They Ignored Their “Perceived” Value—Now This Once-Profitable Business Is Almost Dead

Ryan Colby
Nov 28, 2018 · 9 min read

A revolt. A rebellion. An uprising.

This is what took place in my own neighborhood only a couple weeks ago.

It didn’t involve pitchforks. Or a chorus of angry chanting in the streets. Or property-damaging riots.

My friendly, ‘would-give-you-a-cup-of-sugar’ type of neighbors led this ad-hoc insurrection with the money in their pockets.

You see, there’s one prime reason my wife and I moved into this flourishing subdivision 3 1/2 years ago:

The neighborhood clubhouse.

This 20,000 square ft, beautiful, balcony-laden building comes equipped with a full gym, outdoor pool with water slide, indoor lap pool, hot tub, massage area, kids’ playground, child care center, basketball court, and tennis court.

We can drive to this luxurious oasis in 1 minute, and walk there in 5. Super-convenient for a hustling entrepreneur who doesn’t want to waste precious time in the morning.

This one-of-a-kind clubhouse has all the elements required to be a ‘go-to’ destination. A popular hot spot. A local attraction to everyone living in this country town nestled in the backwoods of North Carolina.

With all these scarce amenities, you would think locals would be pounding down the door in search of a highly-coveted (and valued) membership card.

However, the exact opposite has occurred.

Membership has dwindled. Profits have suffered. And now, the very existence of this once-admired clubhouse is in question.

What happened? How did the purveyors of this fine establishment fail to steward this business in a profitable way?

They seem to overlook (or ignore on purpose) ONE crucial factor most customers consider when making many of their buying decisions:

Perceived Value.

According to Investopedia.com:

“Perceived value is the worth or merits a customer ascribes to a product or service.”

This “worth” is based on emotional appeal and the direct benefits your customer believes they will experience from what you sell.

Your customers don’t understand (or care about) the real, underlying costs that inform your pricing strategy. They don’t consider the cost of raw goods, advertising fees or employee payroll.

All they want is to feel they are receiving commensurate value in exchange for the hard-earned money they give you.

This is where my neighborhood clubhouse failed. Over and over again.

Let this blunder-filled story from my quaint, North Carolina town be a resounding business lesson for you. Don’t make the same mistakes.

From Profitable, Neighborhood HERO to Struggling Business ZERO — A Cautionary Tale

Membership consistency and financial stability.

These two enviable attributes succinctly defined our neighborhood clubhouse for the first 3 years we lived in this sprawling development:

  • The gym was packed daily with grunting and sweating fitness aficionados.
  • The outdoor pool was surrounded all summer long with retirees, screaming children, and the weary parents of those screaming children.
  • The indoor lap pool echoed the sloshing sounds of water as serious swimmers paddled and kicked with unfettered determination.
  • The basketball court was teeming with local teenagers all trying to emulate the newest Lebron James move they witnessed during last night’s game.
  • The childcare center contained an assortment of boys and girls playing with toys, coloring with their favorite Crayolas, and sharing the most prevalent childhood ailment without due cause for concern.

The financial future of the clubhouse looked bright. Well, at least it wasn’t doomed for the darkness of economic despair.

How do I know this? Because the developer shares the financials with everyone in the neighborhood. It’s part of the deal.

Yet, the leadership of this small-town business committed a series of avoidable blunders. With each one whittling away the profit on their once-healthy bottom line.

Their latest mistake was the big one. It instantly revealed the severe lack of value customers perceive from the services they provide.

The fancy “spa”. The “equipment-packed” gym. The “spacious” outdoor pool. In reality, these were all components of a shallow, outer shell. A mask. A façade.

In Just One Day, The Clubhouse Lost It’s ONLY Competitive (and potentially, illegal) Advantage…

During its many years of financial stability, the clubhouse operated with one, major strategic advantage:

Many of the neighborhoods within our community were FORCED to pay for a membership through the various HOAs.

They had a built-in, captive customer base who forked over cash every month regardless of the service quality provided.

(Can I have that in MY business? Gimme an amen!)

To be fair, every home owner was well aware of this arrangement when they dropped their John Hancock on the purchase agreement for their house.

However, there was a certain subset of neighbors who still found this setup unfair. Unreasonable. And most importantly of all, illegal.

So they sued. (Welcome to the good, ol’ U.S. of A.!)

To this day, I still don’t know who won and who lost. I’ve heard conflicting stories on the outcome of this case.

Either way, the final result was the same:

Home owners were NO longer forced to pay for a clubhouse membership through their HOA.

This was the primary business decision which began to drown the clubhouse’s profit and loss statement in a sea of red ink.

Numerous families cancelled their memberships.

They didn’t use the gym. Didn’t lounge at either pool. And didn’t desire a run-of-the-mill massage (which of course, costs extra).

They didn’t perceive enough value in the offering to constitute an $87 monthly payment.

In their eyes, it wasn’t worth the money—especially in the last couple years:

  • The outdated gym equipment has suffered severe wear-and-tear and is quite limited in scope…
  • The tiny workout classroom can’t contain more than 10 attendees without your personal space being invaded by someone else’s flailing arms, kicking legs or flying sweat…
  • The outdoor basketball hoops are both bent, don’t reach regulation height of 10 ft, and are fastened to a sun-faded, cracked layer of concrete due for immediate replacement…
  • The inadequate air conditioning in the upstairs gym struggles to compete with the hot & humid summer air of North Carolina…
  • And worst of all is the on-going debacle with the clubhouse cafe. This unique, indoor/outdoor space nestled next to the exterior pool is bursting with potential. Yet, since we moved here almost 4 years ago, at least five different food concepts have been attempted in this location. Every single one has failed.

