Have you heard? Planet Fitness has
It’s not like I didn’t expect this. Businesses lower prices to compete. But even if this means Planet Fitness can keep its lights on for another month or so, what does it mean for the industry after the economy rights itself?
Will the fitness industry end up like the airline industry? Airfare wars have driven prices so low that I wonder how long it takes before somebody offers to pay me to fly, instead of the other way around.
A $10-per-month price-tag is ridiculous. I can’t see how this lowball strategy will help the industry in the long run.
What am I missing? How can this possibly be a good idea? I seek enlightenment in the FM Blog’s comments section …
17 comments:
Hi Heather,
My immediate feeling is that this is a penetration pricing strategy designed to garner market share. A loss leader if you will. The idea is to get increased exposure and sell more memberships especially to those who will likely view $10/month as an acceptable price even if they are only going to make it in once or twice a month. Of course Planet Fitness will be banking on as many as possible coming in even less frequently then that.
So take a deep breath, count to 10... relax. The industry has room for low price business models.
Just as the restaurant business has room for McDonalds (at the low price end), Outback Steakhouse (in the mid price range) and The French Laundry (one of the premier US restaurants located in the Napa Valley who according to wikipedia have a $995 truffle tasting menu).
I am against discounting generally for most businesses because it is usually a short term-solution for a more long-term problem (e.g. a lack of differentiation, a poorly defined value proposition, poor customer experience management etc). Check out my blog at http://accessfit.typepad.com/access_fit/2009/03/the-dangers-of-discounting.html
A business such a Planet Fitness (who has been around for a while now) has a low price business model which means that to be profitable they have to be lean and mean operationally the same way McDonalds is. Few would argue that they offer the best fitness experience (just as few would offer that McDonalds offers the best dining experience) but what they do offer... a no nonsense, cheap, largely DIY fitness experience, people are obviously prepared to pay for.
There is a big difference between a low price business model and a 'regular' mid priced business who offers discounts continually as an acquisition strategy. The former is thoughtfully concieved and well executed and is sustainable and the latter is eating into its probably already thin profit margins and not sustainable.
The challenge for the non-low pricers is to demonstrate to their customers why their fitness experience is superior and therefore worth the additional monthly outlay.
Unfortunatly, most businesses don't do this too well and should expect low pricers to continue to threaten their marketshare. Check out this blog post for some ideas on competition http://accessfit.typepad.com/access_fit/2009/02/knockout-the-competition.html
While the economy has caused some clients to cancel, I still have a strong group of members who expect the same or improved levels of service they enjoy each visit. I am focusing on keeping that group happy, rather than focus on any effort to attract those who have quit. In fact, we're so focused on improving our services, we're actually considering a modest increase to our rates so we can improve our level of service. In time, I'm confident this choice will result in a strong core of satisfied membership who will share their experience at my facility with their friends. We won't de-value ourselves to pacify people who clearly don't view fitness as a priority in their lives.
Dear Heather:
As an industry veteran of 33 years, I was dismayed to read your uninformed April 6 blog about Planet Fitness, with reference to the airline industry.
It is clear to me that you do not understand the Planet Fitness model at all, by your indication that this new strategy will keep them going for another month. PF franchisees are among the most profitable ventures in the entire health and fitness industry with net earnings well north of 20% - when the "quality clubs" are struggling to make a profit! Also, PF allows new-to-fitness people to "try it out" at a very affordable and reasonable price. It is suspected by some of us who have been around this business for a long time that they are one of the FEW "feeders" of new memberships to our industry in the past couple of years.
As for likening PF to the airlines industry...airline ticket prices are UP, not DOWN.
While anybody with a blog has a right to say anything they want to, you represent a long-standing distinguished magazine and I believe should do your homework a little more fully before you make blatant statements that are, at best, specious.
Sincerely - MICHAEL SCOTT SCUDDER, CEO, Club Management Education & Training Online
I am a firm believer in "you get what you pay for". If you pay $10 per month, you'll be lucky to get any type of service and I would question the qualifications of any staff working there. You cannot retain knowledgeable and professional associates if you do not pay them accordingly. Buyer beware if you see the $10 monthly dues!
The Planet Fitness is a metro Boston location is losing it's support from their long time core members after the launch of the $10no commitment deal....it has brought in many people who do not have gym etiquete, have trashed the bathroom facilities(clogged toilets, tp and other debris on the floor, basic filth) and has made the facility so much more crowded it's almost impossible to get a good work out in. I know many members who agree, you get what you pay for and are looking elsewhere. Just remember FREE (or almost FREE) has no value. People will not value their membership.
I own a hardcore fitness gym that has been successful in the area for the past 4 years. A Planet fitness moved in directly across the street from me and in the beginning I saw a handful of my members jump ship due to cost and cries of "economic hardships". However, the effect has been minimal because I have created a niche facility that caters exclusively to the dedicated workout enthusiast who wants free weights, cardio, and a quiet, non-crowded atmosphere. I believe over time the Planet Fitness model will be squeezed out as customers realize there is a price to pay for joining a gym that is essentially one dimensional and becomes filled with people who don't take their workouts seriously or are interested in enhancing the overall image of the facility. The pendulum always swings back and if you provide excellent member service and a clean, well-maintained facility there is nothing to worry about. The Planet Fitness model carries an extremely high overhead cost and requires thousands of members just to break even so further competition will eventually render this model obsolete.
Dustin from Albuquerque, NM
You’re right about one thing, Heather: You definitely need some enlightenment.
