Rafi Mohammed talks about how to compete with budget clubs
Thu, June 5, 2014 at 14:23
IHRSA in Budget Clubs, CBI, Pricing, Rafi Mohammed

CBI Spends 10 Minutes on the Line with Rafi Mohammed

Q: When you spoke on pricing at the NEHRSA/IHRSA Fall Conference and Trade Show last October, what was your sense of club owners’ take on that subject? What was their single greatest misconception about pricing? Today, the fitness industry is awash in budget clubs. How can traditional clubs compete?

At NEHRSA, I found that club owners are typical of most business owners. They have a tendency to rationalize by saying, “This is the way we’ve always done things.” Most really don’t appreciate the direct link between price and profit. Yet, pricing is one of the top two or three strategies with the potential to grow your business, increase your profits, and dramatically improve your bottom line. 

However, most pricing decisions are arbitrary and shortchange the business. That’s because club owners, like most businesspeople, are intimidated by things they don’t understand. So they spend their time on marketing, membership, and programming. But if they’d invest half a day, or a day, to create one or more intelligent pricing strategies, and then implement them, they could reap a huge return. For example, most clubs recognize only two pricing levers: one to push prices up, and one to push them down. However, in my book, The 1% Windfall: How Successful Companies Use Price to Profit and Grow, I offer more than 50 different ways to think about pricing. Club owners just need to become proactive and creative.

MORE ON MOHAMMED

Rafi Mohammed, Ph.D., is a pricing strategy consultant snd the author of "The 1% Windfall: How Successful Companies Use Price to Profit and Grow," and the founder of Culture of Profit, a Massachusetts consultancy: www.pricingforprofit.com

Price is the compensation for the hard work companies do and the financial risks they take. And you create a foundation for better pricing by bringing price and value into alignment. Keep in mind that value doesn’t mean the lowest price. In fact, owners are too quick to discount memberships because, while many offer great value, they tend to underrate themselves. Instead of trying to lure new members with low prices, they should consider offering different membership options. I’m a big fan of good, better, and best versions of a membership, a pricing strategy that allows customers to self-select and make value choices.

We see  this in other service industries. Restaurants have long offered “Early Bird” specials, which are great values for price-sensitive diners, along with their regular dinner menu. For high rollers, the “Chef’s Table” is a great value for individuals who want to splurge and interact with the chef. Why, then, do clubs feel obligated to offer all-inclusive memberships? Why not break out group classes and other special offerings? This would permit clubs, for instance, to set prices a little lower for those customers who don’t sign up for classes. It’s important to recognize that a discount today hardly guarantees a payoff tomorrow; it often simply devalues the club.

That said, the proliferation of budget (high-volume/low-priced) clubs is a hot topic because it’s a real challenge. Unfortunately, if budget clubs offer the same equipment and services as yours, then you’re commoditized, and you’ll probably have to lower your prices. But it’s rare that any two clubs are identical, so you need to identify what sets yours apart that justifies charging a premium. If an $11-a-month club just opened down the street, you should ask yourself: Why should people choose my club over that low-priced club?

To answer that question, you need to create a value statement, and this isn’t the time to be modest. This document is designed, in part, to boost the confidence of your staff. So take the time to understand what sets your business apart and communicate those defining differences to your staff, your members, and potential members. Then you can focus on ways to increase value—from offering health and workout tips, to expanding your menu of social activities. You have to be proactive, but when you really think about what your club has to offer—you’ll be surprised at what you’ll find."

Article originally appeared on IHRSA (http://www.ihrsa.org/).
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