Kim and I have been members of our community pool since we adopted our kids 3 years ago. Like community pools across America, it’s a great place to meet other folks in the neighborhood, cheer for the swim team, or cool off after mowing the lawn on a hot Saturday morning. We love it, and our kids love it too.
Like many community pools, over the past 10 years our membership has been steadily declining, from a high of around 200 families, to only about 90 last year. The problem was accelerated by the great recession, with most of the departures occurring more recently. Of course, pools are luxuries, and when purse strings get tight, pool dues are a relatively easy thing to cut.
Unfortunately for the remaining pool members, much of the baseline cost for running a pool is fixed. Sure, you can reduce operating hours and maybe employ one less lifeguard on duty; but things like maintenance, chemicals, administrative staff, taxes, insurance, and the like don’t vary much with the number of members. So, when membership drops, these fixed costs are spread across fewer people, and the price tag has to go up.
The Death Spiral of a Community Pool
Our community pool was caught in the death spiral. As the recession heated up, down pressure on wages in our middle-class community became a reality. For some families, it was true loss in wages. For others, it was probably the reverse wealth effect–families felt it necessary to save more and spend less because their perceived wealth had dropped. Either way, membership declined…fast.
And the pool board responded as many non-profit boards do, by raising rates on the remaining members to cover the fixed costs. The pool went from just under $400 / year in 2007 to a high of $950 / year in 2009. While that seems almost unbelievable, it’s worth noting that in 2009, $400 of the $950 price was a “surprise” surcharge levied in August to keep the pool open because membership had not increased to expected levels throughout the summer. We paid the surcharge in installments to keep our bond.
In was clear to us and the majority of the remaining members that current rates were unsustainable. But what could we do? We couldn’t afford to charge less, and no one could afford to charge more. That is the definition of a terrible business situation, and it’s the last stages of the death spiral.
Challenging the Death Spiral: How to Overcome Collapse
Perhaps you’re reading this and you’ve seen this same set of circumstances in your own community pool. How do you get out of the death spiral? Hopefully our story will help you. I’m confident it can be done, but it requires a lot of effort from everyone, and some very counter-intuitive thought. Here’s the strategy our pool is employing (more or less)…
1) Don’t focus only on the price side of the equation. Quantity of members is just as important!
This seems dead obvious, right? If you have more members, you can charge less. Notice how the death spiral assumes that membership levels are out of the pool board’s control. In fact, it’s more insidious than that. The death spiral assumes that dropping the price will result in lower net revenues even further. This isn’t necessarily true. In fact, it could be just the opposite. Take this simple example:
Let’s assume that at $500 / year, the pool can attract 50 members, at $350 / year, the pool can attract 75 members, and at $250 / year, the pool can attract 150 members. Quick math will tell you to charge $250 because it will provide the highest total revenue (assuming that your variable costs don’t increase substantially with more members, which they probably would not). The important thing to remember is that demand is NOT linear with cost. This is a maximization function – and the key is the find the maximum revenue.
Seems simple on paper, right? But the reality is that dropping the price in the face of declining enrollment is extremely hard to do. Why? There are two reasons: (1) Net revenues are already dropping and our models–and more importantly mindset–are based on a stagnant or declining membership; and, (2) Because we do not know how much a price drop will increase membership. It seems like a gamble in an already difficult time, whereas raising the price on existing members seems to return more concrete results.
2) Take Big Risks on Price
There is no crystal ball that will tell you how much a price drop may effect your membership levels. You must take this risk and test the results. It’s a hard decision to make, but here’s some guiding principals:
- Realize that price sensitivity for luxury items is significant. This means that a reduction in cost is likely to have a more profound effect on purchasing patterns than for other goods or services.
- Research other local pools and undercut them. Sure, it sounds vicious, but it works. In all likelihood, that pool’s members aren’t going to leave for a lesser cost, but new prospects are more likely to choose your pool over theirs.
- Make the drop significant (30% or more). You’ve probably had many people leave the pool already because the price just kept climbing. Significantly reducing the price sends a new message to those members who dropped out: “We heard you. We want you back. Give us another chance.” If folks knew that the price was $500, they may have seen pool membership as out of reach – a luxury they couldn’t or didn’t want to afford. If you reduce the price to $350, there’s a very positive psychological effect on the buyer – they can now afford something that was previously out of reach.
3) ADVERTISE. ADVERTISE. ADVERTISE.
Armed with your price reduction in hand, it’s time to get the word out. Enlist your membership to help you. Be bold. Here’s some ideas:
How to Advertise a Community Pool
1) Cast a New Vision. Just last year we were “the pool that keeps raising rates.” How do people know if they join the pool this year the rates aren’t going to skyrocket next year? We need a new message. The new message is, “we’ve learned from our mistakes… our goal is to keep rates low and to get membership up. That’s our overriding goal and we need your help and membership to achieve it.” Now, that’s not what you print on the advertisements, but its what your members tell people in conversation.
2) Craigslist. Believe it or not, a lot of people look for community pools on Craigslist. You should repost your pool’s ad every 3 days, especially from February through May. Include pictures. Link to the web site. Brag about your rates and features.
3) Signs. That’s right. You know all those signs we all hate to see? They work. Put up signs on the premises that are easy to see from the roads. Make the new, lower price visible to everyone who drives by. Ask permission to put up signs in nearby community associations.
4) Door Hangers. Sometime in late April, get your membership together to deliver door hangers to surrounding communities. You can buy door hangers for about $0.25 / a piece in bulk. Make your message clear and succinct. Brag about your pool’s benefits and your lower price.
5) Word of Mouth. Offer your members discounts for referring new members. Educate your members on the changes your making (make sure you give them that new vision you created in #1). Give them talking points for when they’re meeting with their neighbors. Get the buzz going!
6) Newspapers. Run a few targeted ads when the weather gets hot and people are thinking about pool memberships. Brag about your lower price and your pool’s features.
7) Host “free” Events in Early Summer. Right when the pool opens, hold a “family free” day to get folks to come to the pool. Tell your membership to make sure they come so that the pool has a big community to be a part of.
8) Give members free passes. Give each of your members free passes so they can bring friends to the pool. Give them as many free passes as they can use, but only let them bring the same people twice. Make sure when people come to the pool for free that they get handouts with information on joining the pool.
9) Advertise in local HOAs, schools, post offices, and whereever will let you! Get the word out everywhere.
Will All This Keep the Pool from Closing?
That’s a tough question to answer.
Getting out of the death spiral isn’t a guarantee. The reality is that even the best leadership can’t always recover a lost cause. But the alternative–to keep raising rates on existing membership and to hope against hope for new members–is a surefire way to drive the pool into the ground. It won’t work, and the pool will be up for sale in no time.
Using this strategy coupled with a low level of temporary borrowing, we’ve gotten enough members signed up to open the pool for the full summer. We still need to get more members in coming years, but our hope is that by committing to low rates and focusing on increasing membership, we will be successful!
P.S. On a totally unrelated note: one of our new community blogs, A Concord Carpenter Comments is giving away a Bosch Cordless Pocket Driver. Visit that link to enter the contest. If you’re a blogger, you can get 10 entries by publishing the giveaway on your site (we just did!)