Our country is facing great challenges as it struggles to regain its economic footing. The troubles plaguing the housing, banking, and auto industries have created rippling effects throughout the country as the unemployment rate has doubled in many locales, and investment portfolios have plummeted. This is no longer news, it is our new reality. In the fitness industry, many centers are feeling the squeeze.
During the past year, we at Meritage have received a sharp increase in the number of calls from hospital administrators who want to fine-tune the operations of their medical fitness centers for better performance and from directors who want to know what other centers are doing to retain members and sell new memberships in the current economic environment. Our experience is that some health systems accept uneven performance of their medical fitness centers in good times, but sharpen their pencils when times get tough in the health care industry. Given this overall environment and with unemployment approaching 10% nationally, (1) we wondered how some of the top-performing medical fitness operators are facing the challenges inherent in this economy.
We talked with six seasoned medical fitness professionals in various parts of the country. We wanted to know how their sales, attrition, and overall membership levels in the first quarter of this year compared with last year, what pressures and challenges they were facing, how they have responded, and what specifically they were doing differently, if anything, during the upcoming fall and winter seasons. Each situation is unique in some way, but these directors reported some recurring themes as well as some surprising approaches.
The FirstHealth Center for Health & Fitness in Pinehurst is the flagship center for FirstHealth of Carolinas' six-center medical fitness division. Although this center is located in Moore County, which has an unemployment rate of 10.2%, up 4.4% in the past 12 months, (1) membership is thriving.
"Membership sales are up, and attrition is about the same as last year, despite competition from low-priced fitness chains. The recession is working to our advantage," said John Caliri, a veteran of 18 years in the medical fitness industry. "When people are forced to reevaluate how they spend money, the opportunity exists to present them with a value proposition that is hard to beat. We have expanded beyond image marketing and are selling on value, using tag lines like 'invest in yourself' and 'value for your dollar.' Overall, our membership is up about 3.5% in all six facilities, although some centers are doing better than others."
A member put this into focus for FirstHealth when he told Caliri, "My wife and I sat down at the kitchen table and compared the cost of a family membership to the cost of taking the family out for dinner and a movie." An invaluable bonus for this family: "Membership in the center is changing our lifestyle and bringing our family together."
FirstHealth spends about 1.2% of gross revenues on marketing and advertising, but has changed the marketing focus from direct mail to other initiatives. They have added staff and increased new member interaction to ensure retention. Similar to most health systems, FirstHealth is tightening its belt, and instituting systemwide expense reductions of 3%. Caliri has responded with good business tactics, such as restructuring staff and renegotiating with vendors for supplies, "measures we should be revisiting periodically anyway to make sure we are optimizing our resources."
Thanks to a strategic focus on total family health and fitness, FirstHealth's pool and fitness programs, such as swim lessons, weight loss, and balance training have experienced growth of 14% to 15%, at a time when the center's personal training revenues have trended down at about the same rate. "Our day spa, which was built to achieve a Three Star Mobil rating, created a niche between The Spa at Pinehurst [the legendary golf resort] and the mom-and-pop spas in the area. It has contributed a 35% bottom line to the club," said Caliri.
Operating plans for this fall and winter will continue to focus on serving the family and military. Pinehurst is located near Fort Bragg Military Base, and FirstHealth is committed to supporting the growing number of military families in the area.
The Lifestyles center is located in Summit County, which reported a 9.7% unemployment rate, up 4.3% from a year ago (1). "Lifestyles has experienced 12 straight years of increased performance before this year and has operated at capacity for the past 5 years," reports Doug Ribley, M.S., one of the most experienced executive directors in the medical fitness industry and a past president of the Medical Fitness Association.
"The economy has definitely impacted our business. We will be slightly off from last year at our Akron center, but the center will still contribute $1 million to the health system's bottom line. By year end, we expect our Wellness Center division to end very close to 2008 results."
The track record of the Akron center prompted Akron General Medical Center (AGMC) to open a new center 2 years ago in Stow, which is 25 minutes away, and to begin developing plans for a third center. "Membership at our Stow center is up 20% due to being relatively new and is covering the shortfall at our original center. We are seeing some slight signs of economic improvement in our area, and our Health System leadership continues to be impressed by our division's resilience. We are very optimistic about the future."
"Akron General Lifestyles was recently voted as the top fitness center in the Akron/Canton region in the Fox 8 TV Network's "Best of the Best" consumer choice category. Twenty-four fitness centers competed for the title, with more than 27,000 online votes cast. This particular recognition is especially gratifying because it came from our members, patients, and the community," said Ribley.
"Differentiation [with medical integration] has been the primary reason for our success and is critically important for the medical fitness industry as a whole. We don't consider our center as a competitor to commercial fitness clubs. We are a department of the hospital which uses physical activity and health education in the prevention and treatment of lifestyle-related disease, illness, and injury. Historically, 30% to 35% of members report using AGMC for the first time after becoming a member," says Ribley.
