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Q: Need pricing models for a membership-based business ( Answered 5 out of 5 stars,   0 Comments )
Subject: Need pricing models for a membership-based business
Category: Business and Money > Economics
Asked by: tucker_freeman-ga
List Price: $75.00
Posted: 06 Sep 2006 11:48 PDT
Expires: 06 Oct 2006 11:48 PDT
Question ID: 762774
Hi Researchers,

I'd like an analysis of alternative pricing models for
membership-based businesses, sort of like fitness clubs.  This is an
actual business with a location, not a virtual business.

For example, a fitness club could charge a flat fee per month (or per
year), which would be charged on a recurring basis, it could charge by
usage instead (per hour or per visit), or a combination of the two. 
Alternatively, the membership could be based on the person's exclusive
status (such as a university club, where only alumni of the university
could use the club but would still need to pay a membership fee and/or
a usage fee), instead of the payment of money.

In particular, I am looking for the following:

(1) Actual pricing models used by similar businesses that are
membership based.  Specific examples would also be useful.
(2) Innovative pricing models for a membership-based businesss.
(3) How these actual and innovative pricing models would affect
membership, usage of the business and overall revenue.  For example, a
high monthly membership fee might stop many people from joining in the
first place, but for those who join, they might get a lot of usage out
of it and retain their membership.  Plus, it might be seen as more
valuable because it's more exclusive.

Subject: Re: Need pricing models for a membership-based business
Answered By: keystroke-ga on 07 Sep 2006 11:39 PDT
Rated:5 out of 5 stars
Hi tucker_freeman,

Thank you for your interesting question. I have worked out many models
of pricing for you, analyzed most of them, given you examples of
innovative business models, and some further tips to help your
business.  The most important advice I could give you to increase
retention rates are to bill in installments.

There are a few different models available for pricing. First of all,
you could position yourself as a low-price membership. Secondly, you
could position yourself as a club that costs a lot to join and is seen
as a commodity to be bought by wealthy people. The latter strategy
would help you to not be so prone to dips in membership as
unemployment or inflation rises and falls, for instance.

"Historically, high priced clubs appear to be more recession-resistant
operations. These clubs tend to be multipurpose facilities with a more
affluent client base and much higher average non-dues revenue streams
and revenue-per-member ratios. These factors made them less dependent
upon new membership sales when the industry saw national membership
numbers flatten in terms of growth (United States membership remained
at about 21 million from 1989 through 1992)."

Whichever road you choose, you should definitely price it in
installments... I'll give you reasons for this in my examples.


*University of California at Berkeley--
tiered membership

Summary: lower prices for some groups (students and alumni), perks for
members such as day passes (which can be given to friends, and
presumably, the friends might also be interested in membership), there
are no initation fees for these faculty/staff/student memberships but
there are for the general public. The club also has a special program
for those with disabilities, offers short term memberships, day passes
for fitness and swimming, and summer passes for kid swimmers.

The full membership details can be found at this website:

Here is a quick summary:

Cal Emeriti/Retiree

    * $296 per year.
    * Includes 5 complimentary day passes per year.

Cal Faculty and Staff

    * $420 per year/$185 per semester.
    * Annual membership includes 5 complimentary day passes per year
and monthly payroll deduction option.


    * $680 per year/$58 per month ($65 initiation fee).
    * Annual membership includes 5 complimentary day passes per year.
    * Minimum Age: 17.

Short Term

    * $100 for one month
    * $250 for three months
    * Minimum age: 17.

Day Pass

    * $10
    * This pass allows use of all our facilities and group exercise
classes for one day.
    * Valid photo ID required. Must be 17 or older.

Swim-Only Day Pass

    * $5 per adult/$3 per child.
    * Valid at Strawberry Canyon and Golden Bear pools (GBRC pool is
lap swim only; min. age: 12).

Kid Swim Card

    * $55 (Valid April through October only).
    * Membership allows access to Strawberry Canyon West Pool for kids
2-16 years old.
    * Kids must be accompanied by an adult.
    * Members aged 13-16 may access the facilities without parent supervision.


*Brick Bodies of Cockeysville, Maryland
simple membership with group exercise

This club has a straightforward membership process in which there is
an initiation fee and membership card fee, and along with membership
one gets three free sessions with a trainer and unlimited access to
group exercise. Adding in small bonuses such as the trainer sessions
can really serve as a perk to membership.  They also provide
discounted senior, student and family memberships. They offer a free
14-day trial membership.

