Tripping Points (JAX -> DCA)

Customer behavior based on our analytics consulting of subscription and membership businesses.

I was fortunate last week to be invited to a friend’s REX Roundtable meeting. (If you are not familiar with it, REX Roundtables is a terrific organization that facilitates peer-based learning, mentoring and cooperation among small groups of business owners and executives within an industry.) They asked that I share observations on subscription and membership customer behavior based on insights from our analytics consulting practice.

I was invited to share some general observations and insights based on our analysis of about 1.5 million health club members. The group I met with consisted of about 15+ owners of fitness clubs.

While talking, one of the club owners asked if I could summarize a couple of “tipping points” at which customer behavior changed. I thought that was an interesting question. I have a few flights over the next few weeks, so I thought I’d tackle a “tipping point” on each trip (especially now that I can keep using my phone to type even during take off!!).

Point 1. Customer behavior (at least for discretionary purchases and discretionary uses of time) seems relatively consistent.

I recently read an article that cited “RFM” marketing techniques from the 1950’s . It stated that customer purchasing was most often predicted by the recency (R), frequency (F), and monetary (M) value of past purchases. In other words, the best indicator if a customer will buy your new product is if she has purchased many products from you and has purchased recently from you. (I am going to use the female pronoun in this post so I don’t have to constantly type “he/she” – these observations are applicable to men and women).

The same thing is true in anticipating member attrition in the fitness industry. A member’s frequency of work-out (e.g., average check-ins per week) and recency of work-out (e.g., days since last check-in) are the strongest predictors of a member’s likelihood of continuing or ending a gym membership.

That’s probably not too surprising. But what’s fascinating (at least to me), is the degree to which the importance of those factors vary based on a member’s tenure.

In other words, the recency of a member’s last work-out is a strong predictor if she will leave…but the actual number of days where you have high attrition risk varies significantly for new members v. long-term members. We break down tenure into 5 categories: New (0-90 days), Formative (90-180 days), Developing (180-365), Established (1-2 yrs), and Long-term (2+ yrs).

New subscribers or members

For a typical fitness club that has $40-$55 per month dues, we find a medium level of attrition risk in ‘New’ or ‘Formative’ members if she has not worked out in 10-14 days.

No, that doesn’t mean that in the 15th day she will walk in and quit. But after a 15 day absence her work out habit has been interrupted. There is now a much greater chance that she will not easily re-establish this habit. Her affiliation with your club is still rather new (kind of like the early stages of any relationship). So without an active work-out habit to reaffirm the value of her membership, she may not believe that the cost of membership is on par with the value she receives.

Established subscription-based customers or members

Fast-forward one to two years. A member has been with your club for over a year (e.g., an ‘Established’ member). Work and home-life get busy for our member, and she can’t work out for 10-14 days. Her work-out habit has been interrupted, but our research suggests that her attrition risk rises MUCH more slowly than if she were a ‘New’ or ‘Formative’ member.

Why? Well, there is still risk that she will not re-establish her work-out habit. But now your club has history with her. She has an affiliation with your club built up over 1+ years. Her view of the value you provide goes beyond her immediate work-out history. This broader view of value is sufficient for her to justify the cost of her membership.

For the scenarios described above, we have seen the member’s attrition risk rise twice as fast for ‘New’ or ‘Formative’ members who have not checked-in as we have seen for ‘Established’ or ‘Long-term’ members.

Recommended actions to take

So if you are using a “30-60-90 day report” to make calls to members that have not checked-in much, split that report into two groups – (1) members that are in their first year with you and (2) members beyond their first year. Try different timelines for contacting each group (e.g., calling the first group after short absence, calling the second group after longer absence).

Also try different messaging. The first group wants a work out habit – that is how she assesses the value your provide. Help her re-establish this habit quickly – GroupEx, complimentary work-out for a friend, etc can all help her change behavior and come back in. The second group wants a work out habit too, but there is history. Ask what she has done in the past and what she liked…use that to help identify other similar programming.

Well that’s it for this flight. Stay tuned for another “Tripping Point” soon.

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