An Ineffectual Competitive Response- Part Three

I last wrote about market dynamics, new entrants and competitive responses to my local fitness club market in this post from January.



In that post, I provided some quantitative estimates of the damage that a single LifeTime Fitness club had wrought on my old fitness/squash club. Since that post, another LifeTime facility has opened just about five miles from my old club, and perhaps ten miles from the first of the large-scale fitness club's location.


This past week, in anticipation of my renewal for another year, my old fitness club mailed me an invoice and accompanying letter.


The letter goes on and on about various programmatic changes at the club, as it slowly has come to grips with what a departing employee reported has been an exodus of 375 members from a one-time base of some 2,100. By the end of March, it's likely that this number will top 400, if for no other reason than that, until April, people like me, who are still members, but have not used the club since early November, have not yet been recognized, technically, as gone. Thus, the old club has sustained about a 20% loss in its customer base, including a very heavy percentage- perhaps 90%- of its higher-priced squash memberships.


Thus, in a display of panic, the owners' letter reported two unprecedented changes in the club's fee structure.


They now offer a daytime (morning-3PM) squash membership for the same price as a basic fitness membership, i.e., $100/month, and a family maximum monthly fee equal to the price of the three most expensive family memberships, with joining fees capped at $500.


This is ironic, considering the content of my first conversation with one of the owners early this fall concerning my joining LifeTime Fitness on a trial basis. At the time, in response to the owner's question as to why I had elected to try the new club, I replied,

"Bill, you know that you never priced your club to attract families. In fact, you've never really wanted them to join at all."


To which he replied, nearly verbatim,

"Well, you're right about that."


Considering that Bill and his partners had at least an eighteen month notice of LifeTime's arrival in the area, their competitive response has been, to be blunt, pathetic.


Most families who might have enjoyed the new pricing caps and remained at the old club have now tasted the forbidden fruit of 24/7 access, three swimming pools, jacuzzis, two basketball courts, more fitness equipment and a rock climbing wall. All for about half of the new, lower family price.

The only remaining members who would benefit from the new squash pricing plan are older, retired males. Everybody else, including children, use the courts after 3PM. It's not all that likely that non-squash playing members will suddenly stampede the courts during midday hours.


To me, there is a lesson in this local business case regarding the formation of competitive responses to new market entrants. An existing, dominant share player needs to begin planning their responses as soon as they are aware of the new entrant. Waiting until after the new arrival is open and has successfully stripped off customers with their new service offerings and potentially lower price points is an invitation to an imminent death of the formerly-dominant vendor.



Instead, I believe the existing market leader has to reconsider their entire marketing mix- product offerings, channel, communications and pricing- as if they are trying to resell each customer. Because, in effect, that's what they will have to do when the new entrant ramps up their marketing efforts.


If the market leader elects to compete on price, they had better do so early and in a manner calculated to cement their customer base for a period of time during which the new entrant will exert maximum effort to win new customers from existing competitors. As I wrote in my first post in this series, here, my old club could have offered pricing discounts to existing members in exchange for an immediate commitment to a long-term renewal of two years.

Failing a pricing response, or, in addition to one, the management should have worked much harder to identify, via primary research, a niche position for their club that would be believable, defensible and attractive. Lacking many appealing facilities that LifeTime Fitness clubs possess, the old club should have figured out how to package what they do offer in a comparatively



My old club ignored the new competition until literally 10% of their customers had left. Then they spent a few months redecorating the lobby and telling themselves that these 200 members would be 'begging to come back.' That's a direct quote from friends who spoke with the old club's owners.


Now, another 200 departed customers later, they are trying to stanch the outflow with some half-hearted pricing policies. When I mentioned this to the manager of one of the LifeTime Fitness facilities, he remarked that another existing, smaller fitness competitor had done the same thing, only to suffer reduced profitability as it cut prices on existing members.



This is what I prophesied would happen if my old fitness club tried to cut price to meet LifeTime's price points. The cost of retaining a few remaining customers will cost them revenue and profit at a time when they are probably near, if not below, breakeven on their volume/cost/profit line.



As I wrote in the earlier posts in this series, I genuinely like the owners of my old club. And I enjoyed my 27 years there very much. But I'm not going to renew my membership at the end of this month.



Time and trends have passed my old fitness/squash club by. By failing to adapt, modify their marketing mix, respond to new competitors with timely and effective pricing policies, though, I don't think they will be operating past the end of this year.