"The economic environment is also creating challenges for our health system," claims Ribley. "The hospital census is the same as always, but a higher percentage of patients are now uninsured and can't pay their bills, while AGMC is still dedicated to providing care." As a result, the health system has mandated across-the-board expense reductions. The Lifestyles Center is not exempt from this mandate.
Understanding that a bird in the hand is worth two in the bush, Ribley has "made a choice to place a higher priority on taking care of existing members than on selling new memberships." This decision has led to trimming marketing and sales staffing. "We are also being more aggressive with summer student memberships, making it more convenient and accessible for a student to join and use the center for the summer months." The center now offers discounting of enrollment fees as a sales tool, and to allay fears of some member prospects, the center will allow a new member to cancel the contract in the case of a job loss.
Several new initiatives are being considered for this coming fall and winter seasons. The center is providing physicians with forms similar to prescription pads to be used for referring patients to the center for personal training although they may not be members. The fall promotion, usually a major part of the marketing budget, will focus more on lower-cost promotional activities, including offering 3-day passes to patients throughout the health system, discounting of enrollment fees, and use of member testimonials. A new program for employees of AGMC will track employee usage of the center for a 12-month period and provide rebates equal to 50% of dues for those employees who use the center 12 or more times per month.
Great Falls and Cascade County have not seen the dramatic impact of the recession that many parts of the country have. Because in part of the influence of the nearby Malmstrom Air Force Base, home of the 341st Missile Wing, unemployment in the area is 4.4%, up only 0.8% from a year ago (1).
The membership at Peak Health & Wellness Center (the Peak) is up 4.5% more than last year's. Originally opened with 45,000 square feet, the Peak has expanded to its current 54,000 square feet and has plans to expand for a third time. "We're getting pretty good at managing member expectations while we expand and retool," said Lynn Compton who has been with Benefits Health System for 20 years and at the Peak since its inception. "We started out as an expansion of a small fitness and sports medicine department. When we built the Peak, it was a major leap of faith at a time when many other changes were occurring in the health system."
The Peak has experienced more cancellations this year than last year, but has a net increase in total members more than last year's. The Peak has increased its marketing and advertising budget and has focused on tactics such as incentives for members to recruit new prospects, direct mailers, contacting members who have terminated, and "trade-outs" with two television stations, and newspaper advertising. "We run promotions every month now, such as offering 50% off enrollment fees, giving two months free for an annual paid in full membership, and promoting 'buy one, get one free' personal training sessions," said Compton. Especially popular was a recent coupon mailing to members, allowing them to give coupons to friends and family for membership or services at the Peak.
"We raised our dues in January, but we also replaced all our cardio equipment and added new classes. We have added a concierge in the lobby and on the floor to increase the level of member support. Our members have seen a lot of changes since we opened, but if change is promoted right, members understand and accept it. Compared to a movie with popcorn and sodas, we are still a great value. When the price of gas goes up, we look even better, since the whole family can 'vacation' at the Peak," Compton explained.
Initiatives for the fall and winter include intense follow-up with low-visit members, reducing the enrollment fees, opening the center on certain holidays, and serving lunch on Saturdays instead of just weekdays. "Additionally, we will be training our staff to sell the benefits of membership (i.e., feeling better, losing weight, and reducing blood pressure), rather than amenities," Compton said. "With two new pools coming on line, we'll be promoting the benefits of whole family participation in membership."
Compton's advice to other medical fitness centers: "Put your time and money into member retention."
Livermore is located in Alameda County, sandwiched between the San Francisco Bay Area and the Central Valley. Unemployment has spiked from 5.6% last year to its current 10.7% (1). "Livermore has really taken it on the chin," reports Neil Sol, Ph.D., a champion of the medical fitness industry.
"In accordance with our lease, we had to do some repairs to upgrade the facility since it was 5 years old. We incurred $250,000 of unbudgeted expense. Fortunately, we will still have a positive bottom line this year and no deferred maintenance going into next year."
"Our membership has remained fairly stable, with a drop of only five membership units, compared to last year at this time," Sol said. "We ran a 'Join for a Coin' campaign, where a new members' enrollment fee is equal to whatever coin is in his or her pocket. Returning members accounted for 25% of the new sales."
LifeStyleRx has also been creative in its member retention programs. "Although we offered a medical freeze program from the start, we have begun a financial freeze program. Any member who has lost a job can freeze their membership for 90 days and can reappeal after 90 days if they have not found employment and still use the facility. We will extend the membership end date for the amount of the freeze time," Sol explained. Another initiative is the discounting of personal training for new members. But perhaps the most innovative idea is the long-term member loyalty program, which has reduced cancellations by 50 members per month.
