The Price of a Poor Experience
“I’m sorry but that’s our policy,” the woman at the desk said. “You can’t come into the gym.”
“But I even have a guest pass,” I countered. I was a member of this gym, which cost over $200 a month, but had put my account on freeze because of travel. I happened to be in New York that day and had offered to bring my parents there for dinner. Even on freeze I had to pay a fee of $40 a month so I figured they’d let me in to eat at the cafe. I figured wrong.
“A member can’t use a guest pass,” I was told.
I asked to speak with a manager. “So my parents could come in with a guest pass because they aren’t members but I can’t?” The manager repeated the same policy.
That got me thinking more about the $40 fee. How could they get away with charging me for not using the gym? Where was the value in that?
I called various gyms around New York City about their freeze policies and noticed a curious trend. The more expensive the gym, the higher the monthly fee to freeze your membership. The cost to freeze your membership at inexpensive gyms? $0.
That’s strange. I would have thought the more I paid for a gym, the more privileges I would get. But it’s the opposite. And it’s not just gyms. Look at the two lists of hotels below:
Ian Schrager Hotels
Here’s what I find amazing: The A list hotels, which are considerably more expensive per night, all charge additional money for the use of the internet from your room. The B list hotels all offer internet free with your stay.* Again, wouldn’t you expect the more expensive hotels to include more amenities?
Imagine you paid a huge premium to buy a first class ticket on an airline and were told that, while the cheaper economy tickets allowed passengers to check their bags for free, first class passengers must pay $50 per bag. Crazy, right? Well, that’s what’s happening with the internet at hotels. And with freeze fees at gyms.
Airlines can’t get away with it because first class is an upgrade, a direct comparison in which you expect an additional value to a normal seat. They can’t charge you more if they reduce the offering in any way.
But when choosing a luxury hotel we’re willing to pay the additional fee because the entire hotel is in a different category. Its product and service is so far above those in the inexpensive category in so many ways that we simply don’t compare the two.
But my gym made a critical mistake — it treated me poorly. After that incident, my feelings about the gym changed dramatically. In a luxury business, it doesn’t take much to make someone resent the fees he pays. And once that happens, the business dies.
Sacha Litman runs the consulting firm Measuring Success, which helps non-profits make decisions based on quantitative data. He collected data across hundreds of organizations and noticed something surprising about their successes and challenges in this economic downturn.
First, what he didn’t find: there was no correlation between membership and price increases. In other words, customers didn’t leave simply because an organization raised its prices.
But he did find a different correlation: between membership and an organization’s net promoter score, which measures how likely a customer is to recommend the organization to a friend. It turns out that if customers liked an organization’s products or services enough to recommend them to others, then that organization could raise its prices, even in a down economy, without losing any of its customers. But if the organization downgraded the customer’s experience, then not even lower prices would prevent customers from abandoning it.
What’s true for organizations is true for people as well. Understand your unique value, leverage it to fill a need, and you can write your own ticket.
I know someone, we’ll call him Phil, who was a star performer in a small consulting firm. He was a great communicator — he took complex ideas and conveyed them in simple ways — and clients loved him; in other words, he gave his customers (and his bosses) a great experience. So when Phil asked the firm to pay for him to attend an expensive executive MBA program they said yes. Even though they had never done that before (or since). They didn’t want to lose him.
On the other hand, neglect your value, or don’t develop it, and your customers (and bosses) will go elsewhere.
A few weeks after I was refused entry into my gym, I canceled my membership. The way my situation had been handled put the gym, in my mind, in a category of cheaper gyms. The fees I was paying were no longer worth it to me. Once I canceled my membership, I received tremendous customer service — apologizing, putting me in touch with the general manager, offering to freeze my membership for another month without charge so I could think about it — but it was too late. I was already gone.
* data from travelpost.com
Read the whole story here, by Peter Bregman @ Harvard Business Publishing