De-risk

With all the economic uncertainty at the moment there has been a lot of discussion about risk management in the financial markets.

There are a variety of ways you can manage risk in your business from the more mundane (but certainly not unimportant) insurance issues to the more proactive, strategic, ways you manage your markets.

Unfortunately, very few owners or operators view risk from their member’s, or prospective member’s, perspective. It is easy to assume that everyone should be excited about what you have to offer (after all you are) and should be able to immediately, and clearly, see the value proposition of your products and services.

Believe me they do not.

Managing your member’s, and prospective member’s, risk is an essential but often overlooked aspect of managing your business. It is especially important during an economic downturn because the consumer is less likely to want to assume the risk of transacting with your business when there is less money to go around.

What you need to do is to demonstrate to the consumer that you are willing to assume the risk of them transacting with your business. Most of you do not do this well at all.

The industry’s most recent attempt to manage risk was the introduction, and now fairly widespread adoption, of the month-to-month membership. The logic being that prospective members, anticipating failure or having been burned before, are unwilling to commit to lengthy (not to mention expensive) term contracts.

The month-to-month contract is intended to overcome the prospective member’s resistance to expensive and lengthy commitments and the burned member’s aversion to being burned again i.e. paying for a membership and not getting the expected value from it.

And to a certain extent it does do this. It also ensures that if the business fails their maximum exposure is one month’s dues.

However, what the month-to-month contract fails to do is improve the prospective member’s chances of success at the club. Essentially, the newly joined member is just as likely to fail a month at a time as opposed to 3, 6 or 12 months at a time if their training experience is not improved.

So what club owners and managers often perceive to be an issue of price or commitment is often actually an issue of risk.

Sure you can always discount your prices until you reach a price-point where the customer is comfortable and willing to assume the risk. But remember that even if you offered memberships for free a significant number of your newly joined members will drop-out… even at a price-point of zero dollars.

For example, I don’t particularly like opera music but if a friend of mine did I might be convinced to go to an opera concert with them if the price was very low or, better still, free.

And even if the price was very low, or even free, if I did not like it I would not hesitate to walk right out and never look back (life is too short to do too many things that don’t bring you joy).

So, discounting your prices to minimize the risk for customers who probably don’t really want to be there in the first places is a lousy strategy.

The more profitable option is to minimize the customers risk up-font by demonstrating your belief in your products and services and your absolute confidence in your capacity to meet, or exceed, their expectations.

Here are some of the ways you can manage your customer’s risk in transacting with your business:

• Offer a free, or very low cost, trial (not just a one day pass – something that allows them to truly experience your business).
• Offer a ‘cooling off period’. If your industry association or body recommends 5 days offer 10, 20 or 30 days. State in your marketing that ‘we are so confident you will love your experience with us if you are not completely satisfied after 30 days we will refund your membership… no questions asked’.
• Add value. Bundle in to your products and services everything they need to be successful (e.g. personal training sessions, workout gloves, access to training partners etc).
• Demonstrate the expertise and availability of your staff. Being abandoned and not receiving adequate supervision/instruction are legitimate concerns for prospective and new members.
• Demonstrate that they belong.
• Offer guarantees. For example, if your competitor has a bad reputation for lengthy delays in repairing equipment and you can typically get equipment repaired in less then two weeks offer a ‘two week or less downtime guarantee’. For every day in excess of two weeks that a member’s favorite piece of equipment is ‘out of order’ offer to add a day’s membership onto their existing membership. You may never have to deliver on it but your reputation for standing behind your product will be second to none.

Comments

[Heather Peavey]

These are great ideas, Kym. Finding ways to make people get the most out of the fitness facility will help them think of it as required spending.