Article in Health Club Management magazine, September 2005

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This article, discussing key operational
improvements to health and fitness organisations,
first appeared in the September 2005 issue of
Health Club Management.
Mungo Dunnett Associates 11 Polstead Road, Oxford
OX2 6TW Tel [phone] Email
info_at_md-as.com Web www.md-as.com We operate
across a range of service sectors. Our focus is
on ensuring that your activities are geared
towards the areas that are most commercially
valuable.
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Added Value
BY MUNGO DUNNETT
How do you implement a customer-focused strategy
without jargon, unnecessary expense or
reinventing the operation? Other industries may
have the answer. Almost no single issue gets
more airtime in service industries than the
hackneyed old concept of customer relationships.
Its an area where many organisations continue to
struggle. But how effectively is this being
addressed by health clubs? Some
organisations face problems because they have
brought in an ill-suited IT solution. Some
struggle to organise staff to engage with
customers correctly, while others such as the
health and fitness sector focus on operational
efficiency and cost reduction, without creating a
real sense of value for members. There
are many dark examples of other industries
disappearing into commoditisation, and the alarm
bells are there for the health club industry as
it grapples with over-supply and increasing
customer churn. But how can health and fitness
operators actually implement a customer-focused
strategy without jargon, without unnecessary
expense, and without needlessly reinventing the
whole operation? The answers tend to lie
in other industry sectors. The issue is how to
introduce simple, practical changes that make
common sense and can actually make a difference
to the customer, while also generating
incremental profit for the organisation. Market
knowledge The problems for most health club
operators usually start with what ought to be the
simplest issue of all who are we intending to
attract? With depressing regularity, firms
either launch their business with little sense of
what their target customer looks like, or lose
sight of them in the face of member acquisition
pressures. Too often, any customer is a
good customer and the club is too busy replacing
them to consider why theyre leaving, and too
busy to notice its membership profile is
diverging from its original target market. This
is at the heart of the first simple lesson it is
almost always wrong to think about your customers
generically. Customers vary vary in
their attitude, their
responsiveness to you, and their likelihood of
making you money. And if you have not determined
the type of customers you want that you can
realistically attract, hold onto, and do so
profitably you will critically undermine the
commercial effectiveness of the operation.
The result, for too many clubs, is this no
particular type of customer sees that the club is
for people just like me which is always a
crucial message to deliver, and at the heart of
good acquisition and retention practice.
Furthermore, when the customer focus is lacking,
the marketing is equally generic and, when you
evaluate its effectiveness, its return on
investment will be badly undermined. Why do you
think so much money is spent by advertising
agencies on profiling their clients target
market? This degree of effort is too often
missing from health clubs marketing spend. Too
often, any customer is a good customer and the
club is too busy replacing them to consider
why theyre leaving Finally and in
operational terms, vitally where the customer
is not properly targeted, the whole operating
model will be out of kilter with customers
actual needs and preferences. Without
determining which types of customers you want,
what they particularly value, and how you can
(cost-effectively, and profitably) deliver that
service, you cannot turn the club into a properly
focused operation where you are spending money on
delivering the things that your target customers
want and on nothing more than that. Simple
concepts to implement, but tremendously expensive
and inefficient when they are ignored in the rush
to acquire member volumes see Case Study
1. Customer values In spite of the monies
spent on CRM systems and staff training, the
actual customer impact of communication from
health clubs remains poor. Much has been written
about the accelerating customer churn, and the
worrying speed with which new members lose
enthusiasm. While price alterations need to be
made in certain cases, relying on discount
pricing is generally evidence of poor customer
engagement it comes straight off the bottom
line, which is a crude and often ineffective
means of generating incremental profit.
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Retention tied to communication   Retention is
inextricably bound up with communication, and it
is interesting to see the same patterns witnessed
in the banking market appearing in research
studies within the health club sector see Case
Study 2. While price is often
considered the main motivator behind companies
retention problems, the answer emerges repeatedly
as poor ongoing communication, post-sale. There
is little more certain to rattle customers than
the impression that they received your best
efforts prior to the sale, and precious little
afterwards. In many health clubs ongoing
communication with customers is unstructured,
sporadic, and not given proper management
attention. Studies carried out by Mungo Dunnett
Associates on a leisure club chain in June 2005
produced quotes such as this When I joined I
was promised a regular review, and I didnt have
one. No one contacted me. In
communication terms, customers want two things
they want to know that you still value them
sufficiently to stay in touch and they want to
know that you recognise them, personally. For
health clubs, these simple concepts are often
impossibly difficult to deliver, simply because
the actual
customer experience has not been thought through
with sufficient subtlety. No amount of
event-driven automated messaging will persuade a
Health Club visitor that the organisation truly
cares particularly when the Clubs own staff
(who represent so much of what the Club stands
for) are not properly trained to show that they
care The front staff are not very polite and
sometimes rude, its amazing when I left I was
happy to leave them. Loyalty in the
club is attached primarily to the trainer that
ran the induction course, secondly to the
reception staff, and only lastly to the club
itself, or the In communication terms, customers
want two things they want to know that you still
value them sufficiently to stay in touch and
they want to know that you recognise them,
personally operating chain. This means that
clubs must work much harder in two areas first,
understanding the weaknesses (and gaping holes)
in their ongoing customer contact activities and
secondly, putting the responsibility for showing
personal recognition in the
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hands of the hands-on staff. When it works, the
simple gestures are extraordinarily powerful.
The message from so many other service sectors is
this customers will be more likely to leave if
there is no staff member who they believe cares
about their attendance. Understanding customers
and profit The final customer-specific area
where health clubs struggle is in the assembling
of management information and using this to
generate profit. Most clubs are
data-rich, either from information already
captured on the systems, or from the information
given by customers during show rounds, induction
sessions, or just daily contact with staff. In
order to build an effective communications
strategy, the information must be used (subject,
of course, to initial Data Protection agreement
from customers), and turned into personalised
messages for specific customers.
However, effective management information (MI) is
not simply a logging of customer preferences it
also entails pattern analysis (how many people
are using those expensive new facilities?),
declining trend analysis (who is losing
enthusiasm, but hasnt yet cancelled their
debit?) and most importantly profitability
analysis. The health club sector shows
the effect of the famous (and often misapplied)
Pareto principle. In retail situations it is
repeatedly the case that 20 per
cent of customers or transactions generate 80
per cent of profit. Identifying these 20 per cent
is vital not only because it focuses the mind
on those customers who are actually propping up
the profitability of the whole operation, but
because in the course of producing this
profitability analysis, firms will identify the
true cost of delivering each main aspect of their
service, which lets them identify the areas that
ought to be improved, reduced or removed.
While 20 per cent of customers are commercially
vital, at least 50 per cent will be generating no
real overall profit and yet these customers
will be Analytical information is not enough.
The real insight that uncovers customers
preferences is needed absorbing 50 per cent or
more of the resource base, and contributing to 50
per cent of the costs. Running basic
profitability analysis can take a pragmatic
approach, such as identifying the main cost areas
This is generally sufficient to allow clubs to
home in on the value-adding areas (and promote
them more aggressively) and to identify the
ineffective, costly elements, and remove them.
All of this is hard information, usually handled
by the finance department and rarely brought
directly into operational decisions or marketing
activities.
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