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Everyone's talking about...: Discounting
Discounting might be good for the short-term bottom line, but Duncan Bannatyne believes it attracts ‘problem members’, changing the feel of a club. So it is worth it?
Duncan Bannatyne caused a bit of a furore in his recent book, Riding the Storm, when he claimed that discounting at some of his health clubs had brought in ‘problem members’.
Bannatyne said that dropping the monthly fees from £42 to £29 had devalued the brand and changed the atmosphere at the clubs. “More and more, people are trying it on, trying to sneak in a friend without paying, or making complaints in the hope of getting money back,” he said.
He added that his son-in-law, who’s one of his club managers, thinks his club no longer feels like a Bannatyne and is concerned about what long-time members might think.
However, Bannatyne also said that – although he was concerned that the discount was devaluing the brand – if the company didn’t adopt a strategy of discounting, it faced losing money by losing members or prospects to other clubs. Dropping the price had led to thousands of extra members, he observed.
So is that a trade-off worth making, or do clubs risk losing previously happy members – put off by the change in atmosphere in the club – as fast as they gain their new influx of ‘problem members’?
Isn’t it also unfair on existing members if they have to keep paying the old price? On the other hand, if their fee is also discounted, does the discount lose its marketing impact?
In the current economic climate, discounting can certainly make health clubs affordable to many more people who would greatly appreciate being able to join, and who would be valued members. But is this always the case? Does discounting bring problem members? Does it devalue the brand? Are there rules to follow to make it effective? Or should the industry be looking at different ways to boost membership and ensure existing prices are good value? We ask the experts....
DR Paul Bedford,
Research Director,
Retention Guru
“I don’t think it’s unusual for clubs to have problems with discounted members. One of my clients had the same issue after dropping its membership price to compete with budget gyms. It destroyed the business: they had problems with drug dealing, violence between members and towards staff, profanity and a lack of respect for the facilities. They tried to get round the problem by raising the prices again after a year, to move the discounted members on, but by this time they found that most of their original members had left.
Discounting can work if it’s for a particular reason, such as a discount on the joining fee, or for a limited period of time. However, if a club does this to bring in new members, it needs to do something to reward its longstanding members.
Many gym members I interview know they can negotiate a discount on the joining fee if they threaten to join another club, or if they come at the end of the month. However, they would prefer that it wasn’t a game and that there was greater transparency. For a long time, the industry has been able to charge more money than the value of its product: facilities and services have been provided, but not support. The focus needs to be on getting both the product and the price right.”
Tim Baker,
Chair,
Touchstone Partners
“Ihave never heard that discounting attracts the wrong sort of member. I don’t know why joining on a discount should make people more inclined to sneak people in or complain. If anything,
I would have thought those paying higher prices would be more inclined to complain.
Discounting is a good way of boosting memberships: discounting on the first few months can encourage people to join, and offering cheaper memberships if they come at allocated times can bring the club within the price range of more people. This doesn’t mean they will cause trouble.
However, if gyms are finding they have to discount in order to attract members, it’s probably because they’re not offering the right product for the catchment. The maturation of the market into no frills low-cost gyms versus full-service premium clubs means there’s now less need to discount.
The most important thing is for the gym to get the product right for the community it serves. Clubs need to make sure they offer value for money and treat members well. Members are far less likely to take advantage of a club that treats them well and makes an effort to know them. If sneaking guests in is a problem, why not offer cheap guest tickets or passes?”
Neil Harmsworth,
Co-founder,
payasUgym
“Discounting is a legitimate and effective pricing strategy if services are not overpriced to begin with, so the discount is credible to the consumer. Our data suggests that 20 per cent is the optimum discount to encourage a purchasing decision, provided the original price is realistic.
However, there’s a problem in the fitness industry of clubs starting with prohibitively high prices and offering huge discounts of 50 per cent or more to impress the customer. Customers simply see through the original inflated price and consider the discounted price to be a more realistic price point. This is not so much brand erosion as an enforced, realistic price reset. If you set the right price to begin with, rather than adding a margin to make your business work, you will be better placed to discount strategically.
Customers want a clear understanding of what they will pay each month, and it must offer value for money.
The industry also needs to be less secretive about how it projects itself online and be transparent about prices. People no longer want to negotiate membership on an old-fashioned tour: our research highlights an 80 per cent decline in walk-in custom in the last 18 months, while online searches for gym membership increased by 70 per cent.”
Dave Stalker,
CEO,
ukactive
“Pricing is a science, inherently linked to the quality and volume of supply and demand. If you have an incredibly high quality and effective service in an area in which people demand it, you can charge what you wish. Provide something of dubious value in a competitive market and expect to have to discount.
Altering price is a strategic decision which every operator has to make. Although it can be tempting to make a tactical discount, especially in summer, is this sustainable? Do you want to be known as an operator that reduces its monthly fees to get customers? Or should you look at pricing strategies focused on retention, to keep a member at the moment their wandering eyes begin to look elsewhere?
Your service is still not valued by the vast majority of people in your local community – that’s why we’re stuck at a glass ceiling of 12 per cent penetration. We’ve seen the dramatic success budget operators have had in attracting non-exercisers through the door, and a number of pricing promotions have also enjoyed great success in this respect. However, the challenge then becomes supporting previously inactive people to sustain the commitment they’ve made – and that, I’m afraid, is an even more complex science than pricing.”
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