Membership Issues Initiation Fees: How Should They Be Handled? The Views Are Varied! |
| So what do private clubs do with membership issues in this day and age? |
| As suggested in the first two articles of this four-part series, private clubs today face a myriad of membership issues. Challenges include a growing golf market, too many courses, changing demographics and a slumping stock market and down-in-the-dumps economy. |
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Additionally, clubs may not be offering what members want, older members are leaving and simply, the traditional ways of recruiting members just doesn’t work today. |
| Some clubs, to counter these impediments, rely heavily on their memberships committees and more specifically, membership directors. But sometimes the major issue for the whole industry focuses on the dollar factor: initiation fees, marketing strategies and different kinds of memberships. |
| Initiation fees, of course, are a major issue. This is, in part, a way everyone evaluates a specific club and its amenities and stature, and ultimately is a major part of the club’s membership marketing strategy and policies. So how should initiation fees be handled? |
| Consultants in the private club industry are varied in their views of “fixed” and “floating” initiation fees. |
| “The club, typically a board of directors or an owner, should ALWAYS determine the selling price of a private club membership,” says Steve Graves, president, Creative Golf Marketing. |
| “To suggest that the "value" of a private club membership should be determined by the resigning member is fundamentally flawed. However, often times, board of directors or owners don't have the courage to properly lower the price of memberships because of criticism from other club members who feel that the board or ownership has "cheapened the club" by considering even a temporary reduction in the price of a private club membership. |
| “The easy way out is to allow the sellers to set the price. Then the emotional element of potential criticism from fellow members (peers) is eliminated. Obviously I do believe in pricing memberships because of competition, local and national economy, club needs etc. To a certain extent that does mean floating the membership price. However, the price of a private club membership should not be established by the most desperate seller!” Graves declared. |
| Donna Coyne, executive director, Association of Professional Club Marketing, says there should be a fixed pricing strategy and structure “based on what the marketplace will pay and the amenities offered with the membership. |
| “Having a floating initiation fee pricing strategy for memberships being sold by the club sends the message that the club will take whatever the membership can bring, and possibly the perception of the value is gone.” She does suggest a ”floating strategy is fine” when a membership is sold by a departing members. However, “in my opinion the club should charge a fixed transfer fee for the transaction of the membership being sold by the member.” |
| Frank Vain, president, McMahon Group, Inc. says his company’s research shows “clubs that allow their entry fee to float with the market have lower equity prices than those where the board sets the amount. |
| “In the market case, the member that is looking to leave the club sets the entry price for the new member, so it declines in direct proportion to their level of urgency to dispose of the membership. |
| “In the fixed fee situation, the leadership sets the fee based on a number of factors, like the club’s overall goals, market position, financial strategy and membership profile,” Vain added. |
| “Each strategy has positives and negatives. The market fee tends to dampen prices even in good times, while the set fee may turn off demand during periods of weakness. The market strategy can be helpful in recessions as the price continues to seek a bottom, but it leaves a good deal of money on the table when times are good. Since good economic times are far more common than recessions, and an entry fees conveys significant signals about the club, it is generally better for the leadership to control the fee.” |
| In Rick Coyne’s opinion, most clubs started with fixed initiation pricing and he says, “the fallacy of the initiation fee pricing strategy has been a general ignorance of the market’s ability or willingness to pay a level of fees. |
| “Escalations of fees were often ego generated or were instituted to create a rush to buy before the fees went up. Eventually, however, this strategy reveals itself to be flawed as the fees rise to a level that is unsustainable in the market,” opined Coyne, president, Club Mark Corporation, Dallas, Texas. |
| “Floating fees have become a viable cure for taking the fees too high in the first place.” Coyne says Anthony Chidoni, the president of Bel Air Country Club and managing director of Credit Suisse First Boston, in a recent interview “was amazed that the private club industry historically had never embraced the floating initiation fee, citing that the rest of the free market balances pricing everyday on such a strategy.” |
| Coyne feels a byproduct of overpricing initiation fees is the “discounting” programs. “This kind of remedy has the potential of seriously damaging the respective club through loss of credibility as well as the sometimes irreversible damage to value perception. |
| “The answer lies in utilizing the same business principles that would be employed in any other business. Know your market first, then set price,” Coyne asserted. |
| Again there’s agreement initiation fee pricing should be certainly be part of a club’s long term strategy, especially marketing strategy so far as increasing or decreasing the price of initiation fees is concerned. |
| “Initiation fees should
be well thought out both from the standpoint of how the capital is to be
utilized as well as what the range of fees might be for various membership
categories, the latter being decided based upon careful examination of the
market area demographics. In
most clubs, initiation fees are the major source of capital for
replenishment and repair, therefore suggesting that their importance is both
short and long range,” Coyne added. |
| Vain says the initiation fee must be part of the club’s long term strategy because it is “part of a complex series of issues including membership marketing, membership retention and an integral part of the capital expenditure budget. |
| “It is not something that can adjust up or down everyday like the price of gasoline. It sends a signal to the outside world about the quality and vision of the organization and the commitment level that is expected of prospective members. Any club can lower its entry fee and generate more member sales, but the people attracted by the drive may not support the vision of the club philosophically or be able to use it financially. |
| “A club should set its new member fee based upon thorough examination of its marketplace and its membership and adjust it after careful consideration of many factors,” he suggested. |
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Donna Coyne says an initiation fee should not be the
“steam that drives the engine. My opinion is that thorough analysis should
be done to determine what the market will respond to. For some individuals
… the concern may lie in what has to be paid up front versus the total
cost paid over a longer period of time.