Brick Bodies' membership levels are straightforward. By including
unlimited access to group fitness, the facility could encourage its
members to get to know and befriend one another. This could help
retention rates by providing something-- friends-- that another
facility cannot.

"Participants in group fitness and other group activities have a
higher retention rate than ?machine members? or those whose only
interaction with their club is with the particular exercise machines
on which they exercise. Friends ? new and old - are a great membership
draw and a good retention tool." (3)


Hot Springs Athletic Club
high initiation fees and membership fees

The Hot Springs Athletic Club in Glenwood Springs, Colorado, promotes
an image of exclusivity. Its high membership prices elaborate on that
image, as membership to this club becomes a commodity that members can
feel proud to be part of. The club also has day guest passes

listed below--
type of membership:
monthly dues:
initiation fee:



Dependent (per)

Senior Individual

Senior Couple


As you theorized, high prices can equal high loyalty.

"Price has perceived value. According to IHRSA?s report, clubs with
higher joining fees ($250+) as well as clubs with a higher monthly fee
are perceived by the member to have a higher value. A higher price is
often the symbol of higher quality. Within the industry, there is and
has always been a correlation between price and attrition: the higher
the price, the lower the attrition; the lower the price, the higher
the attrition."

Attrition rate is the rate of someone leaving the club after only one
or two years. In addiition, the more that individuals and families are
willing to pay to be at a club, the more they are willing to spend
once they're there, on fitness supplies or in a pro shop.


California Family Fitness--
chain in Sacramento, California with 13 locations

only monthly plans, no contracts

By emphasizing its family-friendliness along with having no contracts
and only monthly memberships, CFF appeals to families who may not want
to commit to a whole year of membership for their fickle children.

In addition, those who renew on a month-to-month basis are more likely
to renew than those who have had an annual membership. (3) However,
the longer the annual membership runs, the more likely it is that that
person will stay-- they did, after all, agree to a long membership in
the first place!


The Balance in Harrisburg, Pennsylvania.

Monthly membership requires application fee, six months prepaid and
annual prepaid have no application fee.

Monthly EFT
	  	$52/month + $25 sign-up fee
	  	$300 pre-paid
	  	$576 pre-paid
	  	$156 prepaid
Guest Pass
	  	$10 personal program not included

By encouraging six-month memberships due to an application fee on
month-to-month memberships, The Balance might have higher retention
rates than other clubs. Six months is still pretty short-term compared
to one or two years, and if those who use the membership can be
encouraged to use it enough to renew, the system is effective.

However, by insisting that memberships be prepaid rather than paid on
a monthly basis, The Balance could be harming retention rates. There
is a phenomenon called "sunk costs," in which consumers prefer to
minimize loss rather than maximize gain in purchases. If someone has
purchased tickets to one baseball game, they will be sure to attend
it. However, if they have season tickets, they might justify the cost
of the season tickets by saying it works out to saving $20 a game, but
they won't attend all the games. Their overall cost has gone up, but
because they've already purchased the tickets and justified it, they
don't care as much. If you purchase tickets to a movie you don't like,
you'll probably stay to the end anyway since you did just pay $20 to
see the movie, whether you enjoy yourself or not.  By requiring
upfront payments, The Balance will probably have customers who come in
on a regular basis for the first few months and then slack off as they
forget they paid a few hundred dollars for the privilege. If it was
coming out of their bank account monthly, they might be coming in more
and more, get used to the routine, and pay for another six months when
the time comes.

Burlington County College Fitness Center and Pool in Pemberton, New Jersey
daily usage for certain amenities

The Bronze Level membership includes a $10 annual fee, plus daily
usage fees for the pool and basketball court. Higher, annual
memberships include use of the fitness center and spa. There are no
application or initiation fees.

Bronze Level
Includes the pool (with daily fee) and gymnasium. $10 Annual Fee plus
the following daily usage fees:
Child, under 5 years 	No Charge
Child, 5-17 years 	$2
Adult, 18-59 years 	$3
Senior Adult, 60+ years 	$2

Silver Level
Includes the pool (daily fee included), gymnasium and Wellness Center.
	Annual 	Per Semester
Adult, 18-59 Years 	$216 	$80
Senior Adult, 60+ years 	$162 	$60
One Parent & Child(ren) 	$378 	$140
Two Parents & Child(ren) 	$513 	$190

Gold Level
Includes the pool (daily fee included), gymnasium, Barons Wellness Center and Spa.
	Annual 	Per Semester
Adult, 18-59 Years 	$256 	$95
Senior Adult, 60+ Years 	$202 	$75
One Parent & Child(ren) 	$418 	$155
Two Parents & Child(ren) 	$553 	$205


Courthouse Athletic Club in Salem, Oregon

initiation fees for new members unless they sign up for two years

Since there is a $150 initiation fee for those who don't sign a
contract at all, and $75 for those who sign an annual contract, many
people would go ahead and sign a contract to avoid feeling "ripped
off" by the high initiation fee.

