Is now the right time for price increases?
Is now the right time for price increases?
The significant rise in utility bills faced by operators means the cost of running facilities is at crisis point, particularly where swimming pools are in place. Investigations by ukactive estimates that costs could rise by as much as 100-150%, an additional £500m – £750m annually, impacting not only the survival of facilities but also the potential for “Levelling Up” ambitions.
So, is this a time operators need to increase prices to cover increasing operational costs? This approach has been taken by many other sectors, product and service providers but what would this mean for an industry where retention has always been its greatest challenge?
Sales have appeared to remain strong through recent months however, with the cost-of-living crisis putting increasing stress on our communities, people are reviewing where they can cut costs and reduce outgoings. Another increase in utilities in October may prompt action.
With leisure being a discretionary service, this immediately means a risk to our membership and revenue growth after a 2 year period of reduced openings due to COVID. A way to counteract this impact and increase revenue is to increase prices, but what are the risks and benefits?
There are two key factors to consider when deliberating pricing strategies.
Current Pricing
There is generally a tipping point for pricing and a ceiling that customers will tolerate. This will depend on your location and target audience.
We recommend you conduct a thorough competitor analysis to see how your current pricing compares to other facilities in your area and compare the offering. According to a recent study The Expectations and Demands of Leisure Centre Customers – Legend by Xplor’, 28% of members put Competitive Pricing in their top 2 priorities when choosing a membership. It is important that you remain competitive relative to your offering.
It is also important to understand your average membership yield, pricing may be at an appropriate level or near the tipping point, but is this what you actually receive from the majority of members? If discounts, offers and concessions have significantly impacted on-going revenue and reduced the average yield, consider ways to reduce this.
Review casual payments versus memberships. It may be possible for a price rise in pay-as-you-go visits to be a better option, this could also drive people towards the better value of recurring memberships instead.
The recent Price Sensitivity Survey conducted by Leisure-Net showed that 55-65% of members would tolerate a price increase of between 5 and 20%. This varied between public (58.5%) and private (68%) sectors and across regions and age groups but, after analysing how your price and service compares in your area, a small price rise could be accepted by much of your membership base.
Understand Your Market and Your Offering
Knowing your audience will ensure you position the pricing correctly. Potentially surprisingly, the Price Sensitivity Report suggests that younger people are more accepting of price rises than older people, however historically older members tend to show more loyalty and less tendency to move from membership to membership.
Price is different to value so assess who your audiences are, how engaged they are with your services and how high the risk of cancellation might be. Your average visit frequency, or ideally the number of members attending twice or more per week, will help determine the risk of cancellation. Those attending less than 5 times per month are most likely to be pushed into a decision to cancel by a price rise. Those attending regularly and/or accessing multiple services are most likely to see value and remain.
For a leisure provider offering a wide range of services such as swimming, gym, group exercise, children’s activities, cafes and health services, the value of membership may be higher than a gym-only facility where members may be able to look for alternative facilities elsewhere. You therefore can withstand a slightly higher membership price against competition with less options. However, members of private facilities report to be more tolerant of price increases than in the public sector while often having lower running costs so the right balance is important for your message.
If your mission is to address health inequalities and provide opportunities to increase activity within your local communities, there is a commitment to ensure exercise is accessible for all so this must also be factored into the price decision.
A small price rise, or a no price rise promise for six months, with positive communications and campaigns around supporting them through the tough winter period will provide confidence and potentially reduce cancellation risk.
Recommendations
If you need any support in your competitor analysis, pricing review or marketing and communications campaigns, please reach out to the team. We are here to support you.
Click here to download the Price Sensitivity Report from Leisure-Net