Others it may be just the opposite. |
| "If a portion of the initiation fee or all of the initiation fee goes to the club, then the leaders of the club should determine if it is in the best interest of the club to place those funds in an account...for capital improvements, emergency needs or perhaps a portion...to offset the cost of the sale." |
| “The rules/by-laws of the club should outline the restrictions and use of the initiation fees generated by new membership recruits,” she added. |
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Graves says the initiation fee should be a long-term
strategy aimed at “maintaining an initiation fee
that properly represents the quality of |
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“The most successful clubs,
in my opinion, have low, stable dues and |
| So how does a club monitor initiation fees? Is there a right time to raise or lower initiation fees? For Terry Bascher, president and CEO of Club Innovations, it’s a matter of supply and demand. |
| “Each club is unique and requires a different approach in determining when is the right time to increase or decrease initiation fees. In general, a thorough market study, both internal and external, can provide the proper indicators for the club. It’s all about supply and demand. |
| “A club, in high demand has the luxury of increasing fees more rapidly than one that has potential competition. However, with the economic environment of today, I would recommend this be done with great caution,” Bascher related. |
| “There is definitely a swing that has taken place regarding the psychographic profile of potential members, and club membership, which was once considered something to achieve (tied to status, prestige, etc.), is no longer viewed the same way. Potential candidates for club membership today have a variety of choices and can attain the same level of activity for their entire family without a large financial commitment,” she added. |
| Graves stressed that “as with any market driven industry, supply and demand rules. |
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“Our saying is that you
should only raise your initiation fees if you deserve to raise initiation
fees. This industry is driven
by emotion. Everyone wants to say they are a member of a high initiation fee
club. However if that club is struggling, making a decision to raise these
fees where there is a significant inventory of memberships available, this
decision negatively affects the ability of the club to operate efficiently,
thus the club is forced to make tough decisions (cutting |
| In the opinion of Heidi Voss, president, Bauer Voss Consulting, an international membership marketing firm based in Galena, Ohio, “a fee increase is the single most effective means of converting a prospect to a member. |
| “Clubs that do not properly notify prospects of potential increases are not only doing a disservice to the prospect but they are handicapping the club at the same time. Clubs should increase the membership fee when the director has more than 10 candidates that would make application at that time.” |
| Donna Coyne says increases or decreases are often made without a thorough understanding of the long-term effects. She suggests the decision “to decrease initiation fees isn’t necessarily negative, if the marketplace demands such action and if a proactive effort is being implemented to increase the number of membership sales in a defined period of time. |
| “Giving a sense of urgency to the selling process can prove to be beneficial,” she said. |
| Vain feels any increase of decrease in initiation fees is also a function of its memberships…whether or not it’s full or whether or not there are vacancies. |
| “Anytime a club begins to fall more than 10 percent below its cap on full memberships, it is time to complete an in-depth review of the factors behind this. Club budgets generally lack the elasticity to support such a gap between plan and reality for very long,” Vain commented. |
| “The notion of changing the fee must be weighed in response to the factors behind the decrease and the club’s overall financial position. For example, clubs with significant long-term debt are going to sacrifice entry fee income over dues income just about every time. Clubs without debt are in a better position to wait out slow demand periods and leave their fee intact. |
| “In order to set the entry fee at the proper level, a club must understand the satisfaction level of existing members, the market that it operates in and the fees at the clubs in your market area. If the members are very satisfied, the lack of demand may be solely an economic phenomenon. If they aren’t, there may be other forces at work. The target for the entry fee, or the club’s transfer fee portion from equity member sales, should be sufficient to fund the club’s annual capital expenditures budget. If it is not and demand is evident, it is time to increase it. If demand is lacking, other steps may need to be taken,” he recommended. |
| The bottom line: Clubs need to consider carefully how, when and why initiation fees are adjusted, and whether or not fees are adjusted while there are still memberships for sale. |
| Different types of memberships also can have an effect on private clubs and their initiation fees. |
