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Everyone's talking about...: Putting up prices
Are you charging the right price at your club? How do you know when is the right time to put prices up, and how much should they increase by?
Plenty of other industries are bullish about putting their prices up, pointing to inflation and rising costs to justify their decision. But with the advent of budget clubs in the health and fitness industry making it harder than ever for other operators to get their share of the 12 per cent of the population who will pay for a health club membership, it has become a price war.
In this economic climate, and with consumers ever more price-sensitive, how can a health club operator raise prices? Is it possible to introduce an increase in membership fees without adding value in some way to justify this?
Will even the budget operators have to consider price rises in the future? One has to question quite how long they can sustain rock-bottom membership rates with rent and energy prices rising – but does a price increase go against the very ethos of a budget club?
Another consideration is whether a price increase will even improve the profitability of a club. There’s a chance that a letter informing members of a price hike could prompt sleeping members to cancel their memberships, while price-conscious or unhappy members might go elsewhere. If this is the case, will attrition – and the cost of replacing lost members – negate the benefit of the price increase?
If you’re going to raise memberships, how do you go about it? Is a letter enough, or does there need to be face-to-face discussion with members?
Should price rises be universally implemented, or should loyal members get preferential treatment? And what research needs to take place prior to a price increase? Are high satisfaction levels a vital prerequisite, and should clubs first survey members for their thoughts on the service and facilities?
What about the competition? How much do your fees depend on what others are charging locally? We ask the experts.
Giles Shapley,
Customer Development Director,
Network Research
“Prior to a price increase, it’s critical to understand the local competition and what other clubs are charging for a comparable membership, so that a price increase does not render your club uncompetitive.
However, it’s also very important that the club is fulfilling the expectations of its members at the current price. If not, it becomes very hard to justify a price increase. The only real way of knowing if members are satisfied is continuously asking for feedback. You need to know what your customers are thinking and saying about the business before progressing.
Members should ideally be informed before any price rise, perhaps notifying them in writing some time in advance. This should outline the increase and emphasise the benefits members are getting from the club, specifically those that differentiate it from other gyms in the area. Managers must also be equipped to deal with any isolated complaints.
Chains have the choice to implement price rises nationally, locally or to a specific group of members, such as new members. It’s vital to monitor the impact of raising prices and the resulting membership churn, which could be ascertained through single club trials before rolling out to the rest of the estate.”
John Treharne,
Founder and CEO,
The Gym Group
“When setting membership fees for our sites, we use data from demographic and postcode analysis pricing software and map this against local markets to ensure our pricing remains competitive. As a result, our membership fees vary geographically and even from site to site.
There’s less scope for a price rise in the budget sector. It’s interesting to note that Germany’s largest low-cost operator, McFit, has only increased prices by €1 in its 16-year history.
If the demographic in an area were to change, or the business were to be hit by significant and uncontrollable cost increases, we might be forced to consider a marginal price increase for new members. However, we believe in rewarding loyalty, so increasing the membership fees of existing members will always be a last resort for us.
Through experience gained when operating the chain of 22 Dragons Health Clubs in the 1990s, I’m conscious of the fact that the short-term financial gain achieved by a mandatory fee increase across the board is often offset by an increase in member attrition. The decrease in membership income and the increase in marketing costs associated with attracting new members often cancels out the benefits of the price increase.”
Tim Baker,
Director,
Touchstone Partners
“Clubs shouldn’t be frightened about price increases: it’s a perfectly reasonable thing to do and everybody’s aware that price increases are a fact of life. However, it’s important to understand the membership and the local competition first.
Clubs must be aware of why their members come to them and what they’re saying about them. However, if you don’t already know your members, don’t do a survey right before a price increase; it will make them wary of any future surveys. There’s more scope for a price increase with loyal members, although it’s important not to exploit them. Clubs must also do a competition audit to see how they compare.
A one-off 5 per cent rise works better than nominal annual increases. Members should be sent a letter explaining the reasons for the rise. Options for member retention could also be offered, such as freezing their membership at the current rate if they pay for a year upfront.
It’s important to monitor the impact. Members should be classified into active, sleepers, reasonably active and so on. If too many leave from one group, they could be tempted back with some special offers. One downside of a price increase is that sleeping members are more likely to leave.”
Baard Windingstad,
CEO ,
Evo Fitness
“Only monopolies and the public sector can easily implement a price increase. In a competitive market like health and fitness, it’s important to balance the costs and margins of your business against what the competition is offering. Prior to an increase, clubs should know about each of these points.
Another issue for the health and fitness industry is that historically the business is known for its binding contracts, so clubs don’t actually know much about the loyalty of their members. Evo Fitness is built on a non-binding contract, so people can leave when they like. This means we have to keep standards high, and we also have to know our members.
At Evo Fitness, we have written into the contract that we can increase the price on an annual basis by up to 3 per cent, without any notice. This means that we can easily implement a price increase, because our members have agreed to the terms and conditions. Despite this, we have not increased the cost of memberships since 2010 because of the local competition. Our costs have gone up in this time, so our margins are being squeezed. As a result, we’re planning to introduce a less than 3 per cent rise next January. It’s a small increase because the market is tough, but we’re not expecting members to leave.”
