The New Member Integration Opportunity

In 1997-the year in which the U.S. health club industry grew from 20.8 million to 22.5 million members, the industry sold approximately 11.2 million health club memberships. During that same year, approximately 9.45 million members left clubs that they had previously joined (Figure

Although the industry sold 1.7 million more memberships than it lost in that one year, it did lose 42% of its existing membership. On average, 90% of U.S. health clubs lose between 30% and 50% of their total membership each year. Approximately 5% of clubs lose less than 30%; and another 5% lose more than 50% (Figure 12.2).

As of Jan.1, 1998, the industry's unaffiliated ex-members outnumbered current members by a greater than 2 to 1 margin-48.8 million former-members to 22.5 million current members (Figure 12.3).

An industry-wide gain of five percentage points in membership retention would, by itself, net the industry more than 1.1 million members (and more than $500 million) every year. Assuming current membership sales trends, an industry gain of 5% in membership retention would translate to a net increase of more than 10 million members and $2 billion in incremental annual sales every four years. It would mean that instead of gaining 1.7 net members per year (as it has for the last two years), the industry would be gaining 2.8 million members per year.

WHY PEOPLE QUIT

The industry's current attrition rate of approximately 42% results from many factors. A clear delineation of these factors reveals that some are uncontrollable, while others are controllable.

Consider, for example, move rate, an uncontrollable factor with which all fitness facilities must con- tend. Some 49% of all club members are young adults, aged 18 to 34. On average, one-third of this population moves every year. Approximately 54% of all new club members are former club members (Figure 12.4).

These statistics suggest that a large percentage of those who leave one club end up (in a few weeks, months, or years) joining another fitness center. Indeed, in a recent American Sports Data survey, IHRSA discovered that 37% of former club members indicate an intention to join a health club within the next 12 months. The overall U.S. move rate in major metropolitan markets where the industry is concentrated is at least 15%. Thus, the industry's controllable attrition rate, factoring in the prepon- derance of young adult club members, as well as overall move rates and other uncontrollable factors, lies more in the 20% to 25% range rather than the 40% to 45% range.

Numerous surveys undertaken by IHRSA over the past 10 years indicate that most former members did not leave their clubs because of specific complaints or bad experiences (though the number who

had such complaints is not insignificant). Rather, they quit because the "value" component of the "price/value" relationship no longer worked for them. As a rule, health club members equate "value" with usage. Irrespective of price, little to no usage equals little to no value. Thus, for the most part, the industry's "value issue" is one of usage, not price.

The purchase of a health club membership also involves behavioral change issues that the industry, as a whole, has only recently begun to integrate into effective membership retention systems. A substan- tial percentage of new club membership sales are, as is evidenced by the industry's annual sales burst every January, "impulse" purchases. In such cases, new members often fail to understand fully the dis- cipline required to maintain a physically-active lifestyle.

Finally, the new member integration process for first-time buyers requires working through a variety of anxieties or fears that need to be processed before a member can feel competent, confident, and com- fortable in the club environment. These fears and anxieties, enumerated in recent IHRSA research undertaken by Dr. Christine Brooks of the Fitness Research Center at the University of Michigan, include: 1) the fear of feeling and appearing stupid because of ignorance of how the club or equipment works; 2) the fear of feeling athletically incompetent relative to more experienced members; 3) the fear of feeling socially isolated in an arena that is inherently social and interactive; and, finally, 4) the fear that one's physique is inferior, that one's body is too "out of shape" for the svelte environment that is imagined to prevail in today's American health club scene.

Left unattended, these fears can quickly catapult a new member out of the very same club that they had so hopefully joined only weeks earlier.

CLOSING THE INDUSTRY'S BACK DOOR: 10 STEPS

Given these factors, what than can be done to reduce membership attrition rates in the nation's health centers? First, given recent developments, an industry objective of lowering overall industry attrition rate from 42% to 37% by 2005 appears challenging, but possible

As stated earlier, the achievement of such an objective would, by itself, net the industry over 1.1 million new members each year. Assuming that the industry's current sales performance continues, achieving this objective would net the industry over 10 million new members every four years. Why does the achievement of this objective seem possible? There are ten reasons to be increasingly confident about the industry achieving significantly better results in the area of membership retention.

