Determining the pricing strategy for a service can be a significant challenge for any organization. There are a number of variables to consider, such as…
- What price will provide me with a margin of x%?
- What price will provide me with a monthly profit of $x?
- Will my price be competitive?
- What price will optimize my clubs capacity?
- Should I adopt special event pricing?
- How can I use pricing to attract a certain type of customer?
- How do I position the price to the customer to increase the likelihood of a sale?
These are just a few of the pricing dilemma’s gym owners and managers face everyday.
We appreciate this is a minefield and wanted to focus on one of the factors gym owners and managers contemplate when determining price strategy. So, how can pitching the price to a potential customer influence the likelihood of a sale. I’m going to assume you know the magic number (aka price) you would like to achieve and discuss some of the factors that come into play when assessing how to position this number to a customer. I will play particular focus to considerations for bundle versus optional price strategy.
Bundle and Optional Pricing
The first point one needs to consider is the difference between bundle and optional pricing. Bundle pricing is where a member pays one rate whether it is weekly, monthly or annually and it is all inclusive of everyday services a member may require of one’s facility. This could include parking, towels, spin class, sauna, fitness reassessments etc. and in this example could be $25 a week. Optional pricing is where a gym could offer a lower price, say $18 a week and the customer would have the flexibility to select the optional add-ons they require. However, if the member required all optional extras, it would most likely be a greater cost than that of a gym offering bundle pricing. This is because the bundle priced gym can assume not all members would take up all ‘bundled’ services thus resulting in potentially a lower cost and thus a lower price. So effectively the non-users would subsidize the actual users.
There is no right or wrong approach as every client faces a different market environment. What is important is that all factors are considered before a decision is made. When discussing this with some of the clubs that use GymMaster it became apparent that the following questions were key in coming to a decision.
What is the pricing strategy of my closest competitors?
It is most likely a customer walking in the door will have a preconceived idea about the price based on research they have already conducted, and you need to think about whether you want to position your pricing in a similar way or stand to be different and overcome any customer’s preconceived notions. Both ideas have pros and cons, depending on the psyche of the potential client it maybe difficult to sway them to a different thought process. Alternatively, it may make you stand out and more memorable – and this combined with a sell on your facility’s features could be enough to sway the decision your way.
If I adopt optional pricing, which features should be included as part of the core offering and vice versa; are there items such as beauty treatments and child care that should be excluded from the bundle pricing model?
A way to address this would be to construct a list of all features that could be chargeable within your facility and then think about the how frequently you would require each service e.g. 1 out of every 4 visits, and then how this relates to the majority of the clients. In my opinion, in an optional extra pricing strategy, core services should be included as standard and all core services should be classified as being utilized by a client in at least three out of every four sessions. If you need to charge a client extra in every session this would add to your administration and the perception may adversely affect the ‘happy meter’ of your client. When adopting the bundle approach, in order to win with a higher price it would be great to include a few services that wouldn’t normally be expected to be included, appeal to the mass market and select items that don’t have a significant cost of goods such as fresh towel service, free personal training session every 8 weeks etc.
How do I advertise the optional add-on’s to the client in an up front manner to ensure I’m not misleading?
I believe this comes down to how you determine what is included as standard and what’s an optional add-on as well as how it is explained on the initial visit before sign-up. As long as it is fair and explained up front, the sell won’t be misleading and won’t be construed as unethical. If one does blur over the optional extra’s and associated charges this could result in negative repercussions down the track. It’s about being transparent, fair and up front about the fine print.
Am I marketing to a mass market or targeting a select group such as high end users?
In my opinion high end users are less price elastic and would not be deterred by any method as long as payment required little administration and the full implications of either offering were transparent. Whilst council run facilities or lower tier gyms are more likely to offer the optional pricing approach as it allows price elastic customers to attend the facility at a lower cost.
I’m still confused and not sure which approach I should use for my new club opening next month
There is no harm in testing both approaches in the first month of operation. You could pitch both options to the client or alternatively trial one week with one approach and the next week with the other approach. The GymMaster software is very configurable and you can store details about all prospects and deals offered within the software as well as configure the membership types separately. I believe it’s important it provide a consistent message to the market on pricing strategy as it becomes a core part of the culture of an organization so I would only recommend this as a short term trial. Alternatively you could conduct some market research amongst current prospective clients using the email or SMS facility within prospecting in GymMaster. Another way to keep the communication up before they convert to a member.
So what are your thoughts? Do you use optional extra or bundle price strategy? What products and services do you decide to include as part of the core offering versus pay per use?