In addition, since this system encourages people to sign up for the
full two years by effectively penalizing those who don't, it could
have higher retention rates as people on the two-year contract
dedicate themselves to the club more fully.

Silicon Valley Capital Club in San Jose, California

membership by invitation only

New members must either receive an invitation from the club to join or
be sponsored by an existing member. There is a one-time, nonrefundable
initiation fee, plus monthly dues.


By making it an honor to even be invited to join, the Capital Club is
really encouraging new members to join once approved and then keep up
their membership. Who would turn down an honor?


(2) Innovative Pricing Models.

Corporate Membership--

Lifetime Fitness has a corporate membership, in which a company buys
memberships in bulk and their employees can utilize the fitness club
facilities as a regular paying member would.

The Lifetime Fitness Corporate Wellness program consists of examining
the company's employees, either at work or through an online survey,
reporting on the overall health of the company's workers, setting
goals for them to achieve, working with employees who need extra help,
and then detailing the ROI (return on investment) that the company has
received by participating in the wellness program.

Brick Bodies in Maryland, mentioned above, also has a corporate membership option.


Broadwater Springs in Helena, Montana.
Monthly options.

Two options:
18-month agreement, paid monthly, with a buyout option. Or, no
contract or obligation, paid monthly, but paying about $13 more a
month than if you had a contract. There are also heavily discounted
memberships for senior citizens.
    Platinum Membership - All Three Clubs, no restrictions!
    18 month agreement period

    * All three clubs. These are non-restricted memberships, unlimited club usage.
    * 18-month agreement period.
    * Payment method is EFT (dues are paid automatically through your
checking, savings or
      credit card.)
    * Buy-out fee per month of $13.00 for a single and $15.00 for a
couple if membership is cancelled anytime within the first 12 months.
    * After 18 months automatically rolls over to a month-to-month membership.
    * 30-day written notice required for cancellation after agreement has been met.

    Service Fee 	
    Processing Fee 	
    Monthly Dues: 	
    Children < 0-4 years 	
    Children > 5 ?13 years 	
    Children 14-18 (thru High School) 	
    Family Max 	
    College students 18-22 years and living at home 	
    (College students are not included in family max) 

    Flex Membership - All Three Clubs, no restrictions! Month-to-month
membership, no agreement period!

    * All three clubs. These are non-restricted memberships, unlimited club usage.
    * Non-Contract.
    * Payment method is EFT (dues are paid automatically through your
checking, savings or
      credit card.)
    * Last month?s dues deposit required, deposit is applied to last
month of membership.
    * 60-day written notice required for cancellation.
    * No buy-out fee.

    Service Fee 	
    Processing Fee 	
    Monthly Dues: 	
    Children 0 - 4 years 	
    Children > 5-13 years 	
    Children 14 ? 18 (Thru High School) 	
    College students 18-22 years and living at home 	
    Dues deposit equal to first month's dues 	 

Broadwater has some good ideas with this pricing scheme. They don't
require you to have a montly contract, so people who are scared of
that will be able to join, but at a higher rate than those with
contracts. The differential in pricing is just enough-- $13 a month--
that monthly members will be tempted to sign contracts, but the buyout
option is also inexpensive enough-- that same $13 a month-- that
people are probably more likely to try out the contracts than they
would with no buyout option.

Here is another innovative model from Broadwater.


Broadwater also has a membership that is discounted from regular
membership rates called a "Super Saver Membership" that is only
applicable on Tuesday, Thursdays, Saturdays and Sundays.

    SuperSaver Membership - All Three Clubs - Tuesdays, Thursdays,
Saturdays and Sundays only - 18-month agreement period.

    * All three clubs.
    * Tuesdays, Thursdays, Saturdays and Sundays only
    * 18-month agreement period.
    * Payment method is EFT (dues are paid automatically through your
checking, savings or
      credit card.)
    * Buy-out fee per month of $13.00 for a single and $15.00 for a
couple if membership is cancelled anytime within the first 12 months.
    * After 18 months automatically rolls over to a month-to-month membership.
    * 30-day written notice required for cancellation after agreement has been met.

