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Your Price is Your Delivery System
Originally Posted 04/09/10

There was a lot of response to the last blog about the changes in the market and the total confusion many owners are enduring.

Perhaps the most important point I have been emailed about is that a name is no longer a business concept. For example, in the old days of fitness, meaning the 80’s and 90’s, you could slap Gold’s Gym on the front of your building and everyone knew who you were, what you stood for, and what they would find in the business. That simply is no longer true for all the great names of that era including World’s Powerhouse and 24-Hour Fitness.

Now you can walk into a Gold’s and pay $9, $19, $39 or $64 and the clubs might be strong fitness clubs, strong group, or simply horribly out of date. The name no longer has the impact on a national basis because the local owners make their own decisions as to what business concept they choose to run and what price they offer.

The challenge for the franchise is to find a way to establish a national brand that has some type of consistency from market-to-market and even neighboring town-to-town. The analogy here would be letting McDonald’s franchisers choose what sandwiches to offer in each location and let the individual franchisees make up their own menus, set their own prices and change anything they want in the restaurants while still having the McDonald’s sign on the building. That would never happen in the real world but it does happen in the fitness world as most of the last generation franchises let everyone who owns one runs freestyle.

As we discussed in the last blog, the newer generation of franchises coming into the fitness world all have a specific delivery system attached to their name. As mentioned for example, Anytime was the first company to own the 24-hour concept and did an amazing job tapping the market. In their case, it will be interesting to see how they evolve as everyone else in the market copies that idea. Even McDonald’s comes up with new sandwiches now and then.

The point that needs more expansion here is the price you choose in today’s market also has to have a concept attached to it. In other words, your price has to dictate how you run your club. Many owners in today’s market will radically alter their price but not change their operating system, and this almost always spells doom for that client. Price and operating system have to match to stay in business in tough markets.

Look at these prices and some of the specifics you would have to consider if you adopted that price for your business:

• The $49 and higher level: This is where a lot of clubs have gotten into trouble in the last several years, especially those that compete against a low-price/value club such as Planet Fitness. Way too many of these owners have nice clubs based upon 1995 reality, meaning that they are large, nicely finished but are just copies of what a top-of-the-line club looked like in 1995.

The guys in this group-and this is the harsh reality that most can’t accept-are not prepared for business in 2010. They have antiquated sales systems, weak group programs, limited penetration one-on-one training and do nothing more than just rent equipment.

These are also the same guys who bitch and moan when Planet Fitness opens and takes all their business. Of course the consumer is going to leave: you charge $49 and the competition charges just $10 to walk on the same brand tread. The consumer has no relationship with the club, only with his favorite treadmill and when that tread is cheaper down the street he is gone.

If you charge $49 or higher, you have to master training, group exercise and train your team at least four hours per week in service. You are not entitled to make money because you spent $5,000,000 to open a club. This just gets you in the game; it doesn’t guarantee success.

This is the classic case of hoping your name becomes your brand, but this old style operator has been beaten by someone who has a specific delivery system geared on their price model.

• The $39 price is the alternative to $10 memberships: Full service clubs can directly compete with a price of $39 versus a low-priced guy. Three years ago I would have never said that but that was before low-priced guys, maturing competitive markets, a sick economy and weak operators that live in the past.

The $39 price is a must-do for almost any full service club in any market. For example, you might offer $39 for 18 months and $49 for 12 months. This allows you to claim that you have memberships that start as low as $39.

The next jump to $29 isn’t a good one. If you are going to go that low, just go all the way to $19.

• The $19 full service business plan is making a strong comeback although very few have done it well. An exception is the Fitness Edges guys, led by Vinny Sansone and company, that has done well with it in Connecticut.

This is a doable model if you have volume potential but would be tough in a smaller market. The goal here is to offer the same offerings as a full service club but at a volume price. This is a hybrid model that only fits certain markets but we will see more of this in the future and I believe it can work with owners who can control expense and generate sales volume.

• The $10 generation: This is the most talked about model these days in the industry and the leader here is Planet Fitness. Shear volume, heavy cardio presence, limited expenses and unique marketing are the hallmarks of this brand. The delivery system is the marketing and you just tear it up on volume. The problem here is that when you compete on price, you open the door to guys who copy you and then go under your price. Keep in mind Curves and Anytime, both unique concepts at the time and now both are somewhat diluted by dozens of imitators.

• The $8 new guys: Yes, there are clubs now charging $8 as the next, new Planet Fitness and expect more to go after the current leaders in every market. When price is what you are all about, then price is how you live and die and someone more crazy than you can take that away from you by simply charging less.
The big picture news here is that if you have the right delivery system, which matches your price structure, you can compete against other price systems in your market. Each one of the price/structures mentioned above captures different clients in the market, if the clients can see the differences between the models.

This is where some of the big chains, such as Gold’s, are having trouble because the consumer doesn’t understand, and the owners haven’t established, clubs that truly differentiate from the competitors.
By the way, my advice to Gold’s on a national level is to establish $39 as the prime price, go full service, and most importantly, become the workout/Mecca of training information in the world again, a position it held for over 30 years before it gave it away to the small training centers. Stop worrying about $10 guys and start fixing your franchise. The issues are within no external.

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