By John G. Fornaro
In recent years, private clubs have faced many issues – depressing economic conditions, stagnating golf statistics, members’ time and money constraints and competition from daily fee golf courses and nearby first rate restaurants – while seeking to retain their members and searching out prospective members.
Dues-paying members are a private club’s lifeblood, so clubs must continue their search for new members – it’s a never-ending process.
Unfortunately, the marketing strategy for many clubs often has been reactive. We need 40 new members, what do we do? Hire a membership consultant? Reduce the initiation fee? Bribe the members to refer prospects? Or as happens at some clubs…just buy out some of the memberships and reduce the number of members at the club.
Short-term solutions these are…and yes, you might need them. But what of the long term?
This raises the question: What is the sustainable value of short versus long-term membership vision and strategy? Short term seen more as a pure tactical move, and often not so successful. Long term meaning engagement of a club’s reality and a clear understanding of where the club stands in its marketplace. And unquestionably, quality sells.
So it’s been a matter of establishing the correct vision and strategy, depending on the club and its market, aimed at retaining and also increasing memberships. Of course, some clubs because of their outstanding member experience have been more successful than others. Quality sells, and they outsell the competition.
However, here’s another component to this equation…the membership ‘for sale’ list. What’s that mean?
“In non-equity clubs, this simply means membership falls below the cap,” outlined Frank Vain, president of the McMahon Group, a St. Louis based private club planners and consultants. “In clubs with some sort of refundable initiation fee (an equity club), this means members go on the ‘for sale/resigned list’ and pay dues until their membership is transferred. In either case, clubs must take action,” Vain said.
“When private clubs have a business model of ‘having to pay dues until a membership is replaced by a new member’, (the Hotel California rule from the song by the Eagles with the phrase, ‘we are programed to receive, you can check out but you can NEVER LEAVE!’ comes to mind) having any ‘sell list’ can be devastating to the club,” suggests Steve Graves of Creative Golf Marketing.
“The phrase ‘the list’ used represent the waiting list to join the club. Now, it represents the members desiring to leave the club. The resigned/sell list at many private clubs has become an issue and the list of members desiring to resign/sell their membership commonly has gone well over 100 members,” Graves added.
“There are many components involved in how clubs have found themselves with a long waiting list to sell,” suggests Bob Bodman, principal with Club Resources, a private club industry consulting firm.
“If this is occurring today, it is probably more complicated than a simple residual effect of the economic downturn from 2009 – 2013.”
One factor is a perceived lack of value for the membership by both the club’s members and the market.
“It may be the after effect of a club that retrenched too far or for too long to survive during the downturn (i.e., reduced quality levels, hours and services, etc.), or that the facilities have developed too much deferred capital maintenance and replacements, which must now be dealt with, thus creating a need for (or a rumor of) a large bump in dues or impending assessment,” Bodman added.
“As Warren Buffet says, ‘price is what you pay, value is what you get.’ Clubs that have more memberships for sale generally are out of step with what creates value in the modern club experience. All too often they are overly focused on providing access to a golf course versus creating a lifestyle experience,” Vain suggested.
“In the case of the initiation fee/non-equity club, there is a need to address the lost dues revenue, while in the case of the equity club, issues can range from brand impairment (i.e., club takes on The Hotel California reputation), poor internal dynamics from members waiting for redemption or forfeitures.”
In Frank Gore’s opinion, it’s an issue because “members become impatient and want a way to either stop paying dues or get some of their joining fee back. Potential new members are concerned that if they join, they may not be able to get out…if the current sale list…is long,” stated Gore, chief analyst with the BoardRoom’s Distinguished Clubs.
Justin Herr, director of membership sales with Troon Prive, is on the same wavelength…” it’s important to be clear that we’re really talking about two separate issues – 1) a growing sales (resignation) list, and 2) a lack of prospects.
“Every club should have an in-depth understanding of the trends within their sales (resignation) list. How fast is it growing in relation to new members coming in; what reasons are being given; are certain age groups resigning more than others, etc.,” he added.
Given the situation, what should clubs do? Rick Coyne, CEO of ClubMark, offers this: “There are many success stories in how clubs have creatively provided for reduction of their lists of ‘for sale’ memberships.
“In most cases, it has involved setting a ‘transfer fee’ that the club gets as a minimum when a membership sells. This allows the selling member to essentially set the price on a monthly sales list. If the transfer fee to the club is $75,000, the selling member can ‘set the price’ and even pay down the $75,000 to simply walk away from the membership,” he injected.