It’s no wonder many families shredded up their membership cards.

They now perceive just as much value from the nostalgic Blockbuster card concealed in the nether regions of their wallets and purses.

Members are vanishing. Profits are dropping. The increasing difference between revenues and costs need to be reversed—and fast.

There now seems to be only one option left for survival…

A Misinformed, Revenue-Killing Price Increase For Families & Retirees

With one, letterhead-topped memo written in passive, take-no-responsibility, corporate-speak, the new cost of entry into the clubhouse was set.

The price for homeowners was increased from $87/month to a staggering $112 (and $150 for non-residents).

For you non-math majors, that’s a one-time 28.7% increase.

Remember, this is not the New York Athletic Club or The ESPA at Ritz-Carlton.

It’s a neighborhood amenity in a small, North Carolina town where local natives still reminisce about their successful moonshine enterprises as if prohibition was overturned last week.

Many families with multiple kids and retirees on fixed incomes live in this community. They can’t afford to pay $112 per month. Or more accurately, they are not willing to pay $112 because they don’t perceive that much value in the product.

What was the ultimate result of this misinformed price increase?…

A mass exodus of members. One which would even impress the likes of Moses.

300 households burned their membership cards in protest the first weekend.

(OK, most probably didn’t burn them, but I believe a few did. My neighbors are sick and tired of this clubhouse fiasco.)

The leadership of this sinking ship overshot the price.

It’s ironic, because in their official memo, they stated:

“We’ve performed market research in the local area and determined this price increase is comparable to all other options available…”

Well, your market just proved the exact opposite. It’s a hard truth, but consumers don’t care about your costs. They just want value for their money.

And you zapped much of it away with one, misguided pricing decision.

Yet, based on their horrific social media communication, they seem to feel justified in their choice.

Their recent social media sh*tshow would rival any Twitter spat our current president has ever instigated.

On both Facebook and the NextDoor App, my neighbors voiced their shared concerns. And yes, it was not all pleasant. Quite a few comments were downright nasty.

How do the so-called clubhouse “public relations experts” respond?…

Indifference and resentment.

Their initial post about the price increase was heartless. They just uploaded a picture of their corporate-speak letter without even making an attempt at authentic communication. Zero sympathy. Zero understanding.

They then deleted every negative comment, and ultimately, the entire thread. This was after they responded with their own choice words of hostility.

The perceived value of the club continued to be chiseled away with every tactless word they typed on the screen.

LESSON OF THE STORY: How Car Brands & Lobsters Can BOOST The Perceived Value Of Your Product Or Service

This is the part of the story when I’m supposed to turn the negative to positive. Lemons into lemonade. Deliver you a happy ending to this sad saga.

I can’t.

We’re still trekking toward the climax of this lesson-filled adventure.

And frankly, I don’t think the leadership of this clubhouse will ever choose to understand the realities of the local marketplace.

They only see the value of their product through their own eyes, not their customers’. That’s a huge mistake.

One which you don’t have to make in your own business.

There are a plethora of well-known businesses who excel at elevating perceived value in the pursuit of maximum profits.

Just consider the various car brands sold in the United States.

Many are owned by the same few companies and you would never know this unless you hunted down the information.

The marketing wizards at these motor-driven behemoths know how to strategically position the perceived value of each brand to match the desires, incomes and expectations of various market segments.

For instance, did you know?…

  • Volkswagen owns Audi, Bentley, and Porsche?…
  • Toyota owns Lexus?…
  • Tata Motors (producer of the world’s cheapest car) owns Jaguar and Land Rover?…
  • BMW own Rolls-Royce?…
  • Fiat Chrysler owns Alfa Romeo and Maserati?…

Same people, same companies, different perceived value.

How you can you position your brand and product offerings in such a precise manner?

You just need to look to the lobster. Yeah, that’s right. I said lobster.

Don’t take my word for it. This is according to the well-informed marketing brain trust at Hubspot.

Lobster was once a considered a cheap, second-class food fit only for servants, prisoners, and Little Fluffernutter, your household cat.

So how did this common crustacean turn into a high-priced delicacy reserved for special occasions and restaurants with valet parking and white tablecloths?

Answer: Scarcity and clever re-branding. (Plus, it tastes delicious and lives up to the hype.)

Take a gander at Hubspot’s “Perception of Value” infographic below:

It’s now official. My neighborhood clubhouse missed the mark of perceived value for a majority of our local marketplace.

For me? I’m sticking with it for now. The convenience of a 1-minute morning drive to the gym is worth the price increase. (Based on the value of my personal time.)

However, most of my neighbors don’t feel the same way. And they have displayed their disdain with their wallets.

Always remember: The difference between the real value of your products (cost) and what customers are willing to pay (perceived value) is your profit.

More perceived value = more profit. That’s why companies like Apple tend to drown in a sea of cash.

Enough people are willing to pay a premium to sport that once-bitten Apple logo around town.

Now how can you cultivate the same perceived value in your business?

Just consult with the luxurious lobster to find out.

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Ryan Colby

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A faith-driven family man, founder and fitness addict all rolled up into one pasty white burrito. | Co-Founder, Get Lean In 12

The Startup

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