Business Tips

The Low Price Fallacy

Recently, a club owner made an argument for a low price strategy. You know the drill: low price stimulates more units sold and the greater volume brings higher profits.

Here is my response: The low price, high volume argument is valid with COMMODITY products. If you desire to buy a roll of Kodak Gold 400 or some Energizer AAA's, what difference is there other than price? None, they are commodities. Long ago, WAL*MART figured out that by lowering prices on commodities it would gain twice: 1) increased sales and profit due to more units sold; 2) lower unit cost that comes with buying more units (quantity discount). Add a believable marketing strategy and a world-class distribution system and the WAL*MART story is history. This strategy works because, as more batteries go out the front door, WAL*MART can simply deliver more batteries into the back door and the consumer couldn't care less because the quality remains the same. Try this approach to teaching gymnastics and watch what happens.

Our product is a classic VALUE-ADDED product. The difference between cartwheel A (and the safe, loving manner in which it was taught) and cartwheel B (and the apathetic, impersonal manner in which it was taught) is HUGE in the eye of the consumer. The consumer is willing to pay more for cartwheel A, even though the two cartwheels ultimately are of equal quality.

It costs more to produce 'cartwheel A' (more skillful teachers cost more) but the revenue generated by the higher price will out pace the higher teaching cost, hence, increased profit. Note that some products (such as batteries and camera film) may start out with uniqueness but become 'commoditized' over time due to standardization, patent loss, competition, etc. Gymnastics instruction, being a 'pure relationship' business is not likely to ever become fully commoditized because the process of relationship-building will always have room for VALUE-ADDING. The gymnastics club that figures how to add more value and charge for that value will win the war.

Fact: I know of no gymnastics school which 'sells low price' and has a truly healthy business, long term.

Fact: If you have never raised prices to the point where a measurable number of customers stops buying, you are shy of your optimum price/profit point.

Action: Constantly search for ways to ADD VALUE to your cartwheels (in the clients' eyes) and CHARGE for that value. Start out by looking for adding value which costs little or nothing (smiles are a good example). After this, consider bigger expenditures (such as expansions and new facilities). Do this daily, weekly, yearly until it is a habit. And then, never stop doing it. Make it a great summer!

Jeff Metzger
USA Gymnastics Business Development Partner
President, GymClub Owners Boot Camp
President, Kids First Sports Center