Bodman offers another alternative. “The most effective method to eliminate the waiting list to sell, is to do exactly that – eliminate it, by establishing a blind auction, every month. In this case, the members who truly want to (or need to) get out will set their price to do so, and those who are not quite to that point yet will refrain, or keep setting a higher asking price until the market reaches that price.
“Each month, the blind auction process resets and begins again — thus, the club has no list to maintain,” Bodman added.
Herr outlined another approach. “Market-based pricing is an option that allows members on the sell list to position themselves on a new list in order of how much they would take for their membership. The club is able to customize the parameters and determine the length of time it is offered. In most cases, market-based pricing generates quick interest and leads, and can stimulate sales velocity while reducing the sell list,” he explained.
“If the club has capital available, the club may want to consider a list buy down, where people on the list are approached with a ‘cash now’ option rather than ‘wait for the future’ refund that they’re entitled to. The offer is typically a fraction of what they would be owed. The club benefits from the resulting reduction in refund liability on its books.
“In situations where there is a desire to quickly reduce a smaller sell list and there are still prospects coming into the pipeline, a club could temporarily accelerate the refund ratio (such as go 2:1 instead of 4:1),” Herr added. And the club should establish a fixed price…”as long as the prices make economic sense in the club’s market space and support the club’s goals,” he explained.
“The first thing that all private clubs should do, with this totally flawed business model, is to begin to change their business model immediately to a free market system. The list is not the problem at these private clubs. The problem is the structure that obligates a member to paying dues until their membership is replaced by a new, joining member. This highly flawed business model must first be evaluated and modified before a club can truly enjoy a long-term, financially successful business model,” Graves injected.
“In my judgment the joining fee for all private clubs should be established by the board of directors/board of governors of a private club. A resigning member (the most desperate seller) should NOT be setting the price of the value/brand/image of a club for which they are leaving!
“The market driven strategy should prevail at all private clubs but the market price should be established by those who are staying at the club, not by those who are leaving the club. To truly enjoy the optimum joining fee (which should pay down debt and fund capital improvements not compensate resigning members) the joining fee should be market driven and established by club leadership who have the best interests of the club in mind,” Graves added.
Yes, there’s consensus the club must control the price of the membership, otherwise the most desperate member on the sales list will determine the price. “The club must set the price,” Gore emphasized. So how is this accomplished?
“Club leaders must take steps to 1) understand the local marketplace (demographics, competition, etc.), 2) understand how the current membership feels about the experience, 3) address immediate operational and programmatic needs, 4) assemble a team to work on new member development and 5) invest capital to improve the long term experience,” stressed Vain.
“The leadership should develop a clear strategy for the club. What business is it in? What type of club should it become over the next five years?” Vain queried.
“Unless the club is in a major recessionary environment like 2009-10, the failure to attract new members most often is a result of failing to offer a compelling membership experience,” Vain added.
“In reducing the exit list, the process starts by making sure the club has a proper membership development team in place. Despite a constant need to replace attrition, whether the club is keeping pace or has fallen behind, many clubs do not have a full-time membership director and the membership committee is often too small and non-representative of the target market.
“It is a mystery why organizations that are clearly in the ‘dues business’ do not formalize their approach to new member attraction. The economic model of private clubs does not revolve around generating more revenue from operating departments or cutting services. It requires a sufficient number of dues payers,” Vain outlined.
“There are key factors in developing strategy,” explained Troon’s Herr. “What are the trends telling you? What opportunities/restrictions are within the membership plan and or club bylaws that need to be considered? What are the goals for future action? What time frame is being considered – short term immediate needs versus long-term changes?
“Every club should know every detail about the clubs in their particular competitive set, as well as other pertinent economic particulars in their market,” Herr says.
“We are the market that we serve and while the market may differ from club to club, it is always definable…by potential buyers, the market area, competition, the relevance of the product offering and the willingness of members to work with the club in solving the problems. That’s a lot of variables,” Coyne stressed.
Vain’s opinion is that the “market price (float) is the most effective and efficient way to offer (sell) equity memberships.
“This approach prevents the board from over or under shooting the marketplace and it takes away the stigma of lower prices, should they occur. The membership price is more the result of macro issues like the state of the general economy, club and area demographics and other factors,” Vain explained.
