people that some clubs think people are striving for.” In fact, the company's ads make fun of body builders, and the dumbbells at the club only go up to 80 pounds so that body builders won't join.

Membership at Groneahl's six corporate-owned clubs and 14 franchised clubs average 5,000 with one club at 10,000 members. The clubs are 12,000 square feet to 18,500 square feet with more than 100 pieces of cardio and some weights. Usage runs about 1,500 workouts at each club on a Monday. The lowest number of users on a Monday is 850, he said. To accommodate those numbers, the club is open from midnight Sunday nights to 9 p.m. on Fridays.

Dan Horan, owner of the Hatfield Athletic Club, used to work at $19 per month clubs. At Hatfield, Horan charges $63 per month for membership. The “gym rats” often question the rate, but novice gym members have less of a price perception so they don't question the monthly fees, he said.

Horan says the effect of the low-priced clubs sets the industry backward.

“If someone is successful, then I can't argue that,” says Horan. “Everyone is entitled to do as they want. But as an industry, we've come so far and this just sets us back.”

The industry must increase the perceived value of a health club membership, Tock says.

“When people quit a club, they don't say it's because it's too much money unless they aren't getting results,” he says. “Selling on price for a health club membership is like finding the cheapest doctor when you get sick.”

However, Groneahl contends that the only thing that retains people is price.

“Everyone else thinks it's results but you are talking about human nature,” said Groneahl. “Human nature is it's not fun to work out so let's not kid ourselves.”

In most markets, lowering dues because a competitor has lowered its dues won't be a smart long-term decision, said Tock.

“After all, the bank won't lower your mortgage and the utility won't lower your bills,” he said. The best advice is to know your differences, emphasize those and create a value for your club in the eyes of your members and potential members.

“It's probably going to happen more for at least a short or intermediate span of time right now,” Scudder said about low rates. “One has to look about 24 months from now to see what the effect has been and to see if these [low-priced clubs] have been profitable and successful and to see if more Americans have become more healthy.”

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