| “Dr. Bonnie Knudson, at Michigan State, has introduced the understanding of the various psychographic elements which make up the predominate buying force for private club memberships,” Rick Coyne said. |
| “Each has different needs and wants. The senior member may like to see a lower priced membership that may restrict play to weekdays or weekends after 1 p.m. The generation Xer, however, may need to have a junior or intermediate membership, with tiered initiation fees and dues to make the membership more affordable and attractive. Social memberships and business associate memberships may also have an application in a specific club,” he outlined. |
| Vain suggests the ideal way to organize a club is with only one category of membership with full privileges and everyone sharing equally in the cost, mission and direction of the club. However, it is far less common today. |
| “Increasing member categories is likely to increase market penetration, say by bringing in young families interested in a pool and fitness membership or holding onto older members who no longer play golf,” he opinioned. |
| “The obvious benefit is the expansion of the dues line. The challenge is that it serves to increase the diversity among the membership, meaning that there will be a greater financial disparity among the members and fewer shared values. This is tougher environment to manage, but our research has shown that larger clubs have greater satisfaction among their members, so it is usually worth the effort.” |
| In the “old days of the industry, there was only one category of membership, either you are a member or you aren’t. Today, clubs that maintain that philosophy are not going to be successful,” Graves stressed. |
| “Some clubs on the other hand have let emotion and crisis dictate their philosophy and they have designed a category of membership to meet EVERYONE'S NEEDS." |
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“Clubs need to find a
balance of solid membership offerings to meet the |
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“Obviously we feel very
strongly about designing the proper category to |
| It’s a time, Rick Coyne says,
when there’s a “sure, steady loss of senior members combined with a
younger generation that may not place the same value on private club
memberships. This is not only a period of economic downtown and
overbuilding, it is also a time in which we are seeing three distinctly
different generations vying for optimum attention and services that are
likewise as diverse. |
| “As one of my recent workshop attendees remarked, “just another great day in paradigm.” |
| Publisher's final thoughts |
| Clubs should only raise the price of initiation fees if all of the following happens. |
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•
All specific membership categories have reached their full complement. •
The club has a steady sales momentum and there are a continues flow of •
Clubs of a similar type in your area have a
short list of membership for |
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The worst time to increase
initiation fees is when there is no sales momentum. The initiation fee at
that point may well be at its height. It
is also important to recognize that if a club uses an initiation fee
increase as a closer, the club could drain the marketplace of any existing
prospects, as well as price |
| A club’s reputation is on the
line. Clubs should not make short term decisions regarding initiation fees.
Rather, the club needs to have a long-term marketing plan prepared before
hiking up initiation fees otherwise the club might pay a penalty later for
being greedy. |
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So far as decreasing your
initiation fee are concerned, I favor a floating |
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I recognize that for some
clubs this will never be an issue because they will |
| This is even more difficult for equity (501 c7) clubs, which are limited to how they can market memberships. These are approved recommendations. |
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1. Hire a membership director whose only job is to create
marketing |
| 2. Develop a marketing strategy that motivates more club referrals and increases the club exposure in the community. |
| 3. Research your area. Make sure your comparison study is that of clubs similar to yours. This means not only the golf course and clubhouse facilities but also more importantly a similar member demographics and income. |
| 4. Make sure you do exit surveys. Why are members leaving? If your club is not meeting the members’ needs, fix it. Word of mouth will make or break your club. |
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5. Attend the Association of Private
Clubs’ marketing seminar in |
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6. Last but not least, what
is your club’s mission statement? What is your |
| At least that’s the way I see it. |
| John Fornaro Publisher |
| We welcome feedback and comments on any of our editorial features. If you have an idea for a topic you'd like to see addressed in a future "Publishers Perspective," please contact our editorial department at (714) 596-6611 or via e-mail at jody@boardroommagazine.com |