    Service Fee 	
    Processing Fee 	
    Monthly Dues: 	
    Children 0-4 years 	
    Children 5-13 years & through highschool 	
    Children 14 ? 18 (Thru High School) 	
    Family Max 	
    College students 18 - 22 years and living at home 	


This plan costs about $100 less in initiation fees and about $20 less
per month, but you are also getting to use the gym only half the time
as other members. This is a good membership to include as an
entry-level-- if someone uses the gym enough, they'll want to upgrade
to the full membership.

In addition, this encourages users to use the center when it is not
otherwise heavily used. It allows customers to be spread out and also
for machines to be more available at busy times. If customers come in
and can never get the machine they want, they will not renew their
membership and will be dissatisfied.

Lincoln Park Athletic Club, Chicago, IL

Visit Packages.

Lincoln Park has an innovative "visit package" scheme in which users
can buy packages of 10 or 20 visits.

Innovative discounts.

Lincoln also gives innovative discounts for not just students, but
teachers and artists. These groups are sure to appreciate the
discounts and might be more willing to become a member.

Some gyms even have "nanny memberships" if the child already has a
membership. Unique discounts like those could get the attention of
families with babysitters.


Non-prime time memberships.
Lincoln has special memberships that are only good for certain times:
    *  Monday - Thursday restricted club use between 4 - 8p
    * Friday, Saturday and Sunday unlimited use.


Dual memberships. 

Lincoln has a dual membership agreement with the Evanston Athletic
Club. Partnering with another club, which may be closer to a certain
location or have more facilities, could be strategic for clubs wanting
to expand the options available to customers.


Dual memberships could help-- with twice the facilities, members are
more likely to use either one or the other and more likely to resign
when their time comes. Adding amenities such as spa packages or sports
packages can also help with this-- as long as they are regularly using
the membership for some aspect that they enjoy, they will be more
likely to sign on the bottom line again.


(3) How these actual and innovative pricing models would affect
membership, usage of the business and overall revenue.

There are many issues in which a membership or subscription model
could either help or harm a business.

First of all, people are more likely to use a product when they
realize that they have just paid a certain amount of money for it out
of pocket. "In the case of a health club, this means that members are
more likely to go to the gym right after having made payments than
later on in their memberships." (1)

One effect that could be used as a good marketing strategy is the
so-called "pennies a day" effect. Chicago's NPR station asks listeners
to join their "dollar a day" club. That sounds entirely reasonable to
many listeners, and they probably get more subscribers to the club
than if they advertised it as the "$365 a year" club. The cost of a
fitness membership could be broken down into what it costs per day, to
great effect.

The biggest concern facing many health and fitness clubs today are the
"churn factor," or retention rates at the end of a contract or
commitment. High initiation fees, as you speculated, can sometimes
help prevent the churn factor, as people realize that if they want in
the future to come back to the club, they'll have to pay another high
fee. But, those same high initiation fees can prevent people from
starting at the club in the first place. Churning can be stopped by
building customer loyalty-- if they feel like a valued member of your
club, they will be less likely to jump ship to another.

According to some research (2), customer loyalty can be built through
something as simple as a weekly email list with fitness tips-- this
increased retention by 11 percent. "?The biggest challenge in the
health club industry is going to be the ?churn-factor.? Anything that
the industry can do to reverse that would be important.?
John Maxwell, the Managing Director of Fixed Income Research of Merrill Lynch" (2)

First of all, encouraging families and older people to join could
contribute to a lower attrition rate. Families and seniors are more
geographically and financially stable than younger people. Also, by
encouraging family memberships you are encouraging re-signers-- a
mother or father who might not go on their own will re-sign if their
kids enjoy it or their spouse enjoys the facility.

After a certain "honeymoon" period, new members have a tendency to end
their membership when they realize they're not using it. By targeting
new members after three months or six months with programs or benefits
specifically geared to them, you would give them a reason to stay

"Use the Psychology of Pricing To
Keep Customers Returning"
by John Gourville
Retention Management
"Focus on Stopping the 'Churn Factor'"
by Richard Ekstrom

Search terms:
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fitness club membership types
hot springs athletic club
health club membership types
health club
fitness club
health club membership levels
health club alternative pricing

Again, thank you for your question. If you need any additional
clarification, please let me know and I'll be glad to help.

tucker_freeman-ga rated this answer:5 out of 5 stars
Very impressed.

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