“Ultimately, the club doesn’t really have to care all that much about the price of membership as the marketplace establishes it for them (with minimum transfer fee). If the exit list is getting longer and sellers are motivated, they will adjust their sale price to move memberships. If memberships are in demand and the economy is sound, the price will go up.”
Promotions however, raise a caution flag.
“Clubs shouldn’t encourage a promotion like a sales discount, but a campaign of membership by invitation, enlisting the help of the board, the membership committee and members at large,” emphasized Gore.
“It is quite unfortunate that private clubs think about selling memberships when they should be encouraging their members to invite prospective new members to join. Price alone does not sell memberships! If that simple strategy was successful all private clubs would be full,” intoned Graves.
“Private club leaders should be motivated by a strong business model that perpetuates both the retention and recruitment of private club members before they resort to promotions or price slashing of joining fees,” he added.
“Clubs hold market their unique differentiators and create value, not lead with low prices, “countered Herr. “The fire sale mentality may deliver quick results, but not engaged and loyal members.” A point reiterated by Vain.
“The need to run special membership promotions is more often than not the result of offering a membership experience with low perceived value or a poor approach to membership development, or both.
“Membership drives tend only to accelerate sales, not solve the underlying issues behind the build-up in the resignation list. If someone is attracted into membership because of some sort of price-based drive, they are less likely to be in sync with the club’s overall strategy and core values. They joined because of a deal, not because they see real value in the experience,” Vain offered.
“When the membership is actively engaged in the invitation process and there are a limited number of memberships available, the laws of supply and demand are very powerful and the joining fee associated with becoming a member of a private club will, naturally, move upward,” he expressed.
“The entrance fee to join a club is a strategic issue, not a marketing one,” Vain maintains. “Successful clubs have fee structures that are in sync with the economics of their primary marketplace (15 minutes-drive time). Clubs that are having difficulty replacing attrition are probably not offering the right type of membership experience.
“In my experience, the first rule in selling memberships is to have something good to sell. If the leadership focuses on developing the programs and facilities to support a well thought out strategy, the issue of pricing will become obvious,” Vain added.
“If they skip that step and think only about ‘selling memberships’ they’ll be stuck in a never-ending cycle of deals and promotions that fail to generate a cohesive membership and a sustainable model.
“One of the first issues to solve is to understand why the club offers any sort of refundable initiation fee,” Vain emphasized. “That model worked for a growing club world, but not so well in this buyer’s market. Most clubs will for the foreseeable future be in a buyer’s marketplace.
“Membership is a lifestyle choice, not an investment and in most cases a membership plan that returns money to exiting members is misguided,” said Vain.
“The refundable memberships came into vogue when developers entered the private club industry,” remarked Graves. “The marketing efforts utilized by developers to gain large joining fee from new members, with promises of a significant percentage return of this upfront joining fee money upon their subsequent resignation from the club, has done substantial harm to the private club industry.
“The concept was based upon a perfect world philosophy that prices will always go up and there will always be more people desiring to join a club than desiring to leave a club. Clearly, we are not in a perfect world economy and the image of the desirability of private clubs has been harmed by this substantially flawed concept,” Graves opined.
“Many, many private clubs that originally adopted this business model have been looking for strategies for which to unweave the wicked web that has been woven. The wicked web can, and should, be unwoven!”
Publisher’s final thoughts
And yes, we might face another recession, and while some clubs have the luxury of a wait list to join, the fact is more clubs are faced with a ‘wait list to leave.’ The situation is complicated by more than a sour economy, in most cases it’s a matter of people not seeing value in their memberships.
Regardless, as more people leave, more clubs will need new members. This remains the answer to a club’s ‘dues dilemma.’
Plan ahead, and make sure your club’s ‘for sale list’ policy is the correct one for your club. But I do agree, with many of the industry’s top membership consultants – the membership initiation fee should be established by those who are staying, not those who are leaving the club.
The board should decide. But will the board do the appropriate research to determine what their initiation fee should be, or will it be decide by emotion, as sometimes happens.
Never ever, have we accumulated more research and an understanding about member initiation fees and dues than today. Never before have we had the resources we have today.
There are more membership consultants today with plenty of experience who can help a club through the process of making the appropriate decisions for each club.
It’s worth the investment – hire a membership consultant to help your club determine these policies and the correct initiation fee, then stay the course.
At least that’s the way I see it!
John G. Fornaro, publisher
If you have comments on this article or suggestions for other topics, please contact John Fornaro at (949) 376-8889 or via email: firstname.lastname@example.org