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The Problem with a Low-Price Strategy for Health Clubs

The Problem with a Low-Price Strategy for Health Clubs

Many independent health club owners are concerned about whether or not they should drop the price of their club’s membership. They may have a low-price club opening nearby, or they may think lowering their price is the best way to operate in a sluggish economy and will help provide an advantage in their local marketplace. I have not seen this strategy work. In fact, it may cause some long-term problems.

One of the primary factors that determine a health club’s success is how that club is positioned in the local marketplace. Club owners can take one of three strategies when positioning their clubs:

Differentiation: In this strategy, you go after the entire market, but you position your club as clearly differentiated from other fitness facilities in the area. This strategy is normally used by operators whose health clubs are highly innovative and whose member services are generally high quality. Members will pay a membership premium for these types of fitness facilities because of their perceived greater value.

Price Leadership: In this strategy, the main differentiator for the health club is lower membership fees. Health club owners who do this successfully have figured out how to operate at a low cost and can then sell memberships for less with the same profit as other health clubs.

Segmentation: A segmentation strategy involves focusing on a target segment and then adopting either a differentiation strategy or a price leadership strategy within that particular segment. Women-only or personal training facilities are good examples in this area.

It gets dicey when health club owners try to mix all these strategies. Bad things start to happen, particularly when the club starts getting beat by membership price as well as differentiation.

Now, let’s go back to the original issue. The economy continues to be sluggish, and low-price providers are opening all over the place. Should you change your health club strategy to compete on price rather than on differentiation? To compete on price, you would have to go back to your original business plan (you have one, right?) and determine where to cut operating costs. Is cutting staff an option? By how much would you reduce overhead? Could you significantly reduce your cost of member service by eliminating group exercise and child care? You can’t cut your price and keep all your current expenses. You’d just be fooling yourself.

In many cases, low-price competitors have exposed the lack of a strategy for many independent health clubs. That’s not to say you won’t have pressure on membership pricing in some cases, but getting back to basics is what’s important.

In almost every club, sizeable expenses are associated with the front desk, nursery and group exercise areas. You must find ways to turn these areas into revenue producers. Furthermore, offer bonus opportunities for staff-generated ideas about reducing costs or improving revenues. Some great ideas can come from both staff and members.

Jim Thomas is the founder and president of Fitness Management USA Inc., a management consulting and turnaround firm specializing in the fitness and health club industry. With more than 25 years of experience owning, operating and managing clubs of all sizes, Thomas lectures and delivers seminars and workshops on the practical skills required to successfully build teamwork and market fitness programs and products.

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