1. In recent years, many leading clubs in every major market have already achieved it. As but one example, in the past two years the average attrition rate of over 200 multi-purpose athletic clubs that IHRSA tracks annually fell from 38% to 34%

2. A small, but significant number of trend-setting clubs have implemented relatively simple and cost effective systems that have brought their membership attrition rates down under 30%. (Not surpris- ingly, in the course of implementing these systems, these clubs have also experienced significant gains in new membership sales, membership referrals, and peripheral sales, such as personal training.) In short, the industry already knows how to significantly lower attrition rates. The issue, then, becomes the widespread implementation of systems that are already known to work.

3. The fastest growing segment of club membership for the past ten years, and increasingly for the next ten years, consists of people over 50 years of age. This age segment has always proved to be the most stable component of total club membership. The increasing percentage of members who are 50 years of age or older will, by itself, help to stabilize club membership.

4. In the past, membership retention initiatives were inherently reactive, focusing on re-energizing low users. Today, the entire focus of the industry is on the front-end, the first 90 days of a new member's club experience. This focus on the new member integration process promises to be significantly more successful than the previous process of attempting to motivate ex-members to re-enter the club after they've already walked through its doors.

5. Increasingly, compensation incentives for club service and sales staff, as well as for senior manage- ment, are being tied to the achievement of retention gains. Today's senior managers are developing compensation systems that place a much higher value on membership retention.

6. Almost all of the industry's most respected consultants-i.e., Rick Caro, James Annesi, Casey Conrad, Ray Gordon, Brenda Abdilla, Jim Smith, Mike Chaet, Sandy Coffman, Richard Gerson, Fern Pessin, Karen Woodard, Victor Brick, John Rude, Tom Plummer et al-are now advising clubs that trying to "outrun" attrition by using a "churn and burn" approach to new membership sales is doomed to failure. This message, which has almost become a mantra among industry leading consultants, is gradually seeping into the mindset of the entire industry.

7. In terms of budget allocation, it is now fully accepted that the cost of keeping an existing member is only a fraction of the cost of acquiring a new member. As this realization becomes more universally understood, clubs are putting more resources into member integration and member satisfaction strategies.

8. On the supplier side, a whole subset of the industry leading manufacturers, lead by highly regarded companies such as FitLinxx, Schwinn, Fitness Age and others are focused entirely on providing the industry with tools and systems that can enhance and support internal member retention initiatives. These systems have already been field tested, and the clubs that have already used them are posting substantive results.

9. The industry transition from an almost exclusive reliance on dues revenue to a broader focus on total revenue per member makes the link between increased membership retention and increased revenue per member more compelling. It is now clear, for example, that club members who pay the most in nondues revenue also maintain their memberships significantly longer than those who pay less. Similarly, clubs that achieve the highest percentages of nondues revenue as a function of total revenue, have significant lower membership attrition rates than clubs with lower percentages of nondues revenue (Figure 12.7).

Source: IHRSA 1998 Industry Data Survey, Profiles of Success

The industry axiom that "those who pay the most, stay the longest" is now empirically proven. By itself, this will escalate industry initiatives aimed at involving new members in value-added pro- grams from the outset. The industry has every incentive to do so. For not only will such programs increase membership retention, but they also increase membership referrals, club revenue, and club profitability. In fact, we now also know that clubs with the highest percentage of nondues revenue are also significantly more profitable than clubs with lower percentages of nondues revenue. 10. No one in the industry anticipated the depth of the market for personal training. Nor, until recently, did industry leaders fully appreciate the implications of personal training on other dimensions of the business, such as membership referrals, member satisfaction, and membership retention. Yet, now, in club after club, in all parts of the country, it has become patently clear that membership attrition is lower-sometimes by more than 50%-for those involved in personal training. Nor is this surprising when we remember that the average club member equates value with usage, not cost. Those who use the club regularly, supported by staff counsel and staff attention, will prove to be the most satisfied, loyal, and lucrative members.

All of these factors combine to suggest that the time is ripe for a comprehensive, industry-wide member- ship retention initiative. It also suggests that such an initiative will both strengthen membership retention and enhance club revenue, profitability, and overall member satisfaction. In short, the industry's incentive for launching such an initiative could not be stronger.