As a longtime editor at FM, I’d have assumed that you knew something about Planet Fitness. Here are a few facts that wouldn’t have been difficult to dig up:
- Since we started franchising in late 2003, we’ve grown from five clubs to 275 (in 31 states).
- We have nearly 2 million members nationwide. That’s almost 7,000 members per club, more than double the industry average.
- We plan to open more than 100 clubs in 2009.
- Inc. magazine last year ranked us #1 among fitness companies in its list of the fastest-growing private businesses in the US.
- Entrepreneur magazine routinely lists us as one of the fastest-growing franchise companies.
- We posted revenues of nearly $100 million in 2008.
- Due to our extremely low overhead and superior business model, we’re one of the most profitable companies in the fitness industry.
I'll agree that our $10-a-month price is ridiculous – such a ridiculously good value that savvy consumers who don’t want to belong to a hard-core gym have been leaping on it for years.
Which leads to another point: Thanks to the unintimidating atmosphere of our clubs, a lot of people who might never have set foot inside a health club are now working out regularly. And if you don’t believe me, then check out the story the Wall Street Journal wrote about us back in November under the headline “A Gym for the Rest of Us.”
Any way you measure it, Planet Fitness is one of the industry's brightest success stories.
Hey maybe the days of the eternal gym 401k are over and yes it will be those savvy airlines that offer great services at low prices that survive and stay profitable.
Let them drop their price to $5 a month with no sign up fee, it will simply lower their quality of service, lower the quality of their equipment, reduce the number of employees they can afford to look after the place. Lower monthly fees means only one thing, either you are non-profit receiving state or federal money, or you are non-profit and going out of business.
Keep your prices at a level to be competitive, but know who your competition is. Add value, add quality, never lower your price. I feel sorry for the members who paid more than $10 a month, since the club decided their membership was only worth $10 a month, that means the members who paid more than that previously were getting ripped off.
The big box clubs deserve exactly what Planet Fitness, Fitness 19, Anytime Fitness, etc. are doing. Why would any smart operator allow other operators to come into their market and allow them to undermine their market share? I have for years asked the question - "If we are going for the middle-to-high-end market, shouldn't we also OWN the low-end, no-frills market too?
If I were going to build a new 50,000 sq ft or larger club, I would include a separate 24/7 facility that was attached to my club with a separate entry and I would either open or buy other nearby 24/7 clubs.
This kind of pricing strategy can only lead to members feeling like sardines packed in a can. If you are a club competing against one of these facilities, you have the distinct advantage of selling the quality of your members time versus waiting in line for everything.
Members here have talked about the ads for Planet Fitness which play on the TVs here in the AM. I would love to be able to put a positive spin on why my members would not be as happy with Planet Fitness as they are here but I am finding it difficult with the economy as it is currently. It is hard to believe they can stay afloat long. For my members it is not as convenient location wise as here and if they are successful, it will be difficult to get on a machine. And of course, my equipment is newer and in better condition and the my facility is very clean.
I know our business couldn't survive on $10 per month in the population of our small town. At the same time, a new gym has opened up offering a membership at $9.95 per month, no time commitment and no admin fee.
I think all they will accomplish is to end up taking some of our members, go out of business because of a poor business model and thre we are left with a few less members.
Now this is what I'm talking about.
Comments from all sides of the issue have definitely provided enlightenment, explanations and opinions about why Planet Fitness' strategy might work, why it might not — and how it is or isn't hurting the competition.
Thanks for your thoughts, everyone.
Planet Fitness is growing fast, and it may very well act as a "feeder" to other clubs as Michael Scott Scudder says. But I'm not convinced this low-price strategy will successfully achieve long-term, industry-wide retention.
It could work well for Planet Fitness now, but what about later? Will the members lured in the club by a low, low price be willing to pony up down the road?
It will be interesting to see how the low price model works out in the long run. The low price model works well when you are competiting against the mid priced clubs who can't differentiate themselves from the low priced clubs. PF exploited this weakness in their competitors.
Many clubs including national franchises are converting their facilities to the low priced model. What happens when 75% or more of the clubs in a given market are low priced clubs? The clubs lower their prices even more, such as what PF is doing. Eventually you can't lower your price anymore and everyone has less revenue coming into their facility. How do you then reinvest in your club at that point when you can't even pay the bills?
I know PF has a business model designed to keep overhead as low as possible. However it remains to be seen how PF and the low cost copycats will perform over time.
I predict the low priced clubs bubble will burst and our industry's reputation will be tarnished again.
Kevin McCauley,CPA
The Workout Company
Saint Louis, Missouri
The bread and butter in the health club industry is the people who buy a membership and never use it. Lets face it if you have 5000 members and a 10,000 sq ft facility you could never service those numbers. That's the brutal truth. For $10 or $20 whats the difference it's cheap enough that average person who knows they can't trust themselves to workout, or it just makes them feel good to have a membership.
I was directly impacted by PF coming to town. I had a nice personal club that gave everyone personal attention, and a clean great environment. We even had Holiday party's. PF came to town in 6 months I lost 2/3rds of my members. To pour salt in the wound they are now in my old location.
Those "core people" that love to workout will never be enough to keep your doors open. PF found the niche in the dirty little secret of fitness.
I keep reading that Planet Fitness will not last long. This, again, leads me to believe that people are not doing their homework. We have been around for more than 16 years and, if you read John Craigs comments, you will see we aren't going anywhere soon! Sometimes in life, a good value is just that, a good value. Walmart has banked on that concept and it seems to be working for them!
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