"Any member who has been with us for 3 or more years will get a 10% discount on all purchases, such as personal training, swim lessons, food and beverage, or child care. After 5 years of membership, members will get a 15% discount on purchases for as long as they remain a member," Sol said.
Going forward, Sol is looking strategically at the potential for obtaining "reform dollars" as part of the Obama administration's health care reform initiatives.
The Baptist Healthplex in Clinton is cosponsored by Mississippi College, which reports enrollment of 4,900 students who can use the facility for a reduced fee. Unemployment in Hinds County is 8.4%, up from 5.9% (1) a year ago.
"Member sales are down somewhat and cancellations are up, resulting in an overall membership drop of about 5%. Although our personal training has grown in leaps and bounds in the past few years, we are now seeing fewer new personal training clients. Thanks to a bump in member dues in January, our revenues are up slightly from last year," reports David Carpenter who also oversees the Baptist Healthplex in Jackson.
"We've reduced enrollment fees, replaced spin bikes, focused on customer service and retention, and refocused our marketing program. We are placing ads and articles in area journals instead of the more expensive city newspaper. We are taking advantage of the college radio station as an opportunity to feature our fitness director and other employees in weekly talk programs, which has had a surprising impact on awareness in the community," said Jackson.
The Healthplex periodically offers member incentives called member bucks to reward existing members for referrals. "When we promote a periodic $25 to $50 credit toward dues for referrals, our members really get excited," said Carpenter. "We always get new members from these promotions."
The Healthplex has a large student membership, but the students must pay a separate per semester fee for membership in the center. "It's not covered by their activity fees," says Carpenter. "Part of freshmen orientation for the college takes place at the Healthplex. We bring in a dance band and have funk or salsa aerobics and spin classes, which gives the students an opportunity to see the facility and learn about our membership program. We also are seeing an increase in the number of senior citizens joining the facility, giving us a more rounded member mix."
"Our memberships are open-ended. A member can cancel at any time with appropriate notice. Baptist Health System has a good name in the community, and we do a good job of customer service, but we believe that achieving Medical Fitness Facility Certification will give us another point of differentiation," he said.
Pro-Health is centrally located in Brevard County, which has experienced an increase in unemployment from 5.7% a year ago to 10.2% today (1) and is one of four centers sponsored by Health First, Inc. Health First Health Plans offer membership to the Pro-Health & Fitness Centers as a covered benefit for employees of small businesses in the area.
"Nearly 62% of our members are now covered on a capitated basis under the health plan. In other words, we are paid $3 per month for health plan members that select one of our centers whether they use the facility or not. Our memberships have increased significantly at each center with the addition of these members, but the mix of health plan members and monthly dues-paying members varies by site," reported Steve Dietz, who received the Distinguished Service Award from the Medical Fitness Association in 2003.
The four Pro-Health & Fitness Centers serve a total of 39,000 members. "Our centers are contributing to the health system over and above the normal membership dues structure. The health plan has added 3,000 lives because of Pro-Health, and our centers will contribute about $3.25 million in rent to the system in 2009," said Dietz.
Dietz is focused on holding expenses this year, but anticipates that there may be some cost-cutting initiatives coming in the future. "Our Merritt Island center, which has the highest percentage of non-health plan members, experienced a 16% increase in memberships over last year, but we expect that we will get hit when NASA reduces its program beginning in 2011. We have begun a true marketing program for the first time, and it is paying off. We are offering 50% off enrollment fees when a prospect mentions a radio ad. We are focusing our print ads in free community journals rather than the citywide newspaper," he said.
Ancillary revenue-producing programs such as sport-specific training, personal fitness training, and weight loss programs are key areas of focus for this fall and winter. Pro-Health has just started formal tracking of snowbirds - individuals from northern climates who flock to the area in the winter months - and hopes to capitalize on their temporary presence in the market.
In summary, our take-aways from these conversations include the following:
* Don't forget business basics. Determine what changes need to be made and manage change with effective communication.
* Focus on member retention and customer service. Reward member loyalty.
* Promote services that produce ancillary revenues.
* Reevaluate your cost structure and renegotiate contracts where possible.
* Redirect marketing dollars to more cost-effective approaches.
* Highlight your differentiation as a part of the health care system.
* Seek new ways to contribute to and integrate with the health system and measure your contribution to the health system to demonstrate value over and above the member revenues.
CONDENSED VERSION AND BOTTOM LINE
There is sometimes a fine line between effectively managing change and overreacting to business cycles and economic swings. Before implementing changes in uncertain economic times, understand what your current organizational strategies and goals are, what economic conditions your existing and prospective customers are experiencing, and how they access information regarding services such as yours. Get creative about how you reach and motivate your customers, but focus on sound business principles: superior customer service, cost management, promoting benefits rather than features, proper staff training, communicating with your market with the right message and the right medium, and looking for ways to be of more value to your members and your health care system.