The Problem with a Low Cost Strategy for Health Clubs

It seems all of the independent health clubs I’m talking to are concerned about whether or not they should drop the price of their membership.  They may have a low cost provider (and there are many of them right now) opening up nearby or they may be thinking this 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 and there may be some long term problems for the health club that goes down this path.

One of the primary factors that determine the success of a health club is how that health club is positioned in the local marketplace.  There are three different strategies to consider when it comes to positioning your health club.

Differentiation; This is where the health club goes after the entire market but positions itself as clearly differentiated from other fitness facilities in the area.  This is the strategy normally used by health clubs that 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.

Cost Leadership; Everyone knows this one and it’s just like it sounds, this is where the main differentiator for the health club is the lower price for the membership.  These health clubs have figured out how to operate and sell memberships for lower costs and can then sell them for less with the same profit as other health clubs in a marketplace to simply gain market share.

Segmentation; A segmentation strategy is where the health club focuses on a target segment and then adopts either a Differentiation strategy or a Cost Leadership strategy within that particular segment. Women’s only or personal training facilities are good examples in this area.

Where things start to really get dicey is when a health club will try to mix all these strategies together.  Bad things start to happen.  All of sudden your club is getting beat by membership cost as well as differentiation.

Now, let’s go back to the original issue.  The economy continues to be sluggish and there are low cost providers opening up all over the place…and should you lower the price of your membership to be the lowest membership facility in your area?   Although the real question should be; should you change your health club strategy to compete on price rather than differentiation?  This means you have to go back to your original business plan (you have one, right?) and figure out where you are going to cut some operating costs.  Can you get rid of your health club sales staff? (no shortage of salaries and commissions in that department.)  By how much can you reduce overhead with your club staff?  Can you significantly reduce your cost of member service by eliminating group exercise and childcare?  If you find yourself saying “Yeah, but we will still offer all these member services we are offering today, we’ll just reduce the price of the membership,” you’ll just be fooling yourself.

In many cases, the low cost provider that has come to town has only exposed the lack of a strategy for many independent health clubs.  Now, I’m not saying there won’t be pressure on membership pricing in some cases, but let’s get back to basics.

In most every club we talk with, the front desk, nursery, and group exercise are a sizeable expense. Get your thinking caps on and make these revenue producers. Furthermore, offer bonus opportunities for ideas your health club adopts to help reduce cost or to improve revenues. Get innovative with your member services.

Now, go